KenyaTax Obligations Detailed

In Kenya, employers shoulder several tax obligations, including PAYE, NSSF, NHIF, and others.

PAYE (Pay As You Earn)

PAYE is deducted from employee salaries based on graduated tax bands. As of July 1, 2023, these bands and rates are:

• Up to KES 24,000: 10%
• KES 24,001 - KES 32,333.33: 25%
• KES 32,333.34 - KES 500,000: 30%
• KES 500,001 - KES 800,000: 32.5%
• Above KES 800,000: 35%

A personal relief of KES 2,400 per month applies. Employers must remit PAYE by the 9th of the following month.

NSSF (National Social Security Fund)

As of February 1, 2025, NSSF contributions are 6% of an employee's salary, split equally between employer and employee. The minimum monthly contribution is KES 480 (calculated on KES 8000) and the maximum is KES 4,320 (calculated on KES 72,000), capped at KES 72,000. These contributions are due by the 9th of the following month.

NHIF (National Hospital Insurance Fund) (Superseded by SHIF)

Please note: The NHIF has been replaced by the Social Health Insurance Fund (SHIF).

SHIF (Social Health Insurance Fund)

SHIF contributions are 2.75% of an employee's gross monthly salary. Employers are responsible for deducting and remitting these contributions alongside other statutory deductions by the 9th of the following month.

Affordable Housing Levy (AHL)

The AHL is 1.5% of an employee's gross monthly salary, matched by the employer. Both employee and employer portions are due by the 9th of the following month.

Other Tax Obligations

• Withholding Tax: Due five working days after payment to the supplier.
• VAT (Value Added Tax): 16% on taxable goods and services, due by the 20th of the following month.
• Corporation Tax: Payable in four installments by the 20th of the 4th, 6th, 9th, and 12th months of the income year. Final balance is due by the end of the fourth month following the year-end.

This information is current as of February 5, 2025, and may be subject to change. It's recommended to consult with a tax professional for the most up-to-date information and specific guidance.

In Kenya, employers are legally obligated to deduct various taxes and contributions from employee salaries, impacting net pay. These deductions fund government services and social welfare programs.

PAYE (Pay As You Earn)

PAYE is the system for deducting income tax directly from employee salaries. The tax rate is progressive, meaning higher earners pay a larger percentage.

• Tax Bands and Rates (Monthly):
  • KES 0 – 24,000: 10%
  • KES 24,001 – 32,333: 25%
  • KES 32,334 – 499,000: 30%
  • KES 500,001 – 799,000: 32.5%
  • Above KES 800,000: 35%
• Personal Relief: KES 2,400 per month. This amount is deducted from the calculated tax, reducing the overall tax burden.

NSSF (National Social Security Fund)

NSSF contributions are mandatory for both employees and employers. These contributions provide a safety net for retirement and other contingencies.

• Contribution Rate: 6% of gross salary for both employee and employer (total 12%).
• Minimum Contribution: KES 480 per month, split equally between employee and employer.
• Maximum Contribution: KES 4,320 per month, (split equally), applying to salaries up to KES 72,000.

NHIF (National Hospital Insurance Fund) \ SHIF (Social Health Insurance Fund)

NHIF has been replaced by SHIF. SHIF contributions provide access to healthcare services.

• Contribution Rate: 2.75% of gross salary.

Affordable Housing Levy (AHL)

The AHL contributes to the government's affordable housing initiatives.

• Contribution Rate: 1.5% of gross salary for both employee and employer (total 3%).

Pension Contributions

Employees can contribute to registered pension schemes and receive tax benefits.

• Deductibility: Contributions are deductible from taxable income.
• Maximum Deductible Amount: KES 30,000 per month or KES 360,000 annually.

Mortgage Interest Deduction

Employees can deduct interest paid on mortgages for residential properties.

• Maximum Deductible Amount: KES 25,000 per month or KES 300,000 annually.

Other Deductions

Other allowable deductions include:

• Post-retirement medical fund contributions (up to KES 15,000 per month).

Deadlines and Procedures

• PAYE, NSSF, and AHL: Employers must remit these deductions by the 9th day of the following month. Late payment penalties apply.
• Filing: Employers must file PAYE returns using the iTax system. Specific formats and procedures are outlined by the Kenya Revenue Authority (KRA).

Note: This information is current as of February 5, 2025, and may be subject to change due to legal or regulatory updates. It's recommended to consult with a tax professional for personalized advice.

In Kenya, Value Added Tax (VAT) is a consumption tax levied on the supply and importation of taxable goods and services.

VAT Rates

• Standard Rate: 16% - Applies to most goods and services.
• Zero Rate: 0% - Applies to exports, certain essential goods, and services provided to designated entities.
• Exempt Rate: Applies to specific goods and services outlined in the First Schedule of the VAT Act 2013, including financial services, insurance, medical services, and unprocessed agricultural products. Input tax on exempt supplies is not recoverable.

VAT Registration

• Mandatory Registration: Businesses with a twelve-month turnover of taxable supplies exceeding KES 5,000,000 are required to register for VAT.
• Voluntary Registration: Businesses below the mandatory threshold can register voluntarily.
• Digital Marketplace Supplies: Non-resident suppliers of electronic services or services offered through digital marketplaces must register, regardless of turnover.

Filing and Payment

• Filing Frequency: Monthly VAT returns are due by the 20th of the month following the reporting period.
• Nil Returns: Businesses with no VAT transactions in a given month must file a nil return.
• Payment: VAT payments are due alongside the return filing, by the 20th of the following month.
• Withholding VAT: Designated withholding VAT agents deduct VAT at specified rates and remit it to KRA by the 20th of the following month. However, registered manufacturers with investments exceeding KES 2 Billion as of December 31, 2024, are exempt from withholding VAT. Agents who fail to withhold or remit face a 10% penalty.

Exempt Supplies

Exempt supplies are not subject to VAT and input tax is not recoverable on expenses related to exempt supplies. Examples of exempt supplies include:

• Financial services
• Insurance
• Medical services
• Unprocessed agricultural products
• Education services

Digital Services

• Excise duty now applies to excisable services provided by non-residents via digital platforms.
• Digital marketplace supplies are subject to VAT at 16%.

VAT Invoices

VAT invoices must include:

• Business name and address
• VAT registration number (PIN)
• Invoice date
• Sequential invoice number
• Description of goods/services
• VAT rate applied to each item
• Total amount including VAT

It's important to note that this information reflects the regulations in Kenya as of February 5, 2025, and is subject to change. Consulting with a tax professional is recommended for specific situations and up-to-date advice.

Kenya offers a range of tax incentives to attract investment and stimulate economic growth. These incentives target various sectors and activities, providing opportunities for both local and foreign investors.

Capital Allowances

• Wear and Tear Allowances: These are based on the declining balance method and vary by asset class:
  • Class 1 (37.5%): Heavy self-propelling vehicles and equipment.
  • Class 2 (30%): Computers, photocopiers, and scanners.
  • Class 3 (25%): Light vehicles, aircraft, and motorbikes.
  • Class 4 (12.5%): Switchboards, telephones, and bicycles.
• Investment Deduction: A 100% deduction is available for capital expenditure on buildings and machinery for projects meeting specific criteria, such as a minimum investment value. As of 2025, this minimum investment value has been reduced to KES 1 Billion over three years for locations outside Nairobi and Mombasa.
• Industrial Building Deduction: A 10% allowance is granted for industrial building capital expenditure (net of the investment deduction).
• Farm Works Deduction: Certain farm improvements qualify for deductions, including farmhouses, fences, and dips.

Special Economic Zones (SEZs) and Export Processing Zones (EPZs)

• SEZs:
  • 10% corporate tax for the first 10 years, 15% for the next 10 years, and the standard rate (currently 30%) thereafter.
  • Exemption from import duties, VAT, and import declaration fees on imported goods.
  • Zero-rated VAT on local supplies.
  • Exemption from stamp duty, advertisement fees, and business service permits.
• EPZs:
  • 10-year corporate tax holiday, followed by a 25% rate for the next 10 years.
  • 10-year withholding tax holiday on dividends and remittances to non-residents (except for commercial enterprises).
  • Perpetual exemption from VAT, import duties, and stamp duty on inputs and legal instruments.

Other Tax Incentives

• Tax Remission for Exports (TREO): Duty and VAT drawbacks on raw materials used in exported goods.
• Reduced Corporate Tax Rate for Large Investments: Companies investing KES 10 billion or more may negotiate a lower tax rate.
• Post-Retirement Medical Fund Relief: Resident individuals contributing to these funds can claim a relief of 15% of the contribution or KES 60,000 annually, whichever is lower.
• Foreign Tax Credit: While not generally available, a foreign tax credit may be applicable under a Double Taxation Agreement (DTA). Otherwise, foreign tax paid can be deducted as an expense.
• Personal Relief: Resident individuals are entitled to a personal relief of KES 2,400 per month.

Application Procedures

Specific application procedures vary depending on the incentive. It is advisable to consult with the Kenya Revenue Authority (KRA), KenInvest, or other relevant authorities for detailed guidance.

Important Note: Tax laws and regulations are subject to change. The information provided is based on the available data as of February 5, 2025, and should not be considered financial advice. It is crucial to consult with tax professionals for personalized guidance.