Tax Rates in Kenya
Registration with the Kenya Revenue Authority (“KRA”) is mandatory for all business structures. The KRA normally issues a taxpayer with a unique taxpayers personal identification number (PIN) and a PIN certificate which specifies the tax obligations of the taxpayer.
Income (or corporation) Tax
Income tax is a direct tax charged on incomes earned by any person resident in Kenya from employment, self-employment, profits from business entities, income taxes such as rent incomes, dividends, interests, pensions, royalties, income from management or professional fees. The taxes include;
- I.Pay As You Earn (PAYE)This is Income tax on individual income. Individual income is taxable at the same graduated rates from 10% up to 30%. The first taxable band is for an annual income of Ksh 121,968 at the rate of 10% and the top tax bracket is for an annual income over 466,704 at 30%.
- II.Corporation tax
Corporation tax is similar to the individual income tax, only that it is levied on companies and it does not have a graduated rate structure. The rate of tax for a Kenyan company is currently30 percent, whereas that for a branch office of a foreign company 37.5 percent of the taxable profits.
The subsidiary will have to deduct withholding tax of 10 percent on the payment of any dividend but the overall effect is that, subject to any double tax agreements, the rate of tax on distributed profits is lower for a local company than for a branch. Withholding taxes are deducted at source from the following sources of income: interest from bank at 15%, interest on housing bonds at 10%, dividends at 5%, royalties at 5%, insurance commission at 5%, and insurance brokerage at 10%. Further, other services payments, including management or professional fees, consultancy and training fees exceeding Ksh. 24,000 per month are charged at 5% as per the Finance Act 2011.
III. Taxing the micro, small and medium enterprises (MSMEs)
Literature shows that MSMEs in Kenya operate largely in the informal sector. This sector constitutes 80.8% of total employment in Kenya by 2011 (Economic Survey 2012).
IV. Turnover Tax (TOT)
Turnover Tax is applicable to any resident person whose turnover from business does not exceed Ksh. 5 million at the rate of 3% of turnover. TOT is applicable to the following businesses, namely: trade, profession or vocation and every manufacture, adventure and concern in the nature of trade. However, it excludes turnover from the following:
i) Persons whose business income has an annual turnover below Ksh. 500,000
ii) Employment income
iii) Exempt incomes falling under the 1st Schedule of in the Income Tax Act,
IV) Business incomes, subject to a final withholding tax
v) Limited companies,
VI) Rental income
vii) Professional or management fees.
Furthermore KRA introduced advance tax as further attempt to net MSMEs and also as a way of formalization of the informal sector businesses. This tax is applicable to owners of commercial and public service vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or commercial vehicles are registered or licensed and the objective is to ensure compliance. The current rates are: For vans, pickups, trucks and lorries Ksh.1, 500 per ton of load capacity per year or Ksh.2, 400, whichever is higher. For saloons, station wagons, mini-buses, buses and coaches, Ksh.60 per passenger capacity per month or Ksh.2, 400, whichever is higher.
VAT (Valued Added Tax)
VAT is an indirect tax levied on the consumption of goods and services, and it is charged at each stage of production and distribution chain up to the retail stage. VAT is also levied on imported taxable goods and services.
Standard rate for taxable goods and service – 16%
Petroleum products and electricity – 12%
Zero rated goods and services and all exports – 0%
Excise tax can be defined as a levy that is applied selectively on particular goods and services. The tax may be applied to either production or sale, to domestic output or imported. The rate for Excise duty is 15%.
Trade taxes are applicable when importing or exporting goods and services. These taxes are either import duties or export duties. The current structure of the tariff bands is 0%, 5%, 15%, 20%, 25%, 30%, 35% and sugar at 100%.
All instruments relating to a transaction carried out in Kenya, and expected to be enforced in Kenya are required to be stamped with the requisite stamp duty. The rates of the specific stamp duty chargeable vary depending on the instruments to be stamped. By way of example, transfers of shares attract stamp duty at a rate of one percent and transfers of land at Four percent (for land within a municipality) and two percent (for land outside a municipality)
Double Tax Treaties
Kenya has double taxation agreements with the United Kingdom, Zambia, Norway, Denmark, Sweden, Germany, Canada, and India. Treaties have been agreed but not brought into force with United Arab Emirates, Italy, Tanzania, Uganda and France.