Tax Issues to Consider when Investing in Kenya

BLOG 11/09/2020

Are you interested in investing in Kenya? If so, we encourage you to make the move, because Kenya is among the most sought after investment destination, in emerging markets.

A recent survey by Quartz Africa, a leading Business Intelligence Company, International Monetary Fund (IMF) and The World Bank, ranks Kenya as one of the top 10 fastest growing economies in Africa. The survey lists Kenya as a top investment destination in Africa.

Some pertinent issues to look into when seeking to invest in Kenya include, but are not limited to, the taxes applicable and incentives on the investments by corporates.  This article highlights components of taxation and incentives that one may find useful when considering to invest in Kenya.

Local and foreign corporate entities trading in Kenya are liable to corporation tax on their income at the rate of 25% and 37.5% respectively. Other taxes affecting companies include Withholding tax, Pay As You Earn (PAYE), Value Added Tax (VAT), Capital Gains Tax (CGT), Stamp duty and Excise duty.

A corporation tax return is filed on or before the sixth month after the end of an accounting period. In addition, such bodies are required to pay their taxes in installments on or before the 20th day of the fourth, sixth, ninth and twelfth month of a financial year. This applies only when projected tax payable for that year is in excess of Ksh. 40,000.

With regard to withholding taxes, remittance should be done on or before the 20th day of the following month. Withholding tax rates vary depending on the type of payments due and the residency status of the payee. For example, payments in respect to royalties or consultancy fees to a non-resident person are subject to a withholding tax of 20%, which is a final tax.

Investors with employees shall be required to deduct PAYE on the employees' emoluments based on the prevailing individual tax rates and make remittance of the same to KRA. This should be done on or before the ninth day of the following month.

The other tax applicable in Kenya is VAT, which is charged on specified goods and services. There are various rates applicable depending on the nature of the goods or services in question. There is a general rate of 14% applicable to taxable goods and services, 8% on petroleum products except for Liquefied Petroleum Gas and 0% on supplies or importation of goods and services specified in the Second Schedule of the VAT Act, 2013. The returns are filed and payments where applicable made on or before the 20th day of the following month.

Capital gains tax is levied on gains made on the transfer of property in Kenya, acquired on or before 1st January 2015. The rate of capital gains tax is five percent (5%) of the net gain and is paid by the transferor of property, where applicable. The property in question may be buildings or shares.

Some of the tax incentives offered by the Kenyan government to attract investors include:

  • Capital allowances, which are tax incentives offered on capital expenditures in respect of machinery, equipment, or buildings used for business purposes. Capital allowances deductible against profits made are investment deductions by manufacturers or film producers or wear and tear allowances, industrial building allowances, or farm-works deductions by persons carrying on farming activities. Other deductions are those due to persons carrying on extractive activities, shipping.

 

  • Withholding tax rates on payments made to non-residents (royalties, interest, and management fees) as well as dividends paid to non- residents by the Special Economic Zones are exempt from tax.

 

  • Export Processing Zones Incentives

 

  • Incentives for Newly Listed Companies

 

  • Incentives through the Double Tax Agreements

 

For in-depth content on tax incentives for investors, please visit the KRA website or click on https://www.kra.go.ke/en/ngos/incentives-investors-certificate/investing-in-kenya/incentives-investors.

By Cynthiah Kerubo

KRA Tax Education

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