Kenya

Country Name: Republic of Kenya
Currency: Kenyan Shilling (KES)
Primary Tax Authority: Kenya Revenue Authority (KRA)
Key Legislation:

Income Tax Act
Value Added Tax (VAT) Act
Excise Duty Act
Tax Procedures Act
Investment Promotion Act

Fiscal Authority Allocation

Centralized Fiscal System:
Kenya operates a centralized tax system. The Kenya Revenue Authority (KRA) is responsible for the administration and collection of taxes, including corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and customs duties. Local governments also impose some minor taxes and levies.

Corporate Income Tax (CIT)

Standard Rate: 30% for resident companies; 37.5% for branches of foreign companies
Kenya imposes a flat corporate income tax rate of 30% on resident companies. Branches of non-resident companies are subject to a higher rate of 37.5% on Kenya-sourced income.

Corporate Forms and Taxation:

Resident Companies: Taxed on worldwide income.
Non-Resident Companies: Taxed only on Kenya-sourced income.

Exemptions and Incentives:

Investment Incentives: The Investment Promotion Act offers incentives such as tax holidays, CIT reductions, and customs duty exemptions to companies investing in priority sectors such as agriculture, manufacturing, energy, and tourism. The Special Economic Zones Act provides further tax relief for companies in designated areas.
Export Processing Zones (EPZs): Companies operating in EPZs benefit from a 10-year CIT holiday, followed by a reduced rate of 25% for the next 10 years, VAT exemptions, and customs duty exemptions on imported inputs.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 16%
Kenya imposes VAT at a standard rate of 16% on most goods and services. VAT is applicable to domestic production and imports.

Reduced Rates:
A reduced VAT rate of 8% applies to petroleum products.

Exemptions:
Certain essential goods and services, including unprocessed foodstuffs, healthcare, education, and financial services, are VAT-exempt. Exports are zero-rated, allowing businesses to claim refunds on VAT paid on inputs.

Personal Income Tax (PIT)

Progressive Rates:
Kenya applies a progressive personal income tax system to residents’ worldwide income and non-residents’ Kenya-sourced income.

Resident Tax Rates for 2023 (Annual Income):

Up to KES 288,000: 10%
KES 288,001 to KES 388,000: 15%
KES 388,001 to KES 488,000: 20%
Above KES 488,000: 30%

Non-Resident Tax Rate:
Non-residents are subject to a flat 30% withholding tax on Kenya-sourced income.

Deductions and Allowances:
Allowable deductions include contributions to pension schemes, mortgage interest, and charitable donations. Personal reliefs are also available to resident taxpayers.

Additional Mandatory Contributions

National Social Security Fund (NSSF):
Employers and employees must contribute to the NSSF, which provides retirement benefits.

Employer Contribution: 6% of gross salary, capped at a certain amount.
Employee Contribution: 6% of gross salary, capped at a certain amount.

National Hospital Insurance Fund (NHIF):
Both employers and employees contribute to the NHIF, which covers healthcare services.

Withholding Taxes

Dividends: 5% for residents, 10% for non-residents
Interest: 15% for residents, 15% for non-residents
Royalties: 20%
Kenya imposes withholding taxes on payments to non-residents, including dividends, interest, and royalties. These rates may be reduced under Kenya’s double taxation agreements (DTAs).

Transfer Pricing Rules

Kenya follows the arm’s-length principle for transactions between related parties. Transfer pricing documentation is required for companies with cross-border transactions. The KRA has issued detailed guidelines on how to apply the arm’s-length principle, including specific documentation requirements.

Special Tax Regimes

Export Processing Zones (EPZs): Companies operating in EPZs enjoy a 10-year CIT holiday, a reduced CIT rate of 25% for the next 10 years, and exemptions from VAT and customs duties on imported inputs.
Special Economic Zones (SEZs): Companies operating in SEZs benefit from a reduced CIT rate of 10% for the first 10 years, VAT exemptions, and customs duty relief on imported goods.

Other Taxes

Customs Duties: As a member of the East African Community (EAC), Kenya applies customs duties based on the EAC Common External Tariff. Rates range from 0% to 25%, depending on the type of goods.
Excise Taxes: Excise taxes are levied on goods such as alcohol, tobacco, petroleum products, and luxury items. Rates vary depending on the product.
Property Tax: Property tax is levied by local governments based on the market value of land and buildings.

Double Taxation Agreements (DTAs)

Kenya has signed several double taxation agreements (DTAs) with countries such as the United Kingdom, India, Canada, South Africa, and Mauritius. These agreements help reduce withholding taxes on cross-border income and prevent the double taxation of income earned in Kenya and other jurisdictions.

Local Taxes

Local governments in Kenya impose various minor taxes, including property rates, business license fees, and service levies. However, most major taxes, such as CIT, PIT, and VAT, are centrally administered by the Kenya Revenue Authority (KRA).

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by the last day of the sixth month following the end of the company’s financial year. Personal income tax returns are generally due by June 30th. VAT returns are filed monthly or quarterly, depending on the size of the business.

Penalties for Late Filing:
Penalties for late filing or non-compliance include fines and interest on unpaid taxes. Interest is charged at 1% per month on overdue tax amounts, with additional penalties for tax evasion or underreporting income.

Recent Developments

Digital Services Tax (DST):
Kenya has introduced a 1.5% digital services tax on income earned by non-resident companies from the provision of digital services. This tax applies to e-commerce platforms, online advertising, and other digital services consumed in Kenya.

Infrastructure Development:
To attract investment in infrastructure projects, particularly in transportation and energy, the government offers tax incentives, including CIT holidays and customs duty reductions on imported construction materials and equipment.

Green Energy and Sustainability:
Kenya is promoting investment in renewable energy, particularly in geothermal, wind, and solar power projects. Tax incentives, including CIT holidays, VAT exemptions, and customs duty reductions, are available for companies investing in renewable energy infrastructure.

Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.