Kenya Tax & Business Guide - Deloitte

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Basic facts
Population 34.3m Inflation 10.3% (2005)
Main languages English, Kiswahili GDP per head US$547*
Currency Kenya shilling (KShs) GDP growth 5.2% (2005)*
Economic communities WTO
GDP sources 26.9% agriculture, 17.9% industry, 65.9% services
*Economist Intelligence Unit.
Political environment

Kenya has a presidential system and the president is head of both the state and government.

Emilio Mwai Kibaki is the president and commander-in-chief. KenyaÌs next presidential and legislative elections are scheduled to take place in December 2007.
Foreign trade and investment
Exports US$3.3bn (2005)* Imports US$5.5bn (2005)*
*Economist Intelligence Unit, October 2006.

Major exports: Tea, horticultural products, and manufactured goods and textiles.

Leading export markets: Uganda, the UK, the US and the Netherlands.

Foreign investment is welcome if it spurs job creation and has no negative impact on security or the environment. Foreigners face ownership restrictions in only a few industries, including infrastructure, insurance and the media. Incentive schemes are available for rural and impoverished areas.
Business and financing
Business forms Private limited liability company

Foreign firms establishing Kenyan subsidiaries usually choose the private limited liability company, as the laws regulating their establishment and operation are less stringent. No restrictions exist on the establishment of a branch of a non-resident company except that a branch must be registered.
Labour environment
Unemployment rate N/a Minimum wage Varies

The minimum wage has 12 separate scales, which vary by location, age and skills level. The minimum wage is KShs 4,638 per month in the largest urban areas and KShs 4,279 per month in rural areas. Union membership is about 20% of the workforce.

Mandatory contributions to the National Social Security Fund (NSSF) are set at 10% of basic wages up to KShs 400 per month, of which half is paid by the employer and half by the employee. There is also a National Hospital Insurance Fund (NHIF) contribution ranging from KShs 30 to KShs 320 per month, which is paid by the employee only.

All non-citizens need an entry permit to work or start a business. There are no official limits on employment of foreigners, but the immigration department closely monitors the number of expatriate staff.
Taxation
Corporate tax
Main rate 30% (37.5% for foreign branches)

Resident and non-resident companies are taxed on income derived from or accrued in Kenya. The corporate tax rate is 30% for locally incorporated companies and 37.5% for branches of foreign companies. Companies newly listed on the Nairobi stock exchange are subject to a reduced corporate tax rate of 20% for five years, subject to certain conditions.

Dividends received by a resident company owning more than 12.5% of the paying company are exempt from tax; otherwise a 5% withholding tax applies to domestic dividends. The withholding tax on domestic dividends is a final tax. A 10% withholding tax applies to dividends paid to non-residents.

Dividends paid out of exempt income are subject to a compensating tax, equivalent to 30/70 of the dividends paid, less any credits to the dividend tax account arising from income tax paid and 30/70 of any dividends received.
Individual tax
Progressive rates to 30%

Residents are subject to tax on income accruing in or derived from Kenya and from employment or services rendered abroad. Non-residents are taxed only on Kenyan-source income. An individual who has a permanent home in Kenya and is present in Kenya for any part of the year, or who does not have a home in Kenya but is present for an aggregate of 183 days in the tax year, is regarded as resident. Also, a person who is present in Kenya in the tax year and in the two preceding years for at least 122 days in each year is also regarded as resident. Individual income tax is charged at progressive rates up to 30%. Personal relief of KShs 13,944 per annum and life insurance relief of 15% of the premium subject to a maximum of KShs 36,000 per annum ( KShs 60,000 for 2007) are available.
Capital gains
Gains are not taxed

Disposals of property after January 1st 2007 are liable to 10% capital gains tax on the net gains. The purchase price and any amounts spent on enhancing or preserving the value of the property, as well as professional fees, stamp duty and advertising expenses, are allowable costs in determining net gain. There is also a requirement for the purchaser to withhold 3% of the gross consideration and remit the same to the Kenya Revenue Authority.

Capital gains from the sale of private residences, certain agricultural land, shares, motor vehicles, and plant and machinery are not taxable in Kenya.
Indirect tax
VAT standard rate 16%

Value-added tax (VAT) applies to most transactions at 16%. Exports, some agricultural inputs, medicines, educational equipment, liquid petroleum gas, kerosene, maize flour, milk and newspapers are zero-rated. Exemptions include live animals, most foodstuffs, building materials, financial services (subject to certain exceptions), insurance, passenger transport, entertainment (subject to certain exceptions), and the rental and lease of land and buildings.

Businesses with annual turnover above KShs 3m must register for VAT, but in some cases registration is compulsory regardless of turnover.
Tax administration and compliance
Tax year Corporations: accounting period; Individuals: calendar year

Taxpayers must file a self-assessment return within six months after the end of the accounting period. The tax liability for a year of income is payable in four estimated instalments during the year; the final tax is payable by the end of the fourth month after the accounting period. A 20% penalty and interest at 2% per month are charged on any unpaid or late tax. Employment income is taxed under a pay as you earn system, where tax is withheld by the employer.
Additional tax information
Withholding taxes Dividends 10%, Interest 15%, Royalties 20%. Rates may be reduced by tax treaty.
Tax treaties Kenya has eight double-tax treaties.
Dividends A final withholding tax of 5% applies to domestic dividends. However, domestic dividends paid to a resident company that has a 12.5% shareholding in the paying company are tax-exempt.
Revenue protection Transfer pricing (effective July 1st 2006).
Groups There are no special provisions for group taxation.
Incentives Investment deduction for manufacturing and hotels; mining deductions; tax benefits for export-processing-zone enterprises.
Other taxes Business permit fees (licences), Entertainment tax, Customs and excise duties, Fringe benefits tax, Local land rates, Refinery throughput tax, Stamp duty, Telecommunications tax, Catering levy, Industrial training levy.