(a) A gain on the transfer of securities traded on any securities exchange licensed by the Capital Markets Authority is exempt from capital gains tax (CGT). Gains derived from the transfer of property by an insurance company other than property connected to life insurance business is subject to CGT. Effective 1 January 2023, the tax charge on capital gains is 15%.
(b) This rate applies to dividends paid to nonresidents. A 5% rate applies to dividends paid to residents or citizens of other states in the East African Community.
(c) This rate applies to payments to residents and nonresidents. However, a 25% withholding tax rate applies to interest arising from bearer instruments. In addition, a 5% withholding tax applies to interest paid by any Special Economic Zone enterprise, developer or operator to a nonresident person.
(d) This rate applies to payments to nonresidents. A 5% withholding tax is imposed on royalties paid to residents.
(e) This rate applies to payments to nonresidents. For insurance commissions paid to residents, a 5% withholding tax rate applies to payments to brokers and a 10% rate applies to payments to others. The following commissions are exempt from withholding tax:
• Commissions paid to nonresident agents with respect to flower, fruit or vegetable auctions
• Commissions paid by resident air transport operators to nonresident agents to secure tickets for international travel
• Commissions or fees paid or credited by insurance companies to other insurance companies
(f) This rate applies to management, professional and training fees paid to nonresidents. However, for consultancy fees, payments to citizens of other East African Community countries are subject to a reduced withholding tax rate of 15%. For residents, management, professional and training fees are subject to a withholding tax rate of 5%. The resident withholding tax rate for contractual fee payments is 3%. For management, training or professional fees paid by contractors in the petroleum industry to nonresident persons, the rate is 12.5%.
(g) Payments made by film agents and film producers approved by the Kenya Film Commission to approved actors and crew members are exempt from withholding tax.
(h) This withholding tax applies only to payments to nonresidents. The withholding tax rate applicable to payments made to resident persons as rent, premium or similar consideration for the use or occupation of immovable property is 10%.
(i) This rate applies to rent paid to nonresidents under leases of machinery and equipment. Rent paid to residents under leases of machinery and equipment is exempt from withholding tax. In addition, leasing of aircrafts, aircraft engines, locomotives or rolling stock is exempt from withholding tax.
(j) The net gain derived on the disposal of an interest in a person is taxable as business income if the interest derives 20% or more of its value directly or indirectly from immovable property in Kenya.
(k) This rate applies to payments to nonresidents. A 5% withholding tax is imposed on natural resource royalties paid to residents.
(l) This rate applies to payments to nonresidents. A 20% withholding tax is imposed on winnings paid to residents.
(m) This rate applies to payments to nonresidents. Insurance or reinsurance premiums paid for insurance for aircraft are exempt from withholding tax.
an exemption from capital gains tax applies if a transfer of property is necessitated by a transaction involving the restructuring of a corporate entity or a legal or regulatory requirement, subject to specific conditions.
Gains by partnerships now subject to CGT. Gains on transfer of property that is located in Kenya and that is owned by partnerships are now within the ambit of CGT.
CGT exemption limit on group reorganization. CGT exemption on internal reorganizations is limited to groups that have existed for at least 24 months where there is no transfer to a third party.
CGT due date. The due date for CGT payment is the earlier of receipt of full purchase price by the vendor or registration of the transfer.
CGT on indirect transfers. Gains derived from the transfer of shares of a company resident in Kenya are now taxable if the transferor/seller at any time during the 365 days preceding such transfer held directly or indirectly at least 20% of the capital of that company. The transferor/seller shares should notify the Commissioner of Income Tax in writing if there is a change of at least 20% in the underlying ownership of the property.
Dividends. Dividends paid to resident companies are exempt if the recipient controls at least 12.5% of the distributing company’s voting power. Taxable dividend income is subject to a final withholding tax of 15% for nonresidents and 5% for residents.
Compensating tax arises when a company pays dividends from untaxed gains or profits. The company is charged compensating tax at the corporate tax rate of 30% on the gains or profits from which such dividends are distributed. However, compensating tax does not apply to income that is exempt under the domestic tax law.
Foreign tax relief. Relief for foreign taxes paid is granted in accordance with tax treaties with other jurisdictions. Foreign tax paid to a jurisdiction that does not have a tax treaty with Kenya qualifies as a tax-deductible expense in Kenya if the associated income is deemed to be accrued in Kenya.
C. Determination of trading income
General. Taxable income is accounting income adjusted for nontaxable income, such as dividends and capital gains, and for nondeductible expenses such as depreciation. Expenses are deductible if incurred wholly and exclusively in the production of income.
Inventories. The normal accounting basis of the lower of cost or net realizable value is generally accepted for tax purposes. In certain circumstances, obsolescence provisions may be challenged.
Provisions. Provisions included in computing financial accounting income are generally not deductible for tax purposes.
Tax depreciation. Depreciation charged in the financial statements is not deductible for tax purposes. It is replaced by tax
Nature of tax Rate (%)
giving effect to the new Act, which increases the maximum contribution from KES200 to KES1,080 for employers and employees.) Digital services tax; payable by a nonresident person whose income from the provision of services is derived from or accrues in Kenya through a business carried out over the internet or an electronic network, including through a digital marketplace (online or electronic platform that enables users to sell or provide services, goods or other property to other users) 1.5
E. Miscellaneous matters
Foreign-exchange controls. The Central Bank of Kenya imposes certain foreign-exchange regulations.
Transfer pricing. The transfer-pricing rules include measures regarding the following matters:
• Entities and transactions to which the rules apply
• Methods that may be used to determine arm’s-length prices
• Records regarding transactions that must be maintained
The methods for determining arm’s-length prices are consistent with those approved by the Organisation for Economic Co-operation and Development.
Mutual administrative assistance. Kenya has now included mutual administrative assistance in the ambit of multilateral agreements relating to international tax compliance that will have effect in Kenya as stipulated in such agreements. Kenya has also introduced a mechanism for the recovery and collection of tax claims by the Commissioner of Income Tax, subject to a request by the competent authority of a party to the international tax agreement.
Country-by-Country Reporting. Kenya signed the Multilateral Competent Authority Agreement for exchange of Country-byCountry Reports (CbC MCAA) in an effort to automate the exchange of information with competent authorities in other jurisdictions and, accordingly, to foster transparency in the operations of Multinational Enterprises (MNEs)
Effective July 2022, the KRA imposed the following requirements for MNEs that have a group turnover of KES95 billion or more, regardless of whether or not the ultimate parent company is in Kenya:
• They must file with the KRA a Country by Country (CbC) Reporting Notification on or before the last day of the entity’s financial year end (that is, 31 December 2022).
• They must prepare and file Local and Master Files on or before the end of the sixth month following the entity’s financial year end (that is, 30 June 2023).
• They must file a Country by Country Report (CbCR) on or before the last day of the 12th month following the group’s year end (that is, 31 December 2023).
For some MNEs, there is an exemption from the filing of a CbCR if the Ultimate Parent Entity is filing in a country that has a
CbCR information exchange agreement with Kenya such as the CbC MCAA. However, the entity is still required to file the CbC Reporting Notification, Master File and Local File.
Interest restriction. Interest expense for both locally and foreign controlled entities is restricted to 30% of earnings before interest, tax, depreciation and amortization (EBITDA). Therefore, any interest expense above 30% of the EBITDA is disallowed for corporation tax purposes.
In the determination of EBITDA, exempt income is excluded. In addition, interest consists of interest on all loans, all payments equivalent to interest and expenses incurred to raise the financing.
The following local entities are not subject to the 30% EBITDA interest restriction:
• Banks or financial institutions licensed under the Banking Act
• Micro and small enterprises registered under the Micro and Small Enterprises Act, 2012
F. Treaty withholding tax rates
The withholding tax rates under Kenya’s tax treaties are listed below. If the treaty rate is higher than the non-treaty rate, the nontreaty rate applies.
(a) Interest paid by the government and the Central Bank of Kenya is tax exempt.
(b) The rate is 12.5% for management and professional fees.
(c) No Kenya tax is due if the dividend is subject to tax in Zambia.
(d) The withholding tax rate is 15% for consultancy fees paid to residents of other East African Community countries.
(e) A 10% rate applies to royalties.
(f) The rate is 8% for beneficial owners with a shareholding of at least 25%.
(g) The rate is 5% for beneficial owners with a shareholding of at least 10%.
(h) No Kenyan tax is due if the income is subject to tax in Zambia.