Tax Rates Corporate

 Kenya-Corporate 

Kenya Overview



Kenya is located along the Indian Ocean and is bordered by Tanzania to the south, Uganda to the west, South Sudan to the northwest, Ethiopia to the north, and Somalia to the northeast. The capital city of Kenya is Nairobi, and the official languages are Swahili and English. The official currency is the Kenya shilling (KES).Kenya is the economic, financial, and transport hub of East Africa. In the last decade, the real GDP growth has averaged over 5%. The economy is estimated to have expanded by 6.2% in 2019 compared to 5.8% in 2018 and 4.9% in 2017. The Growth is supported by strong agricultural and manufacturing activities underpinned by favourable weather conditions, strong service sector, stable macroeconomic environment, ongoing public infrastructural investments and sustained business confidence.In addition, measures being undertaken by the Government under “The Big Four” Plan to boost the manufacturing sector; enhance food security and nutrition; build affordable housing; and achieve Universal Health Coverage are expected to enhance growth, create jobs and promote inclusive growth.Kenya promulgated a new Constitution on 27 August 2010 and carried out its first elections under this new Constitution on 4 March 2013; following which, a new system of government, comprising a national government and devolved system of 47 counties, came into effect. Devolution remains the biggest gain from the August 2010 constitution, which ushered in a new political and economic governance system.Kenya participates in several regional initiatives and is a member of the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA), Intergovernmental Authority on Development (IGAD), and the Commonwealth, amongst others.PwC in Kenya provides integrated audit, tax, and advisory services across all industries in Kenya. Our Tax Services division provides our clients with a broad range of tax services, including transfer pricing, value-added tax (VAT), customs and excise, corporate tax planning and compliance, personal tax advisory and compliance, reward and remuneration, dispute resolution, regulatory compliance and advisory, and immigration services.

Quick rates and dates

Corporate income tax (CIT) rates
Headline CIT rate (%)
Resident corp.: 30;
Foreign corp.: 37.5
Corporate income tax (CIT) due dates
CIT return due date
Within six months following a company’s year end.
CIT final payment due date
Within four months of the financial year end.
CIT estimated payment due dates
Quarterly payments of tax must be paid during the year.
Personal income tax (PIT) rates
Headline PIT rate (%)
30
Personal income tax (PIT) due dates
PIT return due date
30 June
PIT final payment due date
30 April
PIT estimated payment due dates
Four instalments of 25% each (by 20 April , 20 June, 20 September, and 20 December).
Value-added tax (VAT) rates
Standard VAT rate (%)
16
Withholding tax (WHT) rates
WHT rates (%) (Div/Int/Roy)
Resident: 5 / 10 to 25 / 5;
Non-resident: 10 / 15 to 25 / 20
Capital gains tax (CGT) rates
Corporate capital gains tax rate (%)
5
Individual capital gains tax rate (%)
5
Net wealth/worth tax rates
Headline net wealth/worth tax rate (%)
NP
Inheritance and gift tax rates
Inheritance tax rate (%)
NP
Gift tax rate (%)
NP

NA stands for Not Applicable (i.e. the territory does not have the indicated tax or requirement)


NP stands for Not Provided (i.e. the information is not currently provided in this chart)

All information in this chart is up to date as of the 'Last reviewed' date on the corresponding territory Overview page. This chart has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this chart, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.

Kenya Corporate - Significant developments


Turn Over tax

The Finance Act, 2019 reintroduced Turn over tax that was removed with Finance Act 2018. Effective 1 January 20120 businesses with an annual turnover not exceeding KES 5 million shall be subject to monthly turnover tax at the rate of 3% on the gross income earned. A person liable to pay turnover tax may elect in writing to the Commissioner not to be subject to turnover tax. Turnover tax shall not apply to rental income, management or professional fees, training fees, income of incorporated companies or any income subject to final withholding tax.In addition to the turnover tax, the businesses are also be required to pay presumptive tax at the rate of 15% of the amount payable for a business permit or a trading license issued by a county government on an annual basis. The presumptive tax paid can be off set against the turnover tax payable.


Reprieve from Capital Gains Tax for internal re-organisation

Under the  Finance Act, 2019 companies have been granted reprieve from Capital gains tax (CGT) for internal re-organisation that is triggered by either a change in law, government directive,  internal restructuring (with the exclusion of a transfer to a third party), or a transfer made in public interest (the latter being subject to the CS’s approval) from CGT.


Proposed tax reforms

The National Treasury of the Republic of Kenya released the draft Income Tax Bill, 2018 (ITB) for comments by stakeholders. The ITA was enacted in 1974 and has undergone a lot of piecemeal amendments that have, in some instances, resulted in inconsistencies and led to ambiguity in the legislation. The ITB has done away with the confusion created by the previous piecemeal amendments, provided greater clarity, and made the legislation simple and easy to comprehend.The ITB’s primary focus appears is to be the increase income tax revenue through the increase of various tax rates and the removal of tax of exemptions, the tightening of restrictions on expense deductions for the determination of taxable income, and the broadening of provisions that deem income derived by a non-resident from Kenya to be taxable in Kenya.


Specific changes introduced


 
Incentives to plastic recycling businesses:

The Finance Act, 2019 amends the ITA to provide that companies operating plastics recycling plants will pay corporate income tax (“CIT”) at a reduced rate of 15% for the first five years of commencing operations. 
Tax amnesty to Small and Medium Enterprises (SME) upon listing on the Growth and Enterprise Market Segment (GEMS) :

 The Finance Act, 2019 amends the ITA to provide that SME’s listed on GEMS will enjoy a two-year tax amnesty on penalties and interest accruing prior to the listing. The companies will be required to make a full disclosure of its past income, asset and liabilities for the two years immediately preceding the date of listing in order for the amnesty to apply. The tax amnesty however does not extend to principal taxes payable and is lost if the company delists before the lapse of five years. 
Taxation of the digital economy :

 The Finance Act, 2019 has amended section 3(2) of the Income Tax Act to include taxation of income accruing from the digital market place. A digital market place has been defined as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.The Act empowers the Cabinet Secretary to the National Treasury (“CS”) to issue regulations to provide the mechanism of implementing taxation of digital economy.
Income Tax exemptions : 

 The Finance Act, 2019 extends income tax exemptions to the investee companies of the Real Estate Investment Trusts. The income of the National Housing Development Fund is also now exempt from tax. Interest income accruing from listed bonds, notes or similar securities with a maturity of at least three years, used to raise funds for assets defined under Green Bond Standards and Guidelines shall be exempt from tax.


Kenya Corporate - Taxes on corporate income


Resident companies are taxable in Kenya on income accrued or derived from Kenya. Resident companies with business activities outside Kenya are also taxed on income derived from business activities outside of Kenya.

Non-resident companies are subject to Kenya corporate income tax (CIT) only on the trading profits attributable to a Kenyan permanent establishment (PE).

The rate of CIT for resident companies, including subsidiary companies of foreign parent companies, is 30%. The CIT rate for branches of foreign companies and PEs is 37.5%.


Special rates

There are special rates for certain resident and non-resident companies as set out below.

Entity CIT rate (%)
Export processing zone (EPZ) enterprises:
First ten years
0
Next ten years
25
Thereafter
30
Registered unit trusts/Collective investment schemes
Exempt (subject to conditions)
Newly publicly listed companies:
20% of shares listed: first three years after listing
27
30% of shares listed: first five years after listing
25
40% of shares listed: first five years after listing
20
Companies listed on securities exchange
25 (first five years)
Special economic zone (SEZ) enterprises, developers, and operators
15 (first five years);15 (succeeding five years, subject to conditions)
Rates on gross income of non-residents derived from Kenya
Transmission of messages
5
Ownership or operation of ships and aircraft
2.5
Demurrage charges
2.5
Plastic recycling companies
15 (first five years)

Local Income Taxes

There are no county or provincial taxes on income, as all taxes are collected by the national government. However, county governments are empowered by the Constitution to impose property and entertainment taxes at the county level.


Kenya Corporate - Corporate residence


Kenya-incorporated companies are treated as Kenyan-tax resident. Additionally, companies incorporated overseas are also treated as Kenya resident if their ‘management and control is exercised in Kenya in a particular year of income under consideration’. A company may also be declared a tax resident in Kenya pursuant to a declaration in a legal notice by the Cabinet Secretary for the National Treasury.


Permanent establishment 

A business carried on in Kenya through a fixed place of business gives rise to a Permanent Establishment (PE), as does a building site, or a construction or assembly project, that has existed for six months or more.

The definition of a PE is extended to include a dependent agent that habitually concludes contracts on behalf of others.


Kenya Corporate - Other Taxes


Value-added tax 

Value Added Tax (VAT) is levied under the VAT Act, 2013 and the VAT Regulations, 2017. VAT is a tax on value addition and is accounted for using the input-output mechanism. There are five types of supplies that attract VAT at different rates: 16% for local taxable supplies, 8% on local supply of fuel (effective September 2018), 0% for zero-rated supplies and exports, exempt supplies, and supplies that are out of VAT scope.

VAT registration is required for persons making or expecting to make taxable supplies of over KES 5 million in a 12-month period. In determining the registration threshold, the sale of capital assets is excluded.

A person making taxable supplies below the registration threshold may voluntarily apply to the Commissioner and register for VAT.

VAT registration is required for persons making or expecting to make taxable supplies of over KES 5 million in a 12-month period. In determining the registration threshold, the sale of capital assets is excluded.

Input tax on a taxable supply (or importation) may be deducted from the tax payable by a registered person to the extent that the supply was acquired to make taxable supplies. Input tax is allowable for deduction within six months after the end of the tax period in which the supply or importation occurred.

Recent changes to the VAT Act, 2013 through the Finance Act 2019 and The Statue Law (Miscellaneous Amendments) Act, 2019 include among others reduction of withholding VAT rate from 6% to 2%. Further there is an amendment to introduce refund of excess VAT arising from the withholding VAT regime in addition to refunds arising from making zero rated supplies. Further, taxpayers are now allowed to offset credits arising from withholding VAT against any other tax payable.

The time within which VAT refunds have to be lodged has been extended from twelve (12) months to twenty-four (24) months from the date the tax becomes due. Further, taxpayers are allowed to lodge VAT refund claims for any accumulated Withholding VAT credits for the period of thirty-six (36) months prior to 23 July 2019.

The Finance Act, 2019 has introduced the requirement for VAT unregistered persons to account for VAT on imported services. Previously, this requirement applied to VAT registered persons only. This measure will impact VAT unregistered entities in sectors such as oil and gas, financial institutions including the insurance sector, medical, educational and not for profit organizations.

The VAT Act 2013 has been amended to bring to charge supplies made through “digital market place” which is defined as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. The regulations to provide mechanisms for implementing taxation of digital transactions are to be issued by the Cabinet Secretary, National Treasury.


Import (customs) duty

Import duty is levied under the East African Community (EAC) Customs Management Act ('the Act'). Imported goods are generally subject to import duty at varied rates, including 0% for raw materials and capital goods, 10% for intermediate goods, and 25% for finished goods. However, a different rate of duty can be prescribed by the Council of Ministers of the EAC partner states. Enterprises established in an EPZ are exempt from customs duty on machinery and inputs for products manufactured for export while licensed oil and gas contractors with a Production Sharing Contract (PSC) with the government of Kenya are exempt from customs duty on importation of machinery, spares, and inputs used in exploration activities, excluding motor vehicles.

In addition, enterprises that are established under the Special Economic Zones Act enjoy import duty exemption. Where raw materials that are not subject to 0% import duty are used to manufacture goods for use locally within the EAC and for export outside the EAC, one may apply for remission under the EAC duty remission scheme. This is subject to a requirement for proof of export, and one may be required to execute a bond/bank guarantee. Further, assemblers of motor vehicles and motor cycles, among others, enjoy import duty remission under the scheme.

A person making taxable supplies below the registration threshold may voluntarily apply to the Commissioner and register for VAT.

Under recent changes through the EAC Gazette Notice, some key sectors in the economy received various stays of application of EAC duty rates for the next one year on certain items.

As such, the metal and allied sector, textile and shoe manufacturers, and timber product manufacturers among others, will enjoy certain incentives. In addition, duty remission was granted on some raw materials used for manufacture of energy saving stoves, automotive seats, stone coated roofing tiles among others.

The law has been amended to clarify the conditions applicable on motor vehicle exemptions granted to disabled or physically handicapped persons. Additionally, there is an amendment to exempt additional items for use by the national carrier or any other airline designated under an air services agreement between the Kenyan government and a foreign Government, namely, lubricants, staff uniforms, calendars, diaries and pens as promotional materials.


Excise duty

Excise duty is imposed on the local manufacture or the importation of certain commodities and services. Excisable commodities include bottled water, soft drinks, cigarettes, alcohol, fuels, and motor vehicles. Excisable services include telephone and internet data services, fees charged for money transfer services, and other fees charged by financial institutions.

Through the Finance Act, 2019 (the Finance Act), the Excise duty Act, 2015 has been amended to introduce a 20% excise duty on the amounts wagered or staked in betting activities. Amount wagered or staked is defined as “the amount of money placed by a person for an outcome in a betting transaction”.

Additionally, in July 2019 the Excise Duty (Excisable Goods Management System) Regulations, 2017 were amended to extend the scope of excisable products required to be affixed with excise stamps (at KES 0.50 per stamp for water) to include bottled water or similarly packaged waters and other nonalcoholic beverages (not including fruit or vegetable juices) in addition to mineral water and aerated water (at KES 0.60 per stamp for non-alcoholic beverages and cosmetics).

The tax authority issued a Public Notice to inform taxpayers of the requirement to affix excise stamps on products manufactured or imported into Kenya from 13 November 2019. All products imported prior to the go-live date are allowed in the market without excise stamps until 31 January 2020.

In July 2019 The Commissioner General adjusted excise duty rates upwards by 5.15% on all goods that are subject to specific excise duty rate. In addition, the Finance Act, 2019 assented on 7 November 2019 increase excise duty rates.

Change introduced in the Excise Duty Act includes incentives for buyers of electric vehicles. Buyers of 100% electric powered vehicles will only pay 10% excise duty; a 50% decrease from the 20% charged for the average vehicle with a cylinder capacity of less than 1500cc.

The Finance Act 2019 has also amended the Excise duty Act with respect to the treatment of “other fees” charged by financial institutions. Excise duty is applicable on “other fees” charged by financial institutions. The amendment has excluded from excise duty “fees or commissions earned in respect of a loan or any share of profit or an insurance premium or premium based or related commissions”.

There is an amendment to exclude from excise duty various locally produced products such as sugar confectionery, chocolate and locally produced motor vehicles. Similarly, the Finance Act 2019, has introduced excise duty at 35% on imported gas cylinders. This is meant to be a deterrent to importation of the products and encourage production of the same locally. Excise duty rates for imported motor vehicles have also been increased to encourage local assembly.


Stamp duty

Stamp duty is payable on transfer of properties, leases, and securities. The rates of stamp duty apply as specified in the Schedule to the Stamp Duty Act.

The rates of stamp duty are shown below:


Activity Stamp Duty Rate
Transfer of immovable property:
Urban  4%
Rural 2%
Creation or increase of share capital
1%
Registration of a company (nominal share capital)
0%
Transfer of unquoted shares or marketable securities
1%
Transfer of quoted shares of marketable securities
Exempt
Transfer of houses constructed under affordable housing scheme
Exempt
Sukuk arrangements
Exempt
Registration of a debenture or mortgage:
Collateral security
0.05%
Supplemental security
KES 20 per counter part
Lease:
Period of three years and under
1% of annual rent
Period over three years
2% of annual rent

Tax on capital gains (CGT)

Gains derived on the sale or transfer of property by an individual or company are subject to a final tax at the rate of 5%. The definition of ‘property’ is widely drawn and includes securities in Kenyan resident private companies (though a specific exemption from Capital Gains Tax (CGT) exists for securities listed in Kenya).

The High Court has ruled that Paragraph 11A of the Eighth Schedule of the Income Tax Act cannot impose an obligation on a taxpayer to pay CGT on or before presenting a transfer instrument for registration as opposed to upon registration of the transfer instrument. The KRA has appealed the Court’s ruling, but no final decision is available at this date.

In addition an exemption is granted where the transfer of property is triggered by either a change in law, a government directive, internal restructuring within a group (with the exclusion of a transfer to a third party), or a transfer made in public interest (the latter being subject to the CS’s approval) from CGT


Payroll taxes

Payroll taxes are administered through the pay-as-you-earn (PAYE) mechanism of deducting income tax from employment income (salaries, wages, bonuses, commissions, etc.). PAYE also applies to taxable non-cash benefits.

It is the employers’ obligation to deduct and account for payroll taxes on a monthly basis.

The PAYE deducted thereof should be paid to the KRA by the 9th day of the following month.

The employer should submit a monthly PAYE return (can be filed online using the KRA’s electronic platform, i-Tax). This return, known as form P10, declares the PAYE for a specific month.


Employers’ National Social Security Fund (NSSF) contributions

Employers and employees are obligated to contribute monthly to the NSSF a standard contribution of KES 200 each. However, the new NSSF Act provides for a higher contribution rate of 6% of pensionable earnings with matching contribution from the employer. The implementation of the new Act awaits conclusion of a pending court case.


National Hospital Insurance Fund (NHIF) contributions

An employer has an obligation to deduct and remit NHIF contributions on a monthly basis.NHIF is payable by the employee at graduated bands, up to a maximum of KES 1,700 per month. The maximum contribution is reached at a salary level of KES 100,000 per month. There is no corresponding employer contribution.


Business permit

Every person who carries on a business in Kenya is required to apply for a business permit from the relevant local authority. The business permit is usually based on the size of one’s business and is renewable on an annual basis.


Tourism levy

The tourism levy is payable to the Tourism Fund by establishments dealing in tourism activities and services as listed in the Tourism Act at a rate of 2% of turnover.


National Industrial Training Levy (NITA) contributions

All employers are required to pay to the Directorate of Industrial Training a monthly levy of KES 50 per employee. The only exemption is for employers remitting the tourism levy.


Railway development levy (RDL)

The RDL is now payable on all imports into the country at 2% (up from 1.5%) of the customs value of the goods. However, the rate will still apply at 1.5% for (1) raw materials and intermediate products imported by approved manufacturers and (2) inputs for the construction of houses under the affordable housing scheme approved by the government.The RDL was implemented to provide funds for the construction of a standard gauge railway track.


Import declaration fees (IDF)

The IDF is now payable on all imports into the country at 3.5% (up from 2%) of the customs value of the goods. However, the Finance Act 2019 has reduced the rate on raw materials and intermediate goods from 2% to 1.5% for; (1) raw materials and intermediate products imported by approved manufacturers and (2) inputs for the construction of houses under the affordable housing scheme approved by the government.These changes are also meant to encourage local manufacturing and affordable housing.


Advance tax on motor vehicles

Advance tax is payable at varying annual rates depending on the motor vehicles and is creditable against any CIT payable for the year.


Fringe benefit tax (FBT)

The FBT is payable by an employer on interest-free or low-interest loans granted to employees, company directors, and their relatives. FBT is due, whether the employer is exempted from tax or not, at the resident CIT rate of 30%. The benefit is the difference between actual interest charged and the interest computed using the Commissioner's prescribed rate published quarterly. The directors and employees are not personally taxed on the benefit.


Betting, lottery, and gaming taxes

The Finance Act 2019 introduced a 20% excise duty on the amounts wagered or staked in betting activities.Furthermore, under the Betting, Lotteries and gaming act there is an additional turnover tax on lottery and gaming at 15%.


Local government rent and rates

Rent and rates are levied annually on properties in Kenya, and the rateable value that is payable to the county government shall vary in each county based on various forms of ratings, such as area rate, agricultural rental value, or site value.


Kenya Corporate - Branch income


The profit of a PE is taxed at the branch income tax rate of 37.5%, but there is no further taxation on the distribution of branch profits. There are certain restrictions with respect to the tax deductibility of certain costs, such as royalties, interest, and management fees, paid to the head office. However, these payments are also not subject to WHT.

Kenya Corporate - Income determination


Inventory valuation

Inventory is stated at the lower of cost or net realisable value, with the exception of biological assets, whose value is prescribed by the Commissioner.


Capital gains

See Tax on capital gains (CGT) in the other taxes  section for more information.


Dividend income

Kenya-source dividends are taxable income in Kenya unless the recipient is a Kenya resident company holding 12.5% or more of voting power of the company paying the dividend. However, for companies holding less than 12.5% of the votes, and other resident taxpayers, the 5% WHT is the final tax. Dividends paid to non-residents and any overseas holding company attract 10% WHT.


Interest income

Interest income is generally included in the determination of taxable income unless expressly exempted for income tax.


Royalty income

Royalty income is subject to CIT at 30%. Where royalties paid to a Kenyan payer attracts Kenyan WHT, the WHT credit can be used to offset against the tax liability arising from the royalty income


Foreign income

Royalty income is subject to CIT at 30%. Where royalties paid to a Kenyan payer attracts Kenyan WHT, the WHT credit can be used to offset against the tax liability arising from the royalty income


Kenya Corporate - Deductions


The general principle in Kenya is that, unless expressly provided otherwise, expenses are tax deductible if they are incurred wholly and exclusively to generate taxable income.


Depreciation and depletion

No deduction is allowed for accounting depreciation or impairment. However, capital allowances are permitted at varying rates (on a straight-line basis) for certain assets used for business purposes, including buildings and machinery used in manufacturing, industrial buildings and hotels, machinery and plant, agricultural works, and mining.

Capital deductions
Rate (%)
Investment deduction:
Qualifying investment exceeding KES 200 million (outside Nairobi or the municipalities of Mombasa or Kisumu)
150
Other qualifying investment
100
Industrial building allowance: *
Certified education buildings (straight-line)
50
Qualifying rental residential or commercial building allowance (straight-line)
25
Other qualifying buildings (including hotels, straight-line)
1
Wear and tear allowance:
Plant and machinery (reducing-balance):
Class 1
37.5
Class 2
30
Class 3
25
Class 4
12.5
Telecommunication equipment (straight-line)
20
Other allowances:
Computer software (straight-line)
20
Capital expenditure under a concessionaire arrangement
Equal proportions over the period of the concession
Mining specified minerals:
Year one
40
Year two through seven
10
Other qualifying investment
100
Farm works (straight-line)
100
* Different percentages apply for previous years.

Goodwill

The general principle in Kenya is that, unless expressly provided otherwise, expenses are tax deductible if they are incurred wholly and exclusively to generate taxable income.


Start-up expenses

There is a specific provision allowing the deduction of certain start-up expenses, provided that the required conditions have been met.


Interest expenses

A deduction for interest is allowed only to the extent that the borrowings are used for the purpose of trade. Where a non-resident person controls a company alone or with four or fewer other persons, interest restriction or ‘thin capitalisation’ rules apply (see Thin capitalisation in the Group taxation section). Companies involved in the affordable housing scheme are exempted, subject to Cabinet Secretary’s approval.


Bad debts

Bad debts are deductible in the year in which the debt has become irrecoverable in accordance with detailed rules under the Income Tax Act for making this determination.


Charitable contributions

Donations to qualifying charities and for certain public works are deductible, subject to certain conditions.With effect from 3 April 2017, the Finance Act, 2017 provides that expenditure incurred by a taxpayer on donations for the alleviation of distress during national disaster as declared by the President will be deductible expenses for the taxpayer when determining taxable income. Deductible donations will be those made to:

  • The Kenya Red Cross
  • County governments, or
  • Any other institution responsible for the management of national disasters to alleviate the effects of a national disaster declared by the President.

Fines and penalties

Generally, fines and penalties are not deductible as they are not considered to be expenses incurred for producing profits chargeable to tax.


Taxes

Kenyan income taxes are not deductible while computing income tax of a person. However, foreign income taxes incurred are generally deductible as an expense if tax credit relief is not available under a DTT.


Net operating losses

Losses calculated under the tax rules may be carried forward against income from the same source for a maximum of ten years, including the year in which the losses arise. The Cabinet Secretary may extend this period on application by the taxpayer. Losses cannot be carried back, except for petroleum companies, where losses can be carried back indefinitely.


Payments to foreign affiliates

Transfer pricing rules apply to transactions with foreign affiliates (both companies and branches/PEs). Additionally, there are restrictions on the deductibility of expenses incurred outside of Kenya by non-residents with a Kenyan PE.


Kenya Corporate - Group taxation


Each company in a group is taxed as a separate entity in Kenya.


Transfer pricing

A company that has related-party transactions is required to ensure such transactions are at arm’s length. The company is therefore required to prepare a transfer pricing policy to justify the pricing arrangements. The Commissioner is allowed to specify conditions and procedures on the application of the methods for determining the arm's-length price and to adjust the prices if they do not conform to the arm’s-length principle. The policy should be prepared and submitted to the KRA upon request.

Thin capitalisation

In Kenya, a company is thinly capitalised if all of the following occur:

  • The company is controlled by a non-resident person alone or together with four or fewer persons.
  • The company is not a bank or financial institution.
  • The highest amount of all loans held by the company at any time exceeds the sum of three times the revenue reserves (including accumulated losses) and the issued and paid up share capital of all classes of shares of the company.

A company that is thinly capitalised cannot claim a deduction on the interest expense incurred by the company on loans in excess of three times the sum of revenue reserves and issued and paid up capital of all classes of shares of the company. The company also cannot claim a deduction for any foreign exchange loss realised by the company with respect to any loans from its shareholders in the period that the company remains thinly capitalised.

For companies in the extractive sector, the debt-to-equity ratio is 2:1.

The Finance Act, 2019 exempts companies with projects aimed at implementing the affordable housing scheme from thin capitalisation provisions. The eligible companies can raise capital through debt without occasioning the thin capitalization measures whose effect is to subject interest payable on the loans to corporate income tax. 

Deemed interest

“Deemed interest” is applicable on interest-free borrowings received by foreign-controlled entities in Kenya. The ‘deemed interest’ is based on the Commissioner's prescribed rates.WHT is due on the ‘deemed interest’.

Controlled foreign companies (CFCs)

Kenya has no specialised rules regarding CFCs. Entities that are however managed controlled in Kenya are considered resident entities.There are restrictions on the deductibility of interest and foreign exchange losses of companies that are foreign controlled and thinly capitalised.

Kenya Corporate - Tax credits and incentives


Foreign tax credit

There is no tax credit for foreign tax paid on business income except as provided for by a DTT (if applicable) between Kenya and the other country. However, foreign tax paid may be deducted as an expense.


Investment deduction

Qualifying investments exceeding KES 200 million incurred outside Nairobi or the municipalities of Mombasa or Kisumu are allowed an investment deduction of 150%. All other qualifying investments are allowed a 100% investment deduction in the year the asset is put into use.


Export processing zone 

Companies located in an approved  Export Processing Zone (EPZ), principally to export goods, are taxed at a 0% CIT rate for ten years from its commencement and at a rate of 25% for the next ten years.


Special economic zones

Special Economic Zones (SEZ) enterprises are not required to register for VAT. The supply of goods or taxable services to an SEZ is subject to VAT at 0% (zero rated).(see the Taxes on corporate income section for the rates).


Listed companies

Companies listed on the Nairobi Securities Exchange are entitled to reduced rates of income tax for a period depending on the percentage of share capital listed (see the Taxes on corporate income section for the rates).


Kenya Corporate - Withholding taxes


WHT is levied at varying rates (3% to 30%) on a range of payments to residents and non-residents. Resident WHT is either a final tax or creditable against CIT. Non-resident WHT is a final tax.

Payments
Resident WHT rate (%)
Non-resident WHT rate (%)
Dividend > 12.5% voting power
Exempt
10
Dividend < 12.5% voting power
Cell 4 10
Interest:
Bearer instruments
25 25
Government bearer bonds (maturity ≥ 2 years)
15 15
Bearer bonds (maturity ≥ 10 years)
10 N/A
Other 15 15
Qualifying interest:
Housing bonds
10 N/A
Bearer instruments
20 N/A
Other
15 N/A
Royalty
5 20
Winnings from gaming and betting (1)
20 20
Management or professional fees
5 20
Consultancy fees - Citizen of EAC member states
5 15
Training (including incidental costs)
5 20
Rent/leasing
Immovable property
N/A 30
Others (other than immovable)
N/A 15
Pension/retirement annuity:
Varied (1)
5
Contractual fees
3 20
Sale of propety or shares in oil, mining, or mineral prospecting companies
10 20

Notes

  1. This will vary depending on the payments paid out.

Oil and gas sector WHT rates

WHT rates applicable on payments to non-residents in the oil and gas sector are shown in the table below:

Payments

Non-resident (oil and gas) WHT rate (%)
Dividends
10
Interest 15
Natural resource income 20
Management of professional fees 12.5

Double tax treaties (DTTs)

Lower rates may apply to non-residents where there is a DTT in force. The table below shows the maximum rates of tax that recipients in those countries with a DTT with Kenya can be charged on dividends, interest, royalties, and management and professional fees. The table only includes agreements that are currently in force.

Recipient WHT (%)
              Dividends
Interest 
Royalties
Canada      15                               15                         15                  
Denmark       20                             20(1)           20
France      10                               12                         10                 
Germany      15                 15(1)                        15             
India      10                            10                     10                  
Iran      5                         10                     10                  
Norway      15                           20(1)                        20                 
Qatar  5(5)                         10            10                  
South Africa      10                               10                         10                  
South Korea      10(4) 12 10
Sweden      15 15 20
United Arab Emirates      5 10 10
United Kingdom      15 15(1) 15
Zambia      0(2) 0(2) 0(2)

Notes.

  1. Interest paid by the government and the Central Bank of Kenya is tax-exempt.
  2. No Kenya tax is due if subject to tax in Zambia.
  3. Management and professional fees subject to normal WHT rates.
  4. 8% if the beneficiary holds at least 25% of the capital of the company paying the dividends.
  5. A rate of 10% is applicable where the beneficial owner is a company (other than a partnership) that  directly or indirectly holds less than 10% of the capital of the company paying the dividends.

Where the treaty rate is higher than the non-treaty rate, the lower rate applies.


Kenya Corporate - Tax administration


Taxable period

A company has discretion to determine its financial year-end, provided it is a 12-month period. However, any changes in this must be approved by the Commissioner of the KRA.


Tax returns

Resident companies and PEs of non-resident companies must file a self-assessment tax return annually. The return is accompanied by a tax computation and financial statements, amongst other schedules. The return is due within six months following a company’s financial year-end.


Payment of tax

Instalment tax payments must be made quarterly during the year based on the lower of 110% of the previous year’s liability or an estimate of the current year’s liability. Agricultural companies are required to pay estimated tax in two instalments of 75% and 25% during the year. Any balance of tax at the end of the year must be paid within four months of the financial year-end.

Payment of agency taxes

The tax withheld from payments must be paid by the 20th day of the month following the month in which the deduction is made.


Tax Procedures Act (TPA)

The TPA, which entered into force on 19 January 2016, aims to provide uniform procedures for consistency and efficiency in the administration of tax laws, facilitate tax compliance by taxpayers, and promote the effective and efficient collection of tax.

The TPA also harmonises and consolidates tax procedural rules. For example, the TPA provides that a taxpayer should keep records for five years. Previously, the different tax laws, such as the VAT Act 2013, Income Tax Act, and Excise Act, prescribed different timeframes that records should be kept by a taxpayer. Given that it is a relatively new piece of tax legislation, there are some inconsistencies when you mirror the TPA and other tax legislation, though we expect these inconsistencies to be addressed with time.


The Tax Appeal Tribunal Act

The Tax Appeal Tribunal Act, which entered into operation on 1 April 2015, establishes one tribunal that will hear appeals for all tax areas. Previously, income tax matters would be heard by the Local Committee whereas VAT matters would be heard by the Tax Tribunal.


Tax audit process

There is no prescribed audit process, as an audit can be triggered by various factors as determined by the KRA. Generally, tax audits should be carried out after every two to four years. The audit or inspection will commence with a request from the KRA for the taxpayer to make available any such records or information as may be required.


Statute of limitations

The tax authorities must issue  an assessment before the expiry of five years after the end of a year of income. The KRA may go back past five years where fraud is suspected. There is no time limit for completing tax audits. However, they are normally completed within a reasonable time, especially if there are no major disputes.


Taxable period

A company has discretion to determine its financial year-end, provided it is a 12-month period. However, any changes in this must be approved by the Commissioner of the KRA.


Topics of focus for tax authorities

To detect fraudulent behaviour and potential tax evasion by using risk-based approaches and by providing analytic capability and intelligence information to users for better decision making and revenue growth.