TAX IMPLICATIONS ON FRANCHSES.
According to the Kenya Revenue Authority(KRA),
franchises are taxed in accordance to the earnings of the franchisee .A
percentage of the tax can also arise from different types of fees for instance
consultancy and management fees.(According to Catherine Malinda US COMMERCIAL
According to (WWW.abusinessfranchise.co.uk)
There are various types of taxes paid by franchises
This is a type of tax paid from any income earned by
workers. That means that the franchisees pay a certain amount of tax if he/she
earns a certain minimum amount set by the revenue authorities. Franchises are
subject to taxation any income accrued in Kenya
Corporation tax is mainly a tax system that is used
by public limited companies .When franchises decide to take the format of the
limited companies they ought to pay corporation tax.
This is a type of tax that is normally imposed on
goods. It is a direct form of taxation .In the United kingdom, franchises are
compelled to collect value added tax from their customers incase their income
exceeds 81000 pounds. This happens to be a legal requirement and is strictly
Tax implications happen to vary from country to
country or franchise to franchise.
WITHHOLDING TAX ON ROYALTIES
In the franchise system the franchisor earns
royalties for the brand, which are subject to tax under the Kenyan law. It is
therefore the franchisees obligation to withhold the same and to remit it to
the Kenya Revenue Authority. The withholding tax rates according to the Kenya
Revenue Authority is 5% for resident companies and 20% for non-resident
companies.In the franchise system the franchisor earns royalties for the
PROFIT SHARING IN FRANCHISES.
The franchiser has a duty to ensure that the profit
earned by the franchisee can benefit him/her and that the royalties received
ensure continuity of the franchise.
The franchisers may at times keep a certain
percentage of net sales and royalties to themselves.In other cases the
franchiser pays an amount to protect the franchisee against any risks