What is Foreign Income?
Foreign income is income earned outside Kenya which would have been taxable in Kenya under Kenyan tax laws if it had been accrued or derived in Kenya or deemed to have accrued in or derived in Kenya.
Is foreign income taxable in Kenya?
Kenya operates a source based tax system, meaning that income is only subject to tax in Kenya if it accrued in or was derived from Kenya.
However, there are a few exceptions to this rule such that income earned outside Kenya is taxable in Kenya.
- In the case of employment income earned outside Kenya by a Kenyan resident individual
- In the case of business income where a Kenyan person carried on their business partly in Kenya and partly outside Kenya.
Should I file my tax returns if my income is earned from outside Kenya?
Every person with a KRA PIN is required to file their returns and pay their taxes via iTax on or before the due date.
I am currently residing outside Kenya and have a KRA PIN. I am employed here and my income taxed. Should I still declare my income or should I file a NIL return?
Where the income earned and taxed outside Kenya is taxable in Kenya as explained in Question 2 above, the taxpayer should declare that income and file their return via iTax.
Section 16(2)(c) of the Income Tax Act allows for the deduction of income tax or tax of a similar nature paid on income which is charged to tax in a country outside Kenya, to a certain extent.
Where there is a Double Tax Agreement in effect between Kenya and the other country, Section 42 provides for a foreign tax credit.
What rate of tax is applied on foreign income?
Where the foreign income of a resident is taxable in Kenya, the resident tax rates imposed on similar income under the Income Tax Act will apply.
What is double taxation?
Double taxation refers to the imposition of tax on the same income by multiple jurisdictions.
- Juridical double taxation occurs where tax is imposed in two or more states on the same taxpayer in respect of the same income.
- Economic double taxation occurs where tax is imposed on two different persons in respect of the same income.
How does double taxation occur?
Double taxation arises as a result of the overlapping of tax systems of different jurisdictions.
How can one avoid double taxation?
It is mainly avoided when countries enter into bilateral or multilateral treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital (Double Tax Agreements).
The Double Tax Agreement (DTA) will include an Article which sets out the method to be adopted for elimination of double taxation using either the exemption or credit method.
Double taxation can also be avoided through a domestic provision for unilateral relief. This is a provision in the income tax law of the country that gives a taxpayer relief for foreign tax against the domestic tax even in the absence of a DTA. This relief will be given in the form of an allowable deduction on the foreign tax paid.
What is double taxation agreement?
This is an agreement between two or more countries for the avoidance of double taxation and the prevention of fiscal evasion with respect to income and capital.
The agreement sets out terms and rules of how income or profits of cross border transactions are to be treated by the two countries so that the taxpayers do not end up paying tax twice on the same income.
Which countries have DTA's with Kenya?
- South Africa
- United Arab Emirates
- United Kingdom
What if I am earning from a country that has no DTA with Kenya and my income is already taxed. Will I still be taxed on the same income when I file my tax returns?
Section 16(2)(c) of the Income Tax Act allows for the deduction of income tax or tax of a similar nature paid on income which is charged to tax in a country outside Kenya, to the extent to which that tax is payable in respect of and is paid out of income deemed to have accrued in or to have been derived from Kenya.
How do I file my tax returns if I have foreign income?
Here is how to file your tax returns with foreign income. Watch video below:
How do I pay the tax due?
Log on to iTax, go to the payment tab, generate a new payment and select the tax head, and sub-head of the tax you are supposed to pay and submit. An e-slip will be sent to your email and you will use the Payment Slip to pay the tax.
Do you take into account prevailing exchange rates when determining the taxable income?
Yes, the exchange rates at the time of payment will be considered.