The government of Kenya’s strategy on tax and revenue reforms aims to significantly grow revenue in the 2019/20 fiscal year and beyond. To this end, several tax policies and revenue administration reforms have been put in place to enhance taxpayer education, make greater use of technology, and implement a simplified tax regime for the informal sector. We are also aware that the government is working on a draft Income Tax Bill.
Kenya is in the process of introducing a National Housing Development Fund (NHDF). Employers and employees will each be required to contribute 1.5% of the employee’s monthly basic salary to the fund, but the combined contribution is capped at 5,000 Kenyan shillings (KES) per month. The NHDF is not yet operational, as contributions will only be made once certain regulations are in place. However, the High Court suspended implementation of the 1.5% NHDF contribution via interim orders until the petition is heard and determined.
The Finance Act, 2019 has introduced an exemption for individuals who are registered under the Ajira Digital Program from income tax for 3 years beginning 1st January 2020.
Resident employees are taxed on worldwide earned income, in respect of any employment or services rendered in Kenya or outside Kenya. Residents are also taxed on any other income that has accrued in or is derived from Kenya.Non-resident employees are taxable only on their income earned from within Kenya or derived from Kenya.
The tax rates applied to taxable income are tabulated below.
|Annual taxable income (KES)
||Tax rate (%)
|On the first 147,580
|On the next 139,043
|On the next 139,043
|On the next 139,043
|On all income over 564,709
As shown above, the maximum rate of 30% will be charged on income in excess of KES 564,709.
Bonuses, overtime allowances, and retirement benefits paid to employees earning less than KES 147,580 per annum are now exempt from tax. The tax-free amount is based on the employment income before the bonus, overtime allowances, and retirement benefits.
Residential income tax is payable by any resident person who accrues or derives income from the use or occupation of residential property in Kenya.
Effective 1 January 2016, a simplified tax on residential rental income for landlords was introduced whose annual gross rental income is KES 10 million or less. The landlords falling under this category are required to pay residential rental income tax at a flat rate of 10% on the gross rental income such that no tax deductible expenses are allowed. Eligible persons are required to file monthly tax returns via the i-Tax system and pay the tax due on or before the 20th day of the month following the rent receipt. In the context of this tax, a month means a calendar month.
Landlords who wish to continue being taxed under the old tax regime can elect in writing to the Commissioner to be taxed under the normal tax rates. Once approved by the Commissioner, such landlords shall be required to pay instalment taxes and file returns in the normal way.
A person is considered to be tax resident in Kenya if they:
The NSSF has to undergo drastic transformation following the enactment of the NSSF Act 2013, which became effective from 10 January 2014. However, the implementation of the new Act awaits conclusion of a pending court case. In the meantime, NSSF contributions are as per the provisions of the old Act (i.e. KES 200 for employer and KES 200 for employee).
Employees in Kenya are required to contribute to the NHIF. There is no corresponding employer contribution.The contributions are graduated, with the maximum contribution currently being KES 1,700 per employee for employees earning more than KES 100,000 per month.
Value-added tax (VAT)
VAT is levied at a standard rate of 16% on the supply of taxable goods and services in Kenya, as well as on the importation of taxable goods and services into Kenya. See the Other taxes section in the Corporate tax summary for reduced rates and additional information.
Taxable employment income in Kenya includes all payments made by an employer to an employee. This will include salaries, wages, bonuses, and fringe benefits received or enjoyed by virtue of employment. Fringe benefits will typically have a specific tax treatment (as in the case of housing, vehicles, and other benefits indicated below). Where no specific tax treatment is prescribed, the taxable value will be the higher of the cost to the employer or the fair market value of providing the benefit.
Generally speaking, a housing benefit is taxed at the higher of 15% of gross remuneration (excluding housing) and the rent paid by the employer. Where the property is owned by the employer or the rental agreement is not at arm's length, reference is made to the fair market value rent of the property. There are special rules for directors and a few other categories of staff.
Motor vehicles supplied by the employer are taxed on a monthly basis at the higher of 2% of the initial cost of the vehicle (where the employer owns the car) or prescribed standard rates.
For interest-free or low-interest loans granted to employees, the tax burden has been shifted to the employer under the fringe benefit tax (FBT). See the Other taxes section in the Corporate tax summary for more information.
Education fees of employees’ dependants or relatives borne by the employer are taxed on the employee unless the employer disallows the related costs for corporate tax purposes.
Where a contract of employment states that remuneration should be paid free or net of all taxes, the amount received by the employee is deemed to be net income, and the figure is grossed up to determine the tax liability. All benefits should be taxed under the pay-as-you-earn (PAYE) system.
Bona fide reimbursement of business expenses relating to entertainment, travel, and car expenses are not part of taxable income.
Actual airfare and moving expenses paid to expatriate employees recruited outside Kenya and there solely to perform their duties are not taxable. Leave passages for such employees are also not taxable.
Reimbursed medical insurance or medical expenses are not normally taxable.
Any expense incurred wholly and exclusively in the production of employment income is not taxable.
Mortgage interest expenses
Effective 1 January 2017, interest payments on loans borrowed for the purposes of improvement or construction of residential premises are deductible, subject to a limit of KES 300,000 per annum (or KES 25,000 per month).
Contributions to a Kenya-registered retirement benefit scheme
An employee can claim a deduction against taxable income in respect of their annual contributions to a Kenya-registered retirement benefit scheme. This relief is limited to the lowest of the following:
In Kenya, personal allowances take the form of personal relief tax credits (see the Other tax credits and incentives section for more information).
Under certain circumstances, expatriates may claim a one-third deduction from taxable income if they are employed by a regional office that carries on no business in Kenya and if they are absent from Kenya on business for at least 120 days in any tax year.
Foreign tax credits are claimable where there is a Double Tax Treaty (DTT) between Kenya and the other tax jurisdiction. Unilateral tax credits are also available for Kenyan citizens.
Kenya has DTTs in force with the following countries:
|Canada||Iran||United Arab Emirates|
|Germany||South Africa||South Korea|
Personal relief is minimal, and the current relief is KES 16,896 per annum for all individual taxpayers, and is applied as a credit against the tax liability. Where an employee has more than one employer, they are entitled to claim personal relief credit through only one employer.
The year of income is a calendar year.
Individual self-assessment tax returns must be filed by 30 June in the year following the year of income. Spouses can file separate self-assessment returns.
The majority of tax on employees is paid by withholding from salaries and benefits under the PAYE system. Any further tax liability is based on self-assessment, and it must be paid by 30 April following the year of income to which the liability relates.
An individual (other than one whose total taxable income has been subjected to tax at source) whose tax liability exceeds KES 40,000 per annum is required to pay four instalment taxes by 20 April, 20 June, 20 September, and 20 December. The instalment tax payable on each due date is 25% of the lower of 110% of tax assessed in the prior year or the taxpayer's estimate of the current year's tax liability.