TAX IMPLICATIONS ON FRANCHSES.According to the Kenya Revenue Authority(KRA),franchises are taxed in accordance to the earnings of the franchisee .Apercentage of the tax can also arise from different types of fees for instanceconsultancy and management fees.
(According to Catherine Malinda US COMMERCIALSERVICE)According to (WWW.abusinessfranchise.co.uk)There are various types of taxes paid by franchises INCOME TAX.This is a type of tax paid from any income earned byworkers.
That means that the franchisees pay a certain amount of tax if he/sheearns a certain minimum amount set by the revenue authorities. Franchises aresubject to taxation any income accrued in Kenya CORPORATION TAXCorporation tax is mainly a tax system that is usedby public limited companies .When franchises decide to take the format of thelimited companies they ought to pay corporation tax.
VALUE ADDED TAXThis is a type of tax that is normally imposed ongoods. It is a direct form of taxation .In the United kingdom, franchises arecompelled to collect value added tax from their customers incase their incomeexceeds 81000 pounds.
This happens to be a legal requirement and is strictlyadhered to.Tax implications happen to vary from country tocountry or franchise to franchise. WITHHOLDING TAX ON ROYALTIESIn the franchise system the franchisor earnsroyalties for the brand, which are subject to tax under the Kenyan law. It istherefore the franchisees obligation to withhold the same and to remit it tothe Kenya Revenue Authority.
The withholding tax rates according to the KenyaRevenue Authority is 5% for resident companies and 20% for non-residentcompanies.In the franchise system the franchisor earns royalties for the PROFIT SHARING IN FRANCHISES.(www.
quora.com)The franchiser has a duty to ensure that the profitearned by the franchisee can benefit him/her and that the royalties receivedensure continuity of the franchise.The franchisers may at times keep a certainpercentage of net sales and royalties to themselves.In other cases thefranchiser pays an amount to protect the franchisee against any riskspending.