The Kenyan tax system comprises both direct and indirect form of taxes. This includes include Income Tax, Customs and Excise Duties and Value Added Tax (VAT).
Corporate Taxes in Kenya
Income tax is payable at the corporation rate by companies and unincorporated organisations and associations (excluding partnerships, sole proprietorships, and interest or dividend paid by a designated co-operative society) that have taxable income as defined by the Income Tax Act. The income of a partnership or a sole proprietorship is not taxable on the business entity but is taxed on the individual partner or the proprietor. Each partner of a partnership and a sole proprietor is therefore required to declare his business and professional income as part of his personal income and pay tax according to his respective personal tax bracket.
Exemptions from corporation tax, on the application to the Commissioner, may be granted to entities of public character established solely for the relief of poverty or distress of the public, or for the advancement of religion or education and pension trusts and some other qualifying bodies.
The tax rates differ between resident and non-resident companies as outlined below.
- Resident Company – 30%
- Unincorporated entity with a turnover of up to Shs 5 million – on gross receipts – 30%
- Non-resident company operating as a branch under Certificate of Compliance – 37.5%
- Export Processing Zones Enterprises
- First 10 Years – Nil
- Next 10 Years – 25%
- Newly listed companies following year of listing
- List at least 20% of its shares – 27% for 3 yrs
- List at least 30% of its shares – 25% for 5 Yrs
- List at least 40% of its shares – 20% for 5 Yrs
- Real Estate Investment Trusts – Exempt
Branches of non-resident companies are taxable on all their incomes derived from or accrued in Kenya. In determining the profits of a permanent establishment in Kenya, the gains or profits shall be ascertained without any deduction in respect of interest, royalties or management or professional fees paid or purported to be paid by the permanent establishment to the non-resident person, and by disregarding any foreign exchange loss or gain with respect to the net assets or liabilities purportedly established between the permanent establishment in Kenya and the foreign head office or other offices of a non-resident person.
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A permanent establishment is defined under the Income Tax Act as a fixed place of business in which that person carries on business and includes a building site and a construction/assembly project, which has existed for 6 months or more.
Unless a specific approval is obtained from the Minister of Finance to carry forward tax losses for a longer period, such losses can only be carried forward to a maximum of 4 succeeding years.