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This chapter refers to changes brought about by the enactment of the 2023 Finance Act, which was assented on 26 June 2023. On 31 July 2024, the 2023 Finance Act was declared unconstitutional by the Court of Appeal in Kenya. An appeal was filed against this judgment at the Supreme Court of Kenya. Currently, the 2023 Finance Act is still in force because stay orders were granted by the Supreme Court. Because the outcome of the appeal will have an implication on the applicability of the 2023 Finance Act, readers should obtain updated information before taking any actions.
The 2024 Finance Bill was not assented into law and accordingly Kenya does not have a 2024 Finance Act.
A. Income tax
Who is liable. Individuals are subject to income tax on employment earnings if they meet either of the following conditions:
• They are resident during the time of employment, regardless of whether their duties are performed within or outside Kenya.
• For nonresidents, their employer is resident or has a permanent establishment in Kenya.
An individual is considered resident in Kenya if he or she has no “permanent home” in Kenya and is present in Kenya for 183 days or more during a fiscal year or for an average of more than 122 days in that year and in the two preceding years. If an individual has a “permanent home” in Kenya and spends any time in Kenya, he or she is considered resident. “Permanent home” is defined as a place where an individual resides or which is available to that individual for residential purposes in Kenya or where, in the opinion of the Commissioner of Domestic Taxes, the individual’s personal or economic interests are closest. It is irrelevant for tax purposes where an employment contract is signed or remuneration is paid.
Income subject to tax
Employment income. Employment income includes directors’ fees, all cash remuneration and allowances, and almost all noncash benefits arising from employment. Taxable benefits arising from employment include the following:
• Housing. The taxable benefit from employer-provided housing equals the higher of rent paid by the employer or 15% of employment income excluding the value of housing premises. If the
premises are provided under an agreement with a third party that is not at arm’s length, the benefit is valued at the higher of the fair market rental value of the premises or the rent paid by the employer. If the employer owns the premises, the benefit is taxed at the fair market rental value of the premises.
• Education. Education fees paid by employers for their local or expatriate employees’ relatives are taxable to the employee if the employer has claimed the fees as a tax deduction.
• Motor vehicles. The value of the benefit of an employerprovided motor vehicle is the higher of 2% per month of the initial capital expenditure by the employer on the car or prescribed rates provided by the Commissioner General, depending on the engine capacity. If an employee is provided with a leased or hired car, the taxable benefit is the cost of lease or hire of the vehicle. For employees who have restricted use of motor vehicles, the Commissioner General determines a lower rate of the benefit depending on the usage of the motor vehicle if the Commissioner General is satisfied based on proof provided by the employer that use of the motor vehicle is restricted.
• Furniture. The taxable value of a furniture benefit provided by an employer equals 1% of the cost to the employer.
• Loans. The benefit from employer loans is taxable to the employer as fringe benefit tax for loans granted after 11 June 1998 and for loans granted before that date if the terms or conditions of the loan have been changed since 11 June 1998. The tax is imposed on the benefit at the resident corporate tax rate of 25% (from 25 April 2020) and 30% (for subsequent years) and is payable by the 10th day of the month following the imposition of the tax by the employer. For loans granted on or before 11 June 1998, the benefit is taxable to the employee as a low interest rate benefit. The benefit is valued at the difference between the interest rate on the employer’s loan and the rate prescribed by the Commissioner General. The Commissioner General provides the rate on a quarterly basis.
• Employer-provided stock options. The value of the benefit from employer-provided stock options, whether registered or not registered, is the difference between the market value per share at exercise and the offer price per share on the date on which the option is granted by the employer. The benefit is deemed to accrue to the employee at exercise. Market value is the price at the time the employee exercises the option if the shares are listed on any Kenyan securities exchange or the price the shares are anticipated to receive at the time of exercising the option if the shares are not listed.
• Club fees. Club entrance and subscription fees paid by the employer on behalf of the employee if the employer deducts those fees in calculating taxable income (effective from 1 July 2023).
Specific exemptions include the following:
• The cost of medical services or medical insurance borne by the employer on behalf of full-time employees or their beneficiaries. Medical insurance should be provided through an insurance company that is approved by the Commissioner of Insurance in Kenya.
• Employer contributions to accredited pension or provident fund schemes if the employer is subject to tax in Kenya.
owner of a digital platform must register under the simplified tax regime. Under the simplified tax regime, taxpayers are not required to keep records of expenditures and purchases because tax is based on the turnover. They are only required to keep sales records.
Capital gains. Effective from 1 January 2015, Capital Gains Tax (CGT) applies to gains derived by companies and individuals from the transfer of property located in Kenya regardless of whether the property was acquired before 1 January 2015. CGT is also applicable to gains derived from the alienation of shares or comparable interests, including interests in a partnership or trust, if, at any time during the 365 days preceding the alienation, the shares or the comparable interest derived more than 20% of their value directly or indirectly from immovable property located in Kenya. CGT also applies to gains derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the 365 days preceding such alienation, held directly or indirectly at least 20% of the capital of that company. The person alienating shares should notify the Commissioner General in writing when there is a change of at least 20% in the underlying ownership of the property. Effective from 1 January 2023, the rate is 15%. The gain equals the amount by which the transfer value exceeds the adjusted cost of the property. The adjusted cost equals the sum of the acquisition cost of the property and other costs incurred subsequently to enhance or preserve the property if such costs had not been previously allowed for tax purposes. Effective from 1 January 2016, gains on transfers of securities traded on a securities exchange are not taxable.
Also, see Stamp duties in Section B.
Deductions and reliefs. An individual not resident in Kenya for tax purposes is not entitled to any tax relief. Expatriate employees of accredited regional offices of foreign corporations who spend at least 120 days during the fiscal year working outside Kenya may deduct one-third of their total income.
Deductible expenses. Individuals may deduct the following expenses in computing taxable income:
• Contributions to a registered pension or provident fund, up to a maximum of KES240,000 per year
• Interest, up to a maximum of KES300,000 per year, on borrowings to finance the purchase of owner-occupied residential property
Reliefs. Resident taxpayers are granted the following reliefs against tax payable:
• Personal relief in the amount of KES28,800 per year.
• Insurance relief (including education and health insurance) in the amount of 15% of premiums paid, up to a maximum relief of KES60,000 per year. Effective from 1 January 2022, National Hospital Insurance Fund (NHIF) contributions will also qualify for insurance relief.
• Affordable housing relief of 15% of an employee’s contribution, up to a maximum relief of KES108,000 per year.
• Postretirement medical fund relief of 15% of an employee’s contribution to a postretirement medical fund, up to a maximum relief of KES60,000 per year, effective from 1 January 2024.
Business deductions. In general, expenses are not deductible unless incurred wholly and exclusively to produce taxable income.
Beginning 1 January 2024, expenses that are not supported by invoices generated from the Electronic Tax Invoice Management System (eTIMS) will not be deductible, except when an exemption has been granted under the Tax Procedures Act.
Accounting depreciation is not deductible, but capital allowances are tax deductible. A first-year investment deduction of 50% of qualifying expenditure on the following is allowed:
• Manufacturing premises
• Plant
• Electric power generating projects with capacity to transform and distribute electricity
• Hotel buildings
• Farm works
The 2021 Finance Act revised the investment deduction to 100%, effective from 1 January 2022. The following are the conditions for the revised deduction:
• The cumulative investment in the preceding three years for investment outside Nairobi and Mombasa Counties is worth at least KES2 billion. If the cumulative value of the investment for the preceding three years of income was KES2 billion on or before 25 April 2020 and the applicable rate of investment deduction was 150%, that rate shall continue to apply for the investment made on or before the 25 April 2020.
• The investment value outside Nairobi City County and Mombasa County in the year of income is at least KES250 million.
• The person has made an investment in a special-economic zone (SEZ).
An accelerated investment deduction of 150% also applies on capital expenditure of at least KES5 billion incurred on the construction of bulk storage and handling facilities for supporting Standard Gauge Railway operations. This deduction is extended to individuals who incur the expenditure on or before 31 December 2023. Effective from 1 July 2022, the accelerated investment deduction of 150% also applies to cumulative investment value for the preceding four years from 1 July 2022 or the cumulative investment for the succeeding three years outside Nairobi City County or Mombasa County, if the cumulative investment is at least KES2 billion.
Capital allowances are available under the straight-line method for other industrial buildings and hotels on the amount remaining after subtracting the investment deductions, at the following rates:
• 25% for manufacturing
• 10% for commercial buildings, which include buildings used as an office, shop, showroom, godown (warehouse), storehouse or warehouse used for storage of raw materials for the manufacturing of finished or semi-finished goods
• 25% for hotel buildings
• 10% for hostels and buildings used for educational and training purposes
New NSSF legislation (the NSSF Act 2013) was enacted on 24 December 2013 to replace the NSSF Act Cap 258. The new legislation was scheduled to take effect on 31 May 2014, but the effective date for the legislation was delayed due to legal suits in courts. The Court of Appeal on 3 February 2023 delivered a judgment upholding the legality of the act. The employer and the employee are each required to contribute 6% of the employee’s monthly pensionable earnings, subject to maximum contribution of KES2,160 for employees earning more than KES18,000 per month. Contributions into the scheme are divided into Tier I and Tier II categories. All Tier I contributions are remitted to NSSF while Tier II contributions are made to either the NSSF or a registered private pension scheme of which the employee is a valid member. The rates may change year from year to year.
Before 1 April 2015, individuals earning more than KES1,000 per month were required to contribute to the National Hospital Insurance Fund (NHIF). The monthly contributions depended on the level of income and ranged from KES30 per month to KES320. Effective from 1 April 2015, individuals are required to contribute NHIF at rates on a graduated scale with the lowest contribution being KES150 and the highest contribution being KES1,700. The Social Health Insurance Fund (SHIF) is expected to come into operation with effect from 1 October 2024 as a replacement for the NHIF. The contributions to SHIF are set at 2.75% of the employee’s earnings. At the time of writing, there was a court case challenging the validity of the SHIF Act.
Effective from 1 July 2023, the employer and employee must each make a monthly contribution to the Affordable Housing Levy at a rate of 1.5% of the employee’s gross salary. Through a public notice, the Kenya Revenue Authority clarified that gross monthly salary constitutes basic salary and regular cash allowances. The regular allowances include housing, travel or commuter and car allowances as well as any regular cash payments but excludes noncash payments as well as income not paid regularly, such as leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues and benefits. The levy should be remitted to the Commissioner General by the ninth day of the following month. The Affordable Housing Levy is provided for under The Affordable Housing Act, which was assented into law on 19 March 2024. This act provides for monthly contributions at a rate of 1.5% of the employee’s gross salary with matching contributions from the employer.
D. Tax filing and payment procedures
Employee withholding. For employees, tax is withheld at source under the Pay-As-You-Earn (PAYE) system. PAYE should be remitted to the Commissioner General on or before the ninth day of the following month.
Withholding tax. Starting 1 July 2023, withholding tax from eligible payments must be remitted to the Commissioner General within five working days after withholding, a change from the previous due date of the 20th day of the following month.
Installment tax. Individuals who have income other than employment income must pay estimated tax in four equal installments
during the financial year. The payments are due on the 20th day of the fourth, sixth, ninth and twelfth months.
Individuals with no income other than employment income that is taxed at source are not required to pay installment tax. Individuals whose total annual tax payable does not exceed KES40,000 are also exempt from paying installment tax, but are required to pay the tax balance.
Final returns. Individuals in Kenya are required to file a selfassessment return by 30 June of the subsequent year.
Assessment. A taxpayer may be assessed further after a selfassessment return is filed. However, for most taxpayers, the selfassessment is final.
Married couples. Starting 1 July 2023, married women will no longer be able to aggregate their income with their husbands’ income as they did in the past; instead, they must file their own self-assessment returns.
E. Double tax relief and tax treaties
Foreign taxes paid on similar income may be claimed as a tax credit if the double tax treaty provisions are satisfied. Kenyan citizens working outside Kenya are allowed a tax credit for foreign tax paid on the following types of income earned outside Kenya:
• Income from employment
• Income earned by artists and sportsmen
Kenya has entered into double tax treaties with the following countries.
Canada
Korea (South) Sweden
Denmark Norway United Arab
France Qatar Emirates
Germany Seychelles United Kingdom
India
Iran
South Africa Zambia
In general, the treaties above provide that foreign income taxes may be offset against equivalent Kenyan taxes payable on the same income.
F. Electronic Travel Authorisation and passes
Electronic Travel Authorisation. All visitors, including infants and children, who intend to travel to Kenya must have an approved Electronic Travel Authorisation (eTA) before the start of their journey.
Individuals who are exempt from obtaining the eTA include the following:
• Holders of valid Kenya passports or one-way Emergency Certificates issued by Kenya missions abroad.
• Holders of Kenya permanent residence.
• Holders of valid work permits and passes.
• Holders of a valid United Nations (UN) Convention Travel Document issued by the government of Kenya.
• Members of the diplomatic missions and international organizations accredited to Kenya (exempt from payment only).
• Class R, which is issued to a person who is a citizen of a Member State of the East African Community, who is not a prohibited immigrant and who intends to reside, engage in employment, an activity, business or trade or engage in any prescribed profession and whose presence will be of benefit to Kenya.
The permits are issued only to persons whose employment, business or presence will benefit the country.
A foreign national wishing to carry out business in Kenya must obtain the necessary licenses and registrations required and must have sufficient capital or resources for investment.
The government is gradually putting into operation the additional classes of permits.
H. Residence permits
Foreign nationals wishing to reside permanently in Kenya must apply for permanent residence. To obtain permanent residence, foreign nationals must satisfy the requirements contained in the Kenya Citizenship and Immigration Act.
The Permanent Residence section of the Kenya Department of Immigration issues permanent residence certificates to qualified applicants.
I. Family and personal considerations
Vaccinations. Individuals entering Kenya must have International Immunization Certificates.
Family members. Family members of entry permit holders are entitled to dependents’ passes. Dependents’ passes are issued to spouses and children below 21 years of age. Any dependent wishing to take up employment must obtain a separate work or entry permit.
Marital property regime. Kenyan law does not provide for a community property or a similar marital property regime.
Driver’s permits. Foreign nationals with international driver’s licenses or driver’s licenses issued in a British Commonwealth country may drive in Kenya for a maximum period of 90 days. Foreign nationals living in Kenya for longer than 90 days must obtain Kenyan driver’s licenses.
Holders of international driver’s licenses or licenses issued in British Commonwealth countries may obtain Kenyan driver’s licenses on application.