Kenya

Value-added tax (VAT)

VAT is a tax on value addition and is accounted for using the input-output mechanism. In Kenya, there are currently three rates of VAT: standard rated at 16%, zero-rated, and exempt.

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 for VAT registration upon meeting the set requirements. However, this VAT registration threshold does not apply to non-residents who supply services to Kenyans via an electronic network, the Internet, or a digital marketplace.

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. To deduct input tax incurred on taxable supplies, a taxpayer must possess the requisite documentation supporting the input tax deduction. With effect from 1 July 2023, there is an additional condition in order to secure input tax recovery. Apart from holding the requisite documentation for recovering input tax, the taxpayer must also ensure that the supplier has declared the respective sales invoice in a VAT return.

Taxable value is the consideration for the supply and includes any taxes (other than VAT), duties, levies, fees, and charges paid or payable on or by reason of the supply.

Effective 1 July 2023, taxpayers can seek refund of VAT paid on bad debts after a period of three years but within ten years from the date of supply. Furthermore, taxpayers are also eligible to claim refunds at any point in time where the customer has been placed under statutory management, such as appointment of an administrator, receiver, and liquidator.

The Tax Laws (Amendment) Act, 2024 (TLAA), effective from 27 December 2024, brought significant changes to the provisions in the VAT Act, including but not limited to:

• changing the time of supply of exported goods to when the certificate of export or relevant export documents are available
• amending the input apportionment formula by deleting the 90:10 input tax apportionment formula that allowed for full deduction where the exempt supplies were less than 10%, and 
• introduction of a VAT exemption on 'transfer of a business as a going concern'.

VAT obligations for non-resident suppliers

Non-resident suppliers supplying electronically supplied services to Kenyans will need to adhere to The VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023. 

These regulations provide clarity on the nature of supplies subject to VAT, at the standard rate of 16%, when supplied electronically through an electronic network, the Internet, or a digital marketplace. A digital marketplace is defined as an online platform that enables users to sell goods or provide services to other users. 

A non-resident person supplying such taxable services is required to register for VAT in Kenya if the supplies are made to a recipient in Kenya in both business-to-consumer (B2C) transactions from April 2021 and business-to-business (B2B) transactions from 1 July 2022. 

Prior to enactment of the Finance Act, 2022 on 1 July 2022, the obligation to account for VAT on digital marketplace supplies for B2B supplies rested with the recipient in Kenya and was accounted for through the reverse-charge mechanism.

This person shall register for tax through a simplified tax registration framework and will declare taxes payable on supplies made on the digital marketplace by filing a monthly VAT return. In addition, any VAT due to the Commissioner shall be paid on or before the 20th day of the month following the end of the month in which the service was supplied. 

These services include a wide variety of electronic services, such as downloadable digital content, e-books, subscription-based media, software programmes, cloud storage, distance teaching, and so on. For a full list of services that are included, please contact us.

Import (customs) duty

Import duty is levied on importation of goods under the provisions of the East African Community (EAC) Customs Management Act ('the Act'). Imported goods are generally subject to import duty at varied rates. With effect from 1 July 2022, the East African Community Common External Tariff (EAC CET) 2022 version introduced a four-band tariff with a minimum duty rate of 0%, rates of 10% and 25%, and a maximum rate of 35% in respect of all products imported into the East African Community. 

The EAC Gazette Notice No. 18 of 2024 introduced amendments to the EAC CET increasing the duty rates of various articles, including items such as particle boards, un-denatured alcohol ethyl, bed linen, tarpaulins, and cans closed by soldering, which will attract a duty rate of 35%, up from 25%. Additionally, some of the subheadings within the EAC CET have been split to enable a more accurate classification of imported goods. The items affected include other vehicles with both spark ignition internal combustion piston and electric motors. The split has been effected to differentiate between 'un-assembled' and 'other', whereby 'un-assembled' will attract a 0% import duty and 'other' now attracts duty at the rate of 25%.

We further note that the EAC Gazette Notice provided a stay from payment of duty of certain products. This stay is applicable for a period of one year beginning 1 July 2024. Some sectors (e.g. metal and allied, textiles, shoes, diapers, and furniture manufacturers) continue to enjoy protection from competition occasioned by foreign imports reflecting Kenya’s objective to enhance local manufacturing.

Similar to the financial year 2023/24, Kenya has been granted a stay to apply lower duty rates on rice, refined cooking oil, and refined soya bean. Additional stays were granted for oils of tariff heading 1507, 1511, and 1512, which will be subject to duty rates of 25% or USD 500/MT instead of 35%.

In addition, enterprises that are established under the Special Economic Zones Act and the Export Processing Zones Act enjoy exemption from payment of import duty on importation of goods. Where raw materials that are not subject to 0% import duty are used to manufacture goods within the East African Community and for export outside the East African Community, one may apply for remission under the EAC duty remission scheme. Please note that one may be required to execute a bond as security for remitted taxes. Further, assemblers of motor vehicles and motorcycles, among others, enjoy import duty remission under the scheme.

Excise duty

Excise duty is imposed on the local manufacture, importation or local supply 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.

The Tax Laws Amendment Act, 2020 revised the Excise Duty Act, Cap 472 by amending the definition of ‘other fees’ earned by financial institutions to exclude other fees earned from non-licensed activities. This change reduced disputes with the tax authority on what ‘other fees’ should be subject to excise duty.

The Excise Duty Act defines the word ‘licence’ to mean the following:

• In the case of excisable services, ‘licence’ refers to the certificate of registration.
• In the case of excisable goods, ‘licence’ refers to the licence issued under section 17 of the Excise Duty Act.
• In the case of carrying out of any other activity in Kenya for which the Commissioner General for the KRA may impose a requirement for licence, ‘licence’ refers to the licence required under section 15(1)(e).

The Finance Act, 2021 re-introduced excise duty on betting and gaming at the rate of 7.5% of the amount wagered or staked, while the Finance Act, 2022 exempted horse racing.

The Finance Act, 2023 amended the excise duty rates for various excisable services, including the following:

• 20% to 15% for telephone and Internet data services.
• 20% to 15% for fees charged for money transfer services by banks, money transfer agencies, and other financial service providers.
• 12% to 15% for money transfers by cellular phone service providers and payment service providers.
• 15% for alcoholic beverages and gaming advertisements on television, print media, billboards, and radio stations.

Prior to the Finance Act, 2023, the Excise Duty Act contained a requirement for annual inflationary adjustment on excise duty rates. The provision on annual inflationary adjustment was deleted by the Finance Act, 2023, effective 1 July 2023.

The Finance Act, 2023 further provided clarity on offences relating to excise stamps and other markings. 

The Tax Laws (Amendment) Act, 2024 (TLAA), effective from 27 December 2024, brought significant changes to the provisions in the Excise Duty Act, including but not limited to the following:  

• Introducing a definition of a ’digital lender‘ to provide legislative clarity and formal recognition for digital lenders, ensuring they operate within a defined legal framework. A ’digital lender‘ is defined to mean ’a person holding a valid digital credit providers licence issued by the Central Bank of Kenya’.
• Introducing excise duty on excisable services offered by a non-resident through a digital platform.
• Amending the time frame for paying excise duty on alcoholic beverages. Prior to the change, excise duty had to be paid within 24 hours of removing the goods from the factory. The change extends the time frame to the fifth day of the following month after the transaction.

• Amended Part 1 of the First Schedule of the Excise Duty Act to exclude ‘fertilised eggs for incubation’ from the ambit of excise duty.
• Introducing excise duty on the following goods previously not subjected to this tax:

• Imported electric transformers and parts of tariff codes 8504.10.00, 8504.21.00, 8504.22.00, 8504.23.00, 8504.31.00, 8504.32.00, 8504.34.00, and 8504.90.00 at the rate of 25%.
• Imported ceramic sinks, wash basins, wash basin pedestals, baths, bidets, water closet pans, flushing customs cisterns, urinals, and similar sanitary fixtures of tariff heading 69.10 at the rate of 35% of the customs value or KES 100 per kg.
• Imported float glass and surface ground or polished glass, in sheets, whether or not having an absorbent, reflecting, or non-reflecting layer, but not otherwise worked of tariff heading 70.05 at the rate of 35% of the customs value or KES 200 per kg.
• Imported ceramic flags and paving, hearth, or wall tiles; unglazed ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics of tariff 69.07 at the rate of 35% of the customs value or KES 300 per kg. 

• Coal at the rate of 5% of the value or KES 27,000 per metric tonne.

• The TLAA  increased the excise duty rates for various excisable services listed under Part II of the First Schedule to the Excise Duty Act, including the following:

• 12.5% to 15% for betting.
• 12.5% to 15% for gaming.
• 12.5% to 15% for prize competition.
• 12.5% to 15% for lottery (excluding charitable lotteries).
• The TLAA further amended Part III of the First Schedule to the Excise Duty Act to interpret fees charged by digital lenders to include “any fees, charges, or commissions charged by digital lenders relating to their licensed activities but does not include interest, preloan interest, post-loan interest, return on loan or any share of profit, or an insurance premium or premium based or related commissions specified in the insurance Act or regulations made thereunder”.

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:

Capital gains tax (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 15%. The definition of ‘property’ is widely drawn and includes securities in Kenyan resident private companies (though a specific exemption from CGT exists for securities listed in Kenya).

The High Court has ruled that the Income Tax Act (ITA) 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. No final decision is available at this date.

In addition, an exemption is granted where the transfer of property is triggered by 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 Cabinet Secretary's approval) from CGT.

The Finance Act, 2023 introduced a tax on gains from the sale of shares or comparable interests if, 365 days before the sale, more than 20% of their value directly or indirectly comes from immovable property in Kenya. This aims to subject such gains to taxation if they are significantly tied to Kenyan immovable property.

The Finance Act also amended the ITA to change the timing of CGT payment. Under the amendment, CGT will be paid at the earlier occurrence of either the vendor receiving the full purchase price or the registration of the transfer.

The Tax Laws (Amendment) Act, 2024 has reduced the CGT rate from 15% to 5% for transactions certified by Nairobi International Financial Centre Authority (NIFCA) under the third schedule. NIFCA must certify that a firm has invested at least KES 3 billion in at least one entity incorporated or registered in Kenya within a period of two years and the transfer of the investment is to be made after five years of the date of the investment.

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.

The tax tables applicable to individuals are provided in the Taxes on personal income section of Kenya’s Individual tax summary.

Employers’ National Social Security Fund (NSSF) contributions

The National Social Security Fund Act No. 45 of 2013 ('the NSSF Act 2013' or 'the new Act') was assented in 2013 and came into force on 10 January 2014. However, its implementation was suspended almost immediately following a consolidated petition filed in 2014.

On 3 February 2023, the Court of Appeal upheld the provisions of the NSSF Act 2013, and NSSF confirmed through a press release issued on 9 February 2023 that the new Act was effective commencing February 2023.

The updated NSSF rates

The NSSF Act 2013 introduced enhanced NSSF contributions at the rate of 12% of an employee's pensionable earnings. This is made up of equal portions of 6% from the employee and 6% from the employer. Pensionable earnings have been defined under the Act as the lower of an employee’s monthly wages and the upper earnings limit (UEL).

As per the Act, the lower earnings limit (LEL) and the UEL will be graduated for the first four years of implementation. For the first year beginning February 2023, the LEL was KES 6,000 while the UEL was KES 18,000. From February 2024, the LEL was increased to KES 7,000 while the UEL was revised to KES 36,000.

Effective February 2025, the LEL will increase to KES 8,000 while the UEL will be KES 72,000. The new contributions will be subject to a monthly upper limit (or cap) of KES 8,640 for employees earning above KES 72,000, equally split between the employee and the employer. This will be an increase from the maximum contribution of KES 4,320 in the second year of the implementation of the NSSF Act, 2013.

Tier I and Tier II contributions 

The contributions to NSSF will therefore be classified into two categories:

• Tier I contributions: NSSF contributions relating to the earnings up to KES 8,000 (which has been defined as the LEL) will be a maximum of KES 960, comprising equal portions of employee and employer contributions, and will be credited by the NSSF to an account referred to as a Tier I account.
• Tier II contributions: NSSF contributions relating to the earnings above KES 8,000 and not exceeding KES 72,000 will be a maximum of KES 7,680, comprising equal portions of employee and employer contributions. These will be credited by the NSSF to an account referred to as a Tier II account.

Opt out for Tier II contributions

The Act provides that an employer may opt to pay the Tier II contributions into an approved 'contracted-out scheme' (i.e. occupational or private pension scheme that the employer participates in or intends to establish).

The application for contracting out should be submitted in writing to the Retirement Benefits Authority (RBA), accompanied by the prescribed forms and supporting documentation, at least 60 days before the opting out date.

Social Health Insurance Fund (SHIF)

The Social Health Insurance Act, 2024 (SHIA) replaces the National Insurance Fund (NHIF) with a universal registration and contribution system for all Kenyan residents, including provisions for vulnerable populations. It details matters concerning benefits, tariffs, empanelment, contracting, and claims management. The Social Health Insurance Tribunal Procedure Rules, 2024 provide for dispute resolution mechanisms, including alternative dispute mechanisms. The Social Health Insurance Regulations, 2024 establish and manage various health funds and outline registration, empanelment, and benefits. The Social Health Insurance (Amendment) Regulations, 2024 define specialised health care services and provide transition timelines from NHIF to the new system.

Payments of contributions and subsequent access to healthcare services commenced on 1 October 2024.

Households with income from salaried employment shall contribute 2.75% of their gross salary or wage to the SHIF for each month. It is the employer’s obligation to deduct and remit the employees’ contributions to the Social Health Authority (SHA) by the 9th day of the following month.

The Tax Laws (Amendment) Act, 2024 has amended section 15(2) of the Income Tax Act to include contributions made to the SHIF as allowable deductions.

Affordable Housing Levy (AHL)

Initially introduced in July 2023 under section 31B of the Employment Act, 2007 by the Finance Act, 2023, the AHL was nullified by the courts on 28 November 2023. Later, the levy was reintroduced through the Affordable Housing Act, 2024, effective March 2024.

According to this Act, employers are required to deduct and remit the AHL at the rate of:

• 1.5% of the employee’s gross monthly salary for the employees, and
• 1.5% of the employee’s gross monthly salary for the employer.

The levy must be remitted within nine working days after the end of the month in which payments are due. If the payment is delayed, a penalty of 3% of the unpaid amount will be imposed for each month.

Gross monthly salary constitutes basic salary and regular cash allowances. This includes housing, travel or commute, car allowances, and such regular cash payments, and excludes non-cash payments and irregular payments, such as leave allowance, bonus, gratuity, pension, severance pay, or any other terminal dues and benefits.

The AHL applies to both salaried and non-salaried individuals, requiring all persons who receive income or whose income is accrued in Kenya to remit 1.5% of their gross income as AHL.

Additionally, the TLAA has amended section 15(2) of the ITA to make AHL contributions by employees deductible for PAYE purposes, allowing employees to reduce their taxable income by the amount contributed towards AHL.

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 from NITA is new employers who registered their business after 23 December 2019 and have less than 100 employees. Such employers are exempted for a period of 12 months from the date of registration.

Employers are required to file and pay the NITA levy through the iTax system when submitting monthly PAYE returns. As such, the due date for NITA is the 9th day of the month following the payroll month. Failure to remit NITA on time attracts a penalty of 5% per month on the outstanding amounts on a pro-rata basis.

Railway Development Levy (RDL)

The Tax Laws (Amendment) Act (TLAA), 2024 has increased the RDL rate applicable on imports into Kenya from 1.5% to 2%.

The TLAA has also amended and added additional items to be exempted from RDL. The exempted items include goods of tariff headings 5407 (woven fabrics) and 6309 (worn clothing and other worn articles) imported as raw materials for manufacture of textile products in Kenya upon recommendation of the Cabinet Secretary responsible for investment, trade, and industry.

Import Declaration Fee (IDF)

The Finance Act, 2023 made amendments to the IDF charged on imports, reducing the rate of IDF from 3.5% to 2.5% for all imported goods. Additionally, it removed the provision that allowed a reduced rate of 1.5% for IDF on raw materials and intermediate products imported by manufacturers and inputs for affordable housing schemes. Further, the Act deleted the provision that allowed goods imported under the EAC Duty Remission Scheme to be subject to a reduced rate of 1.5% for IDF.

The Act amended and added additional items to be exempted from the IDF. The exempted items include aircraft spare parts, goods, inputs, and raw materials for companies operating under a SOFA with the government, denatured ethanol, BEV stoves, equipment, machinery, and motor vehicles for official use by the Kenya Defence Force and National Police Service. In addition, the Cabinet Secretary may exempt other goods in the public interest or to promote an investment, the value of which is KES 5 billion or more. 

The Tax Laws (Amendment) Act, 2024 has also amended and added additional items to be exempted from IDF. The exempted items include goods of tariff headings 5407 (woven fabrics) and 6309 (worn clothing and other worn articles) imported as raw materials for manufacture of textile products in Kenya upon recommendation of the Cabinet Secretary responsible for investment, trade, and industry.

Export and investment promotion levy (EIPL)

The Finance Act, 2023 introduced EIPL, which is now chargeable at the rate of 10% and 17.5% of the customs value of certain specified imported products. Products subject to the export and investment promotion levy at 17.5% include cement clinker (tariff no. 2523.10.00) and items of iron and steel (tariff no. 7207.11.00, 7213.91.10, and 7213.91.90).  

Articles of paper pulp, of paper, or of paperboard (tariff no. 4804.11.00, 4804.21.00, 4804.31.00, 4819.30.00, and 4819.40.00) will be subject to the export and investment promotion levy at 10%

The TLAA, 2024 introduced EIPL on the following goods: bleached sack kraft of tariff code 4804.29.00 at 10% of the customs value and bleached sack kraft of tariff code 4804.39.00 at 10% of the customs value.

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% (with effect from January 2021). 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%.

The Finance Act, 2023 amended the Betting, Lotteries and Gaming Act to provide that taxes under sections 29A, 44A, 55A, and 59B will be collected following the procedures outlined in the Tax Procedures Act of 2015. This provision ensures that the collection of these specific taxes is carried out in accordance with the guidelines and regulations set forth in the Tax Procedures Act, promoting consistency and adherence to established tax collection practices.

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.