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.
The Finance Act, 2023 has amended Section 5(2) of the Income Tax Act (ITA) to exempt from tax amounts reimbursed to an employee as mileage claim for travelling to perform official duties provided that such reimbursement is based on the standard mileage rate approved by the Automobile Association of Kenya (“AA Kenya”).
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:
- Actual contributions during the year.
- 30% of the employee’s pensionable (taxable) income during the year.
- KES 240,000 per annum (equivalent to a maximum monthly contribution of KES 20,000).
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.