Kenya Personal Income Tax

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.

Who is liable. 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 time in Kenya, he or she qualifies as resident.

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 and almost all cash and non-cash remuneration, allowances and benefits arising from employment. Taxable benefits arising from employment include the following:

  • 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 fees paid by employers to their local or expatriate employees’ relatives are taxable for income tax pur­poses if the employer has claimed the fees as a tax deduction.
  • Motor vehicles. The value of the benefit of an employer- provided motor vehicle is the higher of 2% per month of the initial capital expenditure by the employer on the car or the actual cost to the employer. 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 of Income Tax determines a lower rate of the benefit depending on the usage of the motor vehicle if the Commissioner is satisfied based on proof provided by the employer that use of the motor vehicle is restricted.
  • The taxable value of a furniture benefit provided by an employer equals 1% of the cost to the employer.
  • 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 30% 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 of Income Tax.
  • Employer-provided stock options. The value of the benefit from employer-provided stock options under a scheme that is regis­tered with the Commissioner of Income Tax as a collective-investment scheme, as defined by the Capital Markets Authority Act, is the difference between the market value per share 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 the end of the vesting period. If the equity scheme is not registered, the taxable benefit is the higher of the cost to the employer or the fair market value.

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.
  • Withdrawal benefits from a pension or provident fund. The limit is KES60,000 for each year worked, up to a maximum of KES600,000.
  • The first KES300,000 of annual pension income.
  • Refunds of National Social Security Fund contributions plus interest. The limit is KES60,000 for each year worked, up to a maximum of KES600,000.
  • For non-citizens recruited outside Kenya and their families, the cost of passage on joining the company, for annual leave and for departure.
  • The first KES2,000 paid to an employee per day as an allow­ance while on official duty. This amount is deemed to be a reimbursement and, consequently, not taxable.
  • Non-cash benefits, up to a maximum of KES36,000 per year.
  • Meals served in canteens and cafeterias operated by an employ­er or provided by a third party that is a registered taxpayer (regardless of whether the meals are in the employer’s or the third party’s premises) if the value of the meals does not exceed KES48,000 per employee per year.

Up to KES50,000 per month of costs relating to health care ser­vices and facilities for persons with disabilities are not taxable benefits. The minimum taxable income for persons with disabili­ties is KES150,000 per month.

Self-employment and business income. All income accrued in or derived from Kenya is subject to income tax. For a resident, this includes profits from a business carried on both inside and out­side Kenya.

Business income includes income derived from any trade, profes­sion or vocation, as well as from manufacturing or other related operations. A partnership is transparent for tax purposes, with the individual partners taxed on their shares of partnership profits.

Business profits and losses are determined using normal com­mercial methods, matching expenses with income from similar activities and using the accrual method of accounting.

Initially, a business may select any accounting period, but gener­ally must continue using the same accounting date thereafter. The Domestic Taxes Department must be notified of a change in the accounting date. All individuals and unincorporated busi­nesses must have a 31 December year-end.

Investment income. Dividends and interest income from invest­ments in Kenya are subject to a withholding tax in the year received. For residents, the tax rates are 5% on dividends and 15% on interest.

The principal sources of exempt investment income are the fol­lowing:

  • Interest derived from savings accounts held with the Post Office Savings Bank
  • For each individual, up to KES300,000 of gross interest derived from investments in housing bonds, except for a 10% withhold­ing tax deducted at source
  • Interest and dividend income accruing to a resident from invest­ments outside Kenya
  • Interest that is earned on deposits of up to KES3 million with a registered Home Ownership Savings Plan (HOSP)

Residential rental income tax. Effective from January 2016, land­lords earning annual gross residential rental income of KES10 million or less must pay residential rental income tax at a rate of 10% of gross receipts. However, a person may make an application in writing to the Commissioner of Domestic Taxes to be excluded from this tax. If the exclusion is granted, the net rental income is taxable at the graduated scale rates (see Rates).

Capital gains. Effective from 1 January 2015, Capital Gains Tax applies to gains realized by companies and individuals on the transfer of property located in Kenya. The general tax rate is 5%. 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.

Property transfers are subject to stamp duties at a rate of 4% on urban property and a rate of 2% on rural property.

Deductions and reliefs. An individual not resident in Kenya for tax purposes is not en titled to any tax relief. Expatriate employees of accred ited 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 KES150,000, on borrowings to finance the purchase of owner-occupied residential property
  • Contributions to a home ownership savings plan, up to a maxi­mum of KES48,000 per year

Reliefs. Resident taxpayers are granted the following reliefs against tax payable:

  • Personal relief in the amount of KES13,944 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

Business deductions. In general, expenses and losses are not de ductible unless incurred wholly and exclusively to produce taxable income.

Accounting depreciation is not deductible, but capital allowances are available. A first-year investment deduction of 100% of quali­fying expenditure on the following is allowed:

  • Manufacturing premises
  • Plant
  • Electric power generating projects with capacity to supply the national grid or to transform and distribute electricity through the national grid
  • Hotel buildings
  • Farm works

The investment deduction is increased to a rate of 150% for an investment for manufacturing purposes that is made outside the city of Nairobi or the municipalities of Kisumu or Mombasa and that has an investment value of KES200 million or more. Allowances are available on a straight-line basis for other indus­trial buildings and hotels, and on the amount remaining after subtracting the investment deductions, at a rate of 10% (manu­facturing), 25% (commercial buildings as well as rental residen­tial buildings constructed in a planned developed area approved by the minister responsible for housing), 10% (hotel buildings) and 50% (hostels and buildings used for educational and training purposes). A first-year deduction of 100% applies to capital expenditure on farm works. The rates for plant and machinery are 12.5%, 25%, 30% or 37.5%, according to the type, using the declining-balance method. The qualifying cost of a non­commercial vehicle is restricted to KES2 million. The rate for software and telecommunication equipment is 20%. The rate for the irrevocable right to use fiber optic cable is 5%. A deduction may be claimed with respect to concessionary arrangements on a straight-line basis over the period of the concession.

Other deductible capital expenditure includes expenses incurred for scientific research and development, the prevention of soil ero­sion by a farmer, the development of agricultural land and struc­tural alterations to rental premises. Realized foreign-exchange losses on capital borrowings are also deductible.

Deductions are allowed for employer and employee contributions to registered pension and provident funds, with certain restrictions.

Rates. The following tax rates apply for employment, self- em ployment and business income.

Taxable income Tax rate Tax due Cumulative tax due
KES % KES KES
First 121,968 10 12,196 12,196
Next 114,912 15 17,236 29,432
Next 114,912 20 22,982 52,414
Next 114,912 25 28,728 81,142
Above 466,704 30

 

Tax is withheld from payments to nonresidents at the following rates.

Income category                                                            Rate (%)

Management and professional fees,

training fees, royalties and

performance fees                                                                    20

 

Use of immovable property                                                    30

 

Use of other property                                                             15

 

Interest                                                                                    15

 

Dividends                                                                               10

 

Pensions and retirement annuities                                      5

 

Telecommunication service fees                                           5

 

Disposal of interest in a person derived from

immovable property                                                                20 *

 

Natural resource income                                                         20

 

Winnings payable by bookmakers to punters                       7.5

* This ordinarily refers to the sale of equity in companies operating in the extrac­tive (mining or petroleum) industry. The amount of taxable gain is usually based on the value of immovable property held by the company.

These rates normally constitute the final liability for Kenyan income tax.

Relief for losses. Tax-adjusted profits and losses from the follow­ing specified sources must be categorized separately:

  • Agricultural activities
  • Rental or other use of immovable property
  • Services rendered (including employment)
  • A wife’s employment and professional income (including self-employment, rent, dividend and interest income)
  • Surplus funds withdrawn or refunded to an employer from a registered pension or provident fund
  • Other business activities

Profits are aggregated. Losses may be carried forward to offset future profits from the same specified source without monetary limits. They may be used in the income year in which they arise and in the following nine years. Losses may not be carried back.

Other taxes

Kenya does not levy property tax.

Social security

The only social security tax levied in Kenya is the National Social Security Fund (NSSF). The NSSF is a statutory savings scheme to provide for retirement. The rate of contribution is 5% of an employee’s salary, with employers and employees each required to pay up to a maximum monthly amount of KES200.

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. The employer and the employee will each be required to contribute 6% of the employee’s monthly pensionable earnings, subject to defined limits. Contributions into the scheme are divided into Tier I and Tier II categories. All Tier I contributions will be remitted to NSSF while Tier II contributions will be made to either the NSSF or a registered private pension scheme of which the employee is a valid member. A transitional arrangement will be in place in the lead-up to the full implementation of the Tier 1 contributions.

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.

Tax filing and payment procedures

Employee withholding. For employees, tax is withheld at source under the Pay-As-You-Earn (PAYE) system.

Installment tax. Individuals 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 pay the tax balance.

Final returns. Individuals subject to employment tax in Kenya are required to file a self-assessment return by 30 June following the end of the preceding calendar year.

Assessment. A taxpayer may be assessed further after a self-assessment return is filed. However, for most taxpayers, the self-assessment is final.

Married couples. Married women have an option to file self-assessment returns with respect to their income from all sources or to aggregate their income with the income of their husbands.

Double tax relief and tax treaties

Foreign taxes are deductible from taxable income as an expense. 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                            India                             Sweden

Denmark                         Norway                        United Kingdom

France                             South Africa                Zambia

Germany

In general, the treaties above provide that foreign income taxes may be offset against equivalent Kenyan taxes payable on the same income.

Temporary visas and passes

All visitors other than East African citizens must have visas to enter Kenya, unless they are from a country for which visa requirements have been eliminated. These countries include most of the British Commonwealth countries, Eritrea, Ethiopia, Ghana, Guyana, India, Namibia, New Zealand, Nigeria, Pakistan, San Marino, Sri Lanka, Turkey and Uruguay. Visitors from these countries are issued visitors’ passes at the point of entry. In addi­tion, visas are not required for holders of a re-entry pass to Kenya as well as transit passengers continuing their journey by the same or first connecting aircraft if they hold valid onward or return documentation and do not leave the airport.

Visas are obtained at the point of entry into Kenya. Foreign nationals wishing to visit Kenya are advised to confirm the entry requirements before departing from their home countries.

Visas are usually granted without delay. They are issued for a maximum period of three months and may be extended for an additional three months on application. A foreign national wishing to stay in Kenya for longer than six months must have an entry permit (see Section G).

The types of temporary visas and passes issued by the govern­ment of Kenya are described below.

Visas. The following types of visas are issued:

  • Transit visa, which is issued to individuals in transit whose nationalities require visas to enter Kenya. It is valid for a maxi­mum of three days. A fee of USD20 is payable on application.
  • Ordinary visa, which is issued for single or multiple entries to persons whose nationalities require visas to enter Kenya for visits or residence. A fee of USD50 is payable for a single jour­ney visa and USD100 for a multiple journey visa.
  • Diplomatic visa, which is issued free of charge to holders of diplomatic passports on official business.
  • Courtesy/Official visa, which is issued free of charge to holders of official or service passports on official visits.
  • East Africa Tourist visa, which is a joint tourist visa entitling holders multiple entries to and between Kenya, Rwanda and Uganda for the purpose of tourism. It is valid for 90 days. A fee of USD100 is payable on application.

Passes. The following types of passes are issued:

  • Visitors’ pass, which is issued to foreign nationals who wish to enter Kenya for the purpose of holiday, visit or other temporary purpose as may be approved by the immigration officer.
  • Dependents’ pass, which is issued to family members of foreign nationals with entry permits.
  • Students’ pass, which is issued to foreign students who wish to study in Kenya.
  • Internship or research pass, which is issued to individuals seek­ing to enter or remain in Kenya for the purposes of internship or academic research.
  • Prohibited immigrants’ pass, which is issued to foreign nation­als who do not have valid entry documents or to foreign nation­als who have contravened certain immigration rules. These individuals must make an application before arriving at the point of entry.
  • Transit pass, which is issued to individuals who enter Kenya for the purpose of traveling to a destination outside Kenya.
  • Re-entry pass, which is issued to dependent pass holders to allow them multiple entries into the country.
  • Special pass, which is issued to foreign nationals wishing to work in Kenya on a short-term assignment. A special pass is valid for three months and may be extended once.

Work permits and self-employment

Certain classes of entry permits allow foreign nationals to work in Kenya and are generally referred to as work permits. An entry permit that allows a foreign national to work in Kenya is obtained by an employer on behalf of a foreign national. Employers are required to justify employment of a foreign national instead of a Kenyan. If the foreign national changes employment, his or her new employer is responsible for obtaining a new work permit.

Individuals requiring entry permits may enter Kenya on visas or visitors’ passes while their applications for the permits are being processed. Foreign nationals who are over 18 years of age and stay in the country for more than 90 days must register as aliens.

Different classes of entry permits are issued in Kenya including permits for the following categories of expatriates:

  • Class A, which is issued to a person engaged in prospecting for minerals and mining in Kenya.
  • Class B, which is issued to a person who intends to engage, alone or in partnership, in the business of agriculture or animal husbandry in Kenya.
  • Class C, which is issued to a member of a prescribed profession who intends to practice that profession in Kenya, alone or in partnership.
  • Class D, which is issued to a person who is offered specific employment by a specific employer.
  • Class F, which is issued to a person who intends to engage, alone or in partnership, in specific manufacturing in Kenya.
  • Class G, which is issued to a person who intends to engage, alone or in partnership, in a specific trade, business or profes­sion (other than a prescribed profession) in Kenya.
  • Class I, which is issued to a person who intends to engage, alone or in partnership, in approved religious and charitable activities.
  • Class K, which is issued to a person satisfying all of the follow­ing conditions:

— He or she is at least 21 years of age.

— He or she has in his or her own right an assured annual income. — He or she will not accept paid employment of any kind if he or she is granted an entry permit of this class.

  • Class M, which is issued to a refugee recognized by the govern­ment of 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.

Residence permits

Foreign nationals wishing to reside permanently in Kenya must have permanent residence permits. 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 residence permits.

Family and personal considerations

Vaccinations. Individuals entering Kenya must have Inter national Immunization Certificates.

Family members. Family members of entry permit holders are entitled to dependents’ passes. 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. These foreign nationals must take a driv­ing test that includes both verbal and physical examinations.