Nairobi

Taxation in Nairobi, Kenya

What are the tax rates in Nairobi, Kenya? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Nairobi, Kenya.

Personal taxation in Nairobi

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate28%29%29%30%30%

Teleport city rankings for personal income tax

Personal taxation puts Nairobi in position 147 of all Teleport Cities.
WORSTBEST

Basis

All income accruing in, or derived from, Kenya is subject to tax in Kenya. A Kenyan resident is taxable on his/her worldwide employment income; a nonresident is taxable only on Kenyan-source employment income. Only Kenyan citizens may offset tax on foreign employment income against the tax charged in Kenya on such income. Noncitizen residents must include their after-tax foreign- source employment income in their Kenya taxable income.

Residence

An individual is resident in Kenya if he/she has a permanent home in Kenya and is present in Kenya for any time during the year. An individual present in Kenya for at least 183 days in the tax year is resident, as is any person who has averaged 122 days in the country in the tax year and the previous two tax years.

Filing status

A married couple living together may elect to file separate returns. Otherwise (unless they are living apart, when separate returns are filed), the tax on their combined income is assessed on them proportionately, with the tax on the wife's earned and investment income calculated as if it were the sole source of joint income.

Rates

Progressive rates of 10%, 15%, 20% and 25% are levied on the first KES 466,705 in approximately equal bands; the rate is 30% on the amount exceeding KES 466,704.

Deductions and allowances

Personal relief is KES 13,944 per annum. The following may be deducted from taxable income: up to KES 150,000 annually in mortgage interest for owner-occupied property; contributions to a registered pension or provident fund up to

Taxable income

All income accruing in, or derived from, Kenya is subject to tax in Kenya in the same way that applies to the business income of companies. Employment income is broadly defined and includes amounts paid outside Kenya. Fringe benefits are taxable on the employee, at either actual or deemed cost.

Capital gains

See under “Corporate taxation.”

Other taxes on individuals

Social security

An employee must contribute to the NSSF and the National Hospital Insurance Fund (NHIF); an employer contributes to only the NSSF. An employee is required to contribute approximately 1% of payroll to the NHIF, up to an annual maximum of KES 3,840. Prior to June 2014, an employee was required to contribute 5% of payroll to the NSSF, up to an annual maximum of KES 2,400. From June 2014, the NSSF contribution is 6% of emoluments for employees, with the same amount contributed by employers, subject to an upper earnings limit. The 6% upper limit per month is KES 2,160 for employees earning more than KES 18,000 per month. However, an injunction currently is in place, pending the outcome of a High Court case rejecting the changes to the NSSF. Thus, the former rate temporarily continues to be applied.

Compliance for individuals

Filing and payment

VAT returns and any related payments are due by the 20th day of the following month.

Penalties

See under "Corporate taxation." Value added tax:

Rates

The standard rate is 16%, although certain supplies are exempt or zero-rated. According to the VAT Act that became effective in 2013, certain categories of oil and fuels will continue to be exempt for three years, after which they will become zero-rated (unless the exemption is revoked earlier).

Taxable transactions

VAT is imposed on the supply of taxable goods and services made or provided in Kenya by a taxable person in the course of, or in furtherance of, any business carried on by that person and on the importation of goods and services into Kenya.

Registration

Registration is compulsory where the turnover of taxable supplies is, or is expected to be, KES 5 million or more in a 12-month period.

Corporate taxation in Nairobi

Teleport city rankings for corporate income tax

Corporate taxation puts Nairobi in position 76 of all Teleport Cities.
WORSTBEST

Basis

Resident and nonresident corporate entities are subject to tax on all income accruing in or derived from Kenya.

Taxation of dividends

Dividends from a Kenyan company are not subject to additional tax other than what is deducted at source (see “Withholding tax,” below). Dividends from a foreign company are not taxable in Kenya.

Residence

A company or similar corporate entity is tax resident if it is incorporated under Kenyan law, if management and control of its affairs are exercised in Kenya or if the Minister of Finance declares the entity to be tax resident in a notice published in the Kenya Gazette.

Losses

Losses may be deducted in the year in which they arise and the 10 following years (extended from four years with effect from 1 January 2016). Where the losses are not utilized within this period, an extension may be granted upon application; however, no guidance has been issued to set forth the circumstances under which this approval would be granted. Losses may not be carried back, other than by oil and gas companies. Losses may be set off only against income from the same source, and capital losses are nondeductible.

Incentives

Kenya provides for a 100% investment deduction on hotel buildings and on buildings and machinery used in manufacturing. Manufacturing investment in buildings and machinery situated within satellite towns adjoining Nairobi, Mombasa or Kisumu attracts an investment allowance of 150%. Enterprises in export processing zones enjoy a 10-year tax holiday. With effect from 1 January 2016, the Income Tax Act provides that Special Economic Zone enterprises are subject to corporate tax at a reduced rate of 10% for the first 10 years and 15% for the next 10 years. The Special Economic Zone Act, however, suggests that no tax is to be charged.

Rate

The general corporate income tax rate is 30%, with branches of foreign companies taxed at 37.5%. Newly listed companies enjoy a reduced rate for three to five years from the year of income following the year of listing; the rate (20%-27%) and period depend on the percentage of capital listed (more than 20%). To further encourage listing of companies, with effect from 1 January 2016, the corporate tax rate for newly listed companies is reduced from the normal 30% rate to a 25% rate for a period of five years commencing from the year of income following the year of listing, regardless of the percentage of capital listed.

Foreign tax credit

Foreign taxes paid are treated as an allowable expense, except where a tax treaty applies, in which case a tax credit is granted.

Taxable income

Income tax is imposed on a company's gross income, less allowable deductions. In general, expenses must be incurred "wholly and exclusively" in the production of income and not be capital in nature to be deductible for tax purposes. Business income, investment income (other than for financial institutions, for which investment income is considered business income), rental income and income from agriculture are assessed separately.

Capital gains

Capital gain tax (CGT), which had been suspended since 1985, was reintroduced as from 1 January 2015. The CGT rate is 5% of the net gain, which is a final tax. With effect from 1 January 2016, capital gains arising from the transfer of shares traded on any securities exchange licensed by the Capital Markets Authority are not subject to CGT.

Other taxes on corporations

Real property tax

Land rates are assessed by local authorities. (See also "Stamp duty.")

Social security

Prior to June 2014, an employer was required to contribute 5% of payroll to the National Social Security Fund (NSSF), up to an annual maximum of KES 2,400 per employee. From June 2014, the contribution is 6% of emoluments for employees, with the same amount contributed by employers, subject to an upper earnings limit. The 6% upper limit per month is KES 2,160 for employees earning more than KES 18,000 per month. However, an injunction currently is in place, pending the outcome of a High Court case rejecting the changes to the NSSF. Thus, the former rate temporarily continues to be applied.

Other

Compensating tax is imposed on dividends declared from untaxed profits. The tax is calculated as the cumulative tax paid since 1988 (including compensating tax and tax attributable to dividends received), less the cumulative tax attributable to dividends paid at the standard rate. Companies are required to keep a “dividend tax

Transfer tax

See under “Stamp duty.”

Stamp duty

Stamp duty is charged at nominal or ad valorem rates on certain financial instruments and transactions. Stamp duty of 1% is payable upon the creation and increase of authorized share capital. Stamp duty is levied at a rate of 4% on immovable property (2% if levied outside the municipalities), and at a rate of 1% on the transfer of shares and other securities. An exemption applies if the shares/securities are listed on the Nairobi stock exchange.

Compliance for corporations

Consolidated returns

Consolidated returns are not permitted; each company must file a separate return.

Penalties

Late payments of self-assessed tax are subject to a 20% penalty, plus a 2% penalty per month. Late filing is subject to a 5% penalty (a minimum of KES 10,000 for taxpayers other than individuals and KES 5,000 for individuals) on any amount still owed four months after the company's year end.

Rulings

A taxpayer may request a nonbinding interpretation by the Kenya Revenue Authority of the tax legislation as it applies in general, or to specific situations.

Tax year

The tax year is the calendar year, although a company (other than a financial institution) may adopt any year end. All taxable

Filing requirements

The self-assessment and compensating tax returns must be filed within six months of the end of a company's accounting period. Tax installments are due within 20 days of the end of each quarter (except the first installment, which is due in the fourth month of the period), based on the relevant proportion of the estimated current tax or 110% of the tax for the previous year, less previous installments paid and withholding tax deducted at source; the balance of tax, if any, is due four months after the company's year end. Agricultural companies make their first installment payment 20 days after the end of the third quarter.

Other taxation in Nairobi

Anti-avoidance rules

Disclosure requirements

The tax authorities have the statutory right to require information from a taxpayer concerning its own tax affairs, and also may require information from banks about payments of interest.

Transfer pricing

Kenyan law requires arm's length pricing between related enterprises. Compliance with the OECD guidelines generally ensures compliance with Kenyan law, although domestic transfer pricing rules also are in place.

Thin capitalization

Interest expenses are proportionately restricted for foreign controlled companies (other than licensed financial institutions) when the ratio of all liabilities on which interest is charged exceeds three times the payer's issued and paid up capital and revenue reserves/accumulated losses. The debt-to-equity ratio for thin capitalization purposes for companies in the extractive industry (i.e. mining, geothermal, petroleum) is 2:1, as opposed to the ratio of 3:1 prescribed for other companies.

Withholding tax

Dividends

No withholding tax is imposed if the recipient is a qualifying Kenyan financial institution or if the resident recipient company controls 12.5% or more of the capital of the payer. Otherwise, the rate is 5% for dividends paid to residents of Kenya and on listed shares for citizens of the East African Community; the rate is 10% for other nonresidents.

Other

For nonresidential rental income, a withholding tax rate of 12% of gross proceeds has been introduced, effective 1 January 2016, but this tax will be withheld only by agents appointed by the government.

Technical service fees

A 5% withholding tax is levied on the payment of technical service fees (as well as professional and management fees) where the services are provided by a resident. The rate is 20% where the service provider is a nonresident, unless an applicable tax treaty provides otherwise.

Interest

There are different categories for withholding tax on interest. Interest received from financial institutions is subject to a 15% tax, while the withholding tax on interest on bearer certificates is 25%. Withholding tax on interest from bearer bonds is 10%.These rates apply for payments to both residents and nonresidents.

Royalties

Royalties (and natural resource income) paid to a resident are subject to a 5% withholding tax; the rate is 20% if paid to a nonresident.