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.
Personal income tax rates
Effective 01 January 2021, the tax rates applicable to taxable income are tabulated as follows:
|Annual taxable income (KES)||Tax rate (%)|
|On the first 288,000||10|
|On the next 100,000||25|
|On all income over 388,000||30|
As shown above, the maximum rate of 30% will be charged on income in excess of KES 388,000.
The Finance Act, 2020 removed the exemption on income from employment paid in the form of bonuses, overtime, and retirement benefits to employees whose taxable employment income before bonuses and overtime allowances does not exceed the lowest individual tax bands. It is worth noting that the tax relief introduced by the government effective April 2020 for persons earning a gross monthly income of up to KES 24,000 per month (currently the lowest tax band for individuals), as a means of cushioning the low income earners from the impact of the COVID-19 crisis, continues to apply.
Residential rental income tax
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. The Finance Act, 2020 increased the threshold for the annual gross rental income from KES 10 million or less to KES 15 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.