In Kenya, employers have several tax responsibilities. They must deduct Pay As You Earn (PAYE) from the gross salaries of their employees and remit this to the Kenya Revenue Authority (KRA) on or before the 9th day of the following month. PAYE is calculated using a progressive tax rate structure that includes 10% on income up to KES 24,000 per month, 25% on income between KES 24,001 and KES 32,333 per month, and 30% on income above KES 32,333 per month. Employers are also responsible for applying available tax reliefs for each employee, such as a personal relief of KES 2,400 per month.

National Social Security Fund (NSSF)

Employers are required to contribute an amount equal to the employee's NSSF contribution, meaning the total contribution is a maximum of KES 2,160 per month (KES 1,080 from the employer and KES 1,080 from the employee). Contributions are based on a percentage of the employee's pensionable income. NSSF contributions must be paid on or before the 9th day of the following month. All employers must be registered with the NSSF to facilitate their contributions.

National Hospital Insurance Fund (NHIF)

Employers are required to deduct employee NHIF contributions and remit them along with their matching employer contribution. NHIF contributions are based on a graduated scale depending on the employee's gross monthly salary. Payments are made on or before the 9th of the following month.

Affordable Housing Levy (AHL)

Employers in Kenya are required to deduct and contribute 1.5% of the employee's gross monthly salary towards the Affordable Housing Levy. This matches the employee's contribution for a total of 3%. AHL contributions are remitted to the relevant authorities within 9 working days after the end of the month the payment is due.

Other Potential Employer Contributions

Employers may be required to contribute to Work Injury Benefits Act (WIBA) premiums depending on the risk classification of their industry. They may also offer additional retirement savings plans for their employees with varying contribution structures. Furthermore, employers may be required to make contributions to ensure compliance with health and safety regulations in their workplace.

Important Note

It's highly recommended for employers to remain updated with any changes or amendments to Kenyan tax laws and regulations to ensure ongoing compliance. Consulting with a tax advisor is advised for specific guidance based on your industry and business size.

Kenyan employees earning taxable income are subject to Pay As You Earn (PAYE) deductions. PAYE is calculated based on a progressive tax system. The current tax bands are:

• 10% on income up to KES 24,000 per month
• 25% on income between KES 24,001 and KES 32,333 per month
• 30% on income above KES 32,333 per month

Employees can use the KRA iTax system to file their tax returns and claim any applicable tax reliefs.

National Social Security Fund (NSSF)

Employees are required to contribute to the NSSF based on their pensionable earnings. Contributions are a percentage of their income up to a current maximum of KES 1,080 per month under the NSSF Act 2013.

National Hospital Insurance Fund (NHIF)

Employees contribute to NHIF based on their gross monthly salary on a graduated scale.

Affordable Housing Levy (AHL)

Employees contribute 1.5% of their gross monthly salary towards the Affordable Housing Levy (AHL).

Other Potential Deductions

Employees may contribute to private pension plans offered by their employers or registered pension schemes. Contribution amounts vary. Employees who are members of trade unions may have deductions made to cover their union membership fees. Graduates with outstanding Higher Education Loans Board (HELB) loans may have deductions to repay their loans.

Important Note

Employees should consult with their employers or the relevant authorities for specific details on the deductions applicable to their income. Changes to tax rates and regulations in Kenya may occur, so staying updated on current laws is crucial.

The standard VAT rate in Kenya is currently 16%. This rate applies to most supplies of taxable services within Kenya unless specifically zero-rated or exempt. Businesses exceeding a taxable turnover of KES 5 million in any consecutive 12-month period are mandated to register for VAT. Voluntary registration is also possible below this threshold.

Zero-Rated Services

Zero-rated services have a VAT rate of 0%. While VAT is not charged on the sale itself, the supplier of zero-rated services is still entitled to claim a refund of input VAT incurred on expenses. Examples of zero-rated services include exports of services outside of Kenya, some specialized transport services, insurance brokerage services, and some financial services.

Exempt Services

Exempt services are not subject to VAT at all. Additionally, businesses providing exempt services cannot recover input VAT incurred on related expenses. Examples of exempt services include financial services such as interest earned or the dealing in currency, educational services provided by recognized institutions, medical services, and unprocessed agricultural products.

Place of Supply for Services

The place of supply rules determine whether a service is taxable in Kenya. This is crucial especially when services are provided cross-border. Services are considered supplied in Kenya if the recipient is located in Kenya. There are additional specific rules in VAT legislation for services such as telecommunication and electronic services.

Input VAT Recovery

Registered businesses in Kenya can generally recover input VAT incurred on purchases directly related to making taxable supplies. However, input VAT cannot be recovered on purchases for exempt supplies or certain blocked goods and services listed in the VAT Act. If expenses are used for both taxable and exempt supplies, only the portion of input VAT related to the taxable supplies can be recovered.

VAT Filing and Payment

VAT-registered businesses must file monthly VAT returns. Returns are due by the 20th of the month following the tax period. VAT payable must be remitted at the time of filing the VAT return.

Important Note

The VAT Act 2013 and associated regulations contain intricate rules regarding VAT in Kenya. It's advisable to consult a tax expert to ensure compliance within your specific industry and business operations.

Businesses engaged in manufacturing for export can benefit from reduced Corporate Income Tax (CIT) rates and import duty exemptions under the Manufacturing under Bond program. Companies that invest heavily in specific sectors or geographical locations may be eligible for a 150% investment deduction. Companies that meet specific criteria can qualify for reduced CIT rates for a determined period after listing on the securities exchange. Companies engaged in film production may be eligible for income tax deductions related to qualifying Kenyan film production expenditure.

Special Economic Zones (SEZs)

Businesses operating within designated SEZs enjoy a CIT rate of 10% for the first 10 years and 15% for the subsequent 10 years. SEZ businesses benefit from exemptions including VAT on supplies to SEZ enterprises, import duties and other taxes, and stamp duty.

Export Processing Zones (EPZs)

EPZ enterprises enjoy a 10-year corporate tax holiday, followed by a 25% rate for the next 10 years. They also have a 10-year withholding tax holiday and exemptions on various duties and VAT.

Other Incentives

Businesses are entitled to deductions on capital assets over time, such as wear and tear allowances on machinery and an investment deduction depending on the asset type. A 100% tax deduction is available for Research & Development (R&D) expenses incurred directly for the business. Specific allowances may be available for bad debts written off. Tax deductions are available for donations made to qualifying charitable organizations.