KENYA TAX GUIDE 2026 To 2027 & Updates

a) Residence in Kenya for personal tax

A resident individual is a person who has a “permanent home” in Kenya for any period in a particular year or has no permanent home in Kenya but:

• Was present in Kenya for a period or periods amounting in the aggregate to 183 days or more in a year of income or:

• Was present in Kenya in the year of income and in each of the two-preceding years of income for a period averaging more than 120 days in each of the year of income.

• Permanent home is a place where an individual resides or which is available to that individual for residential purposes in Kenya or where in the opinion of the Commissioner, the individual’s personal or economic interest are. A permanent home can mean more than just having a fixed place of abode and any “temporary” accommodation arranged for a period of time could be considered as permanent home for income tax purposes. Hence this brings into scope individuals who may have their closest personal and economic ties in Kenya to be deemed tax residents. 

b) Income tax rates

Taxable Income	Taxable Income	Rate %	Tax – Shs	Cumulative Tax Shs. Per annum
Shs P.A 0-288,000 288,000 – 388,000 388,000 – 6,000,000 6,000,000 – 9,600,000 Over 9,600,000	Shs P.M   24,000 24,000 – 32,333 32,333 – 500,000 500,000 – 800,000 800,000 and over	10 25 30 32.5 35	28,800 25,000 1,683,600 1,170,000 –	28,800 53,800 1,737,000 2,907,400

 

C) Reliefs

	Shs. per annum
Personal relief	Shs. 28,800
Mortgage interest deduction on owner occupied property                                 (for purchase or improvement and construction (wef 1st July 2025)	15% of taxable income subject to a maximum of  Shs. 360,000
Life insurance relief – 15% of premium subject to a maximum of:	Shs. 60,000
Housing levy	Full amount of contributions
SHIF contributions	Full amount of contributions
Post-Retirement Medical Fund Relief	Shs. 180,000

d) Personal relief

Medical services or medical insurances

Medical services or medical insurances by an insurance provider approved by Commissioner of Insurance provided to “non whole-time service directors” and “whole-time” directors holding more than 5% of share capital or voting power of a company, partnerships and sole proprietorship to include their beneficiaries which include spouse and upto 4 children below 21 years is “subject to a  tax free benefit of a maximum value of   Shs. 1 million each”. The balance is either taxable as a benefit under PAYE or disallowed and taxed on the employer.

The medical insurances must be non-discriminately and apply to all fulltime employees and can have different covers/limits for each category of employees and directors.

“Cash allowances” provided for medical services to employees by employers are chargeable to tax on the employees or disallowed and taxed on the employer.

Medical expenses paid directly to medical services providers by an employer are allowable for tax but these must meet conditions and must be incurred wholly and exclusively in the production of income and there must a formal documented policy and must be accessible for all employees and directors and if not these are taxable under PAYE or disallowed and taxed on the employer. These must be supported by etims invoices.

Other tax free benefits and income

• Reimbursements of expenses incurred by a public officer for the purposes of performing official duties.

• Tax paid in another country on employment income by a Kenyan citizen can be offset against tax payable on that income in Kenya to the maximum of tax payable in Kenya on the said income.

• Amounts paid by an employer in respect of employment into a registered pension scheme or provident fund subject to a maximum of Shs. 360,000 per annum –  (Shs. 30,000 per month.)

• Education fees paid for an employee’s dependents’ or relatives, if taxed on the employer.

• International passage cost for non-citizen employees or directors recruited outside Kenya solely to serve the employer. 

• Non – cash benefits “not exceeding” Shs. 60,000 per annum.

• Shs. 10,000 per day as per the Finance Act, 2025 with effect from 1st July 2025 (previously Shs. 2,000 per day) towards subsistence and travelling allowance for a person working outside usual place of work.

• Meals provided at employer’s canteen or by a third party registered taxpayer both at the employer’s and a third-party premises where the value of the meal does not exceed Shs. 60,000 per annum per employee. 

• The first Shs. 150,000 per annum of total income, and deduction of upto Shs. 50,000 per annum for non- reimbursed hospital admission costs, drugs treatment and home care services for “disabled persons” registered with the National Council for Persons with Disabilities and approved by the Commissioner (Exemption is valid for 5 years). 

• Premiums paid for group life policy cover where they don’t confer a benefit on the employee or any of his dependents.

• Income earned by an individual under the Ajira Digital program (Digital freelancers).  An Ajira registered member is required to pay Shs. 10,000/= registration fee (in lieu of tax) per year to the Ajira Fund for the next three years, beginning 1st January 2020. 

• Income of investees in Real Estate Investment Trusts (REITS).

• Tax rebates on graduate apprenticeships to include apprenticeships from technical, vocational institutions to encourage employers to employ persons from these institutions and will be allowed a tax rebate of 50% of the amount of salaries and wages paid to at least 10 apprenticeships. This is in addition to the corporate tax deduction (100%) of expense incurred already allowed under Section 15 of the ITA.

• Amounts reimbursed as mileage claims to employees on official duties which shall be based on the approved Automobile Association of Kenya (AA Kenya rates). Any amounts above the approved rates of shall be taxable benefits on the employees or disallowed and tax on the employer..

• Employers are allowed to pay club fees on behalf of employees or directors and if so, the employee or director will be taxed as a benefit. If the club fees are disallowed on the employer, then employees or directors will ‘’not’’ be taxed on the benefit.

e) Qualifying Interest

Any qualifying interest income receivable by a “resident individual” is taxable only through the “withholding tax” mechanism which shall be the  “final tax’’.

“Qualifying interest” means the aggregate interest, discount or original issue discount receivable by a resident individual in any year of income:

Provided:

• interest earned on an account held jointly by a husband and wife shall be deemed to be qualifying interest.

• in the case of housing bonds, the aggregate amount of interest shall “not” exceed Shs. 300,000 per annum.

f) Taxable Employment Benefits

i) Motor vehicles

Where motor vehicles owned by an entity and are used by employees, directors, partners and sole proprietors for personal use the tax implications are as follows:

• Taxed at the higher of 2% p.m of the initial cost of the motor vehicle.

• Leased and hired motor vehicles are taxed at the cost of hiring or leasing the motor vehicle.

• Where there is restricted use, the Commissioner may upon application, determine a lower rate based on usage.

• Whether the motor vehicle is self-driven or chauffer – driven, the Commissioner may at any time, where he considers appropriate, require the employer to furnish the Commissioner with the following information:

– the list of employees to whom motor vehicles have been provided,
– the make, registration, engine capacity and cost of the motor vehicle provided to an employee,
– the extent to which the motor vehicle is shared by the other employees,
– where prior authority is required, the designation/rank of the person holding that authority,
– circumstances under which the motor vehicle is used during non- official working time such as weekends and public holidays.

• No motor vehicle benefit shall accrue where an employee uses a “pool” motor vehicle. However, such an employee if uses a “pool” motor vehicle for personal use shall be deemed to have received transport benefit chargeable to tax provided the aggregate value of the benefit exceeds 3,000/= per month. 

ii) Domestic benefits

Benefits including, house helps, water, security, electricity provision of furniture etc are taxable at the “higher of cost or fair market value”. The prescribed values of benefits where the cost to the employer is difficult to ascertain are:

• Telephones (including mobiles) – 30% of cost to employer
• Furniture – 1% of cost to employer 
• Water (provided communally) – Shs. 500 – (Shs. 200 for agricultural employees)
• Electricity (provided communally) – Shs. 1,500 – (Shs. 900 for agricultural employees)

iii) Housing benefit

• The housing benefit is taxed on “higher of market rental or actual rent paid”

– For directors – 15% of total income.
– For whole- time service directors – 15% of total employment income
– For employees – 15% of total employment income.
– Agricultural employees – 10% of total employment income.

• Rents reimbursed by an employee are deductible in calculating the housing benefit.

iv) Employee loans and Fringe Benefits Tax (FBT)

Loans granted to employees interest free or at subsidised interest rates are subject to Fringe Benefit Tax (FBT) and FBT is payable by the employer at the corporate tax rate on the difference between the market interest rate prescribed by KRA periodically and the interest paid by the employee and is payable on the loan balance each month.

v)  Shares in Lieu of cash emoluments by eligible start-up

• Where an employee is offered company shares in lieu of cash emoluments by an eligible start-up the taxation of the benefit from the shares allocated to that person by virtue of employment shall be deferred and taxed within 30 days of earlier of:

(a) expiry of 5 years from the end of the year of award of the shares

(b) disposal of the shares by the employee

(c) date the employee ceased to be an employee of the eligible start up

Provided:

– Does not apply to any cash emoluments or other benefits in kind offered to an employee by virtue of the employment.

– Benefit shall be deemed to accrue at the earlier of the events contemplated in (a) (b) or (c) above.

– The value of the taxable benefit shall be the fair market value of the shares at the earlier for the occurrence of the event contemplated in (a), (b) or (c) above.

– Where the fair value is not available, the Commissioner shall determine the value of the shares based on the latest financial statements. 

vi) Pension/Provident Fund

Contributions

– Deductible contributions to registered pension or provident funds in respect of employees is lower of 30% of pensionable income and the actual contribution upto a maximum of Shs. 30,000 per month.

– Employees working for employers who are not chargeable to tax in Kenya are taxed on the contributions made on their behalf by employer to unregistered pension scheme or provident fund or on the excess of the contribution made to a registered pension scheme or provident fund. The tax liability is shifted to the employee from the employer.

Withdrawals 

Payment of pension benefits from a registered pension fund, registered provident fund, registered individual retirement fund, public pension scheme or NSSF are “exempt’’ from tax “provided”:

– Upon attainment of retirement age determined in accordance with the rules of the fund or scheme.

– Payment of a retirement annuity or withdrawals from the fund or scheme prior to attaining the retirement age due to  ill health. 

– Withdrawals from the fund after 20 years from the date of registration as a member of the fund or scheme. 

– Withdrawals made to dependants, spouses, children from estate of the deceased from a fund or scheme (Effective 1st July 2026)

vii) Gratuitie

Employer contributions to an approved gratuity schemes are “exempt’’ from income tax “provided”: 

• Employment contract must be from a continuous period of 3 years.

• Total gratuity contributions cannot exceed 31% of basic salary or total emoluments earned on the contract period. 

• The exemption does not apply to employees already actively claiming standard pension relief.

3. NSSF, NHIF & SHIF, DIT LEVY AND AFFORDABLE HOUSING LEVY

a) National Social Security Fund (NSSF)

• The National Social Security Fund (NSSF) Act No. 45 of 2013 came into effect in February 2023 and various changes became effective February 2023 to both employer and employee contributions in accordance with the Third Schedule of the Act. The contributions are at the rate of 6% for the employee and employer, subject to the upper monthly limit of Shs. 2,160 for employees earning over Shs. 18,000 per month.

• The contributions are classified into Tier I and Tier II and the employees may opt to pay Tier II contributions to an approved contracted out pension or provident fund scheme.

• The contributions were implemented in February 2023 and gradually increase over a four-year period from 2023 to 2027.

• The lower limit is Shs. 9,000 for 2026 and Shs. 10,000 for 2027.

• The rates effective 1st  February 2026 are as follows:

Employee Earnings Shs	Tier I Employer Deduction Shs	Tier I Employee  Deduction Shs	Tier II Employer Deduction Shs	Tier II Employer Deduction Shs	Total Contribution Shs
9,000	540	540	–	–	1,080
10,000	540	540	60	60	1,200
14,000	540	540	300	300	1,680
18,000 and over	540	540	540	540	2,160

• Payable by 9th of the following month.

• Compulsory registration for all employers irrespective to the number of employees. Voluntary registrations are permitted for casual or self- employed workers.

b) Directorate of Industrial Training (DIT)

• DIT is Payable by every employer at the rate of Shs. 50 per employee including an apprentice, trainee, temporary, seasonal and casual worker. 

• Payable by the 9th of the following month.

c) SHIF

• The Social Health Insurance Fund (SHIF) replaced the NHIF effective 1st October 2024 and contributions at the rate of 1.5% is payable by the employee and matched by employers. 

• SHIF is payable by 9th of the following month.

 

4. CORPORATE TAX

 

a) Tax rates

The applicable tax rates are as follows:

	Note	2026
Resident company		30%
Permanent establishment of a non- resident company		30%
Turnover tax	3	3%
Residential Rental Tax Gross residential rental income from Shs. 288,000 to Shs. 15 million applicable only to resident individuals subject to income tax.	1	7.5%
Companies operating a carbon exchange or emission trading systems certified by the Nairobi International Financial Centre Authority. ·      First 10 years ·      Thereafter		15% 30%
Export Processing Zone Enterprises: ·    First ten years ·      Next ten years ·      Thereafter		Nil 25% 30%
Special Economic Zone Enterprise, Developer or Operator: ·     First ten years ·     Next ten years ·     Thereafter	4	10% 15% 30%
Companies operating a shipping business ·     First ten years ·     Thereafter		15% 30%
Income of a Registered Unit Trust, Collective Investment Scheme or a Real Estate Investment Trust (REIT).		Exempt
Local assemblers of motor vehicles ·     First five years ·     Next five years – Provided the company achieves a local content equivalent to 50% of ex-factory value of motor vehicles. Local content means parts designed and manufactured in Kenya by an original equipment manufacturer operating in Kenya. ·    Thereafter	5	15% 15% 30%
Developers who construct at least 100 residential units per year.	2	15%
Company certified by the Nairobi International Financial Authority where company invests atleast Shs. 250 million in Kenya in that year of income.		Exempt
Resident company operating a carbon markets exchange or emissions  trading system certified by the Nairobi International Financial Centre  Authority (“NIFCA”) ·     First ten years                                                                                                     ·     Thereafter		15% 30%
Interest and deemed interest on bearer bonds issued outside Kenya for  a period of at least two (2) years and interest, discount or original issue discount.		7.5%

Notes:

1) The residential rental tax regime is applicable for the use or occupation of residential property which does not exceed Shs. 15 million during any year of income.  The tax is paid on a monthly basis. 

2) This is applicable where a developer constructs at least one hundred residential units annually subject to certain approvals. 

3) Turnover tax applies to any person whose turnover from business is between Shs. 1 million to 25 million in a year of income. Turnover tax does not apply to management,  professional or training fees, rental income and any income subject to withholding tax.

4) The lower corporation tax rate is applicable whether the Special Economic Zone enterprise sells its products within or outside customs territories which includes Kenya.

5) The 15% corporate rate of tax can be further extended for additional five years if the local content equivalent to 50% of the ex-factory value of the motor vehicles is achieved.

b) Tax losses

• The Finance Act, 2021 with effect from 1st July 2021, allows losses can to be carried forward indefinitely. Previously tax losses prior to 1st July 2021 were only carried forward for a period of 10 years (year of loss plus 9 years)

• The Finance Act, 2025 with effect from 1st July 2025 allows tax losses to be carried forward for a period of 5 years only (year of loss plus 5 years) and the losses carried forward can be extended beyond the 5 years upon application and recommendation of the Commissioner and approval by the Cabinet Secretary. 

• The Finance Act 2026 effective 1st July 2026 has introduced a provision that allows taxpayers who invest at least Shs. 10 billion prior to 1st July 2025 to utilise tax losses beyond the 5-year limit.  Any tax losses realised prior to 2025 year of income will be deemed to have been realised in 2025 and the loss will be allowable until it is extinguished.

c) Deemed dividend distributions

• Deemed dividends include the following:

– Distribution of a cash or asset distributed or transferred to or for the benefit of the shareholder or a person related to that shareholder.

– Settlement by a company of a debt owed to a 3rd party by a shareholder or a person related to that shareholder.

– Amounts utilized by a company for the benefit of the shareholder or a person related to that shareholder.

– Discharge of an obligation measurable in money terms by the company of a shareholder or a person related to that shareholder.

– Any transaction with a shareholder or accounting adjustment (to financial statements of the company) that has the effect of increasing the present taxable income or reduced assessed losses of the company.

– Bonus issue of shares.

d) Deemed interest (Thin capitalisation)

• Resident entities which are controlled by a “non-resident” person alone or together with Not more than four other persons “excluding banks and financial institutions”, that have interest-free loans provided or secured from “non-residents” are required to compute withholding tax on “deemed interest” and add back the withholding tax paid in the tax computation.

• The deemed interest attracts 15% withholding tax and the amounts paid is not allowable for tax.

• Deemed interest is based on the amount of interest equal to the average 91-Day Treasury Bill rate, deemed payable by a resident person in respect of any loans provided or secured from non-residents where such loans are provided interest free.

e) 30% EBITDA Interest Restriction

Interest

• The Finance Act, 2023 made the following changes with effect from 1st July 2023 and amended the interest limitation provision in Section 16 (2) (j) of the Income Tax Act by:

a) By deleting the provision that required total interest (including that which is paid to both resident and non-resident persons) on all loans in excess of 30% of EBITDA of the Earnings Before interest, taxes and depreciation and amortization (EBITDA) to be “disallowed’’ and introduced a new provision that disallowed only the interest that is paid or payable on all loans to “non-residents” in “excess of 30% of EBITDA”.

b) It also introduced a provision that allows persons up to 3 years after a year of income to claim a deduction of the interest disallowed under section 16 (2) (j) if the interest paid or payable in any of the subsequent 3 years falls to 30% of EBTIDA or lower in a year.

c) Excluded any interest that is exempt from income tax from the interest restriction rules.

d) All loans means loans, overdraft, ordinary trade debts, overdrawn current accounts or any other forms where the company is paying a financial charge, interest, discount or premises.

Exemptions from interest

• Microfinance institutions licensed and non-deposits taking microfinance businesses under the Micro Finance Act, 2006. The Finance Act 2026 effective 1st July 2026 separated lending and leasing business as follows: 

– Entities licensed under the Hire Purchase Act.

– Non-deposit taking institutions involved in lending and leasing business.

• Companies undertaking the manufacture of human vaccines.

f) Realised Foreign Exchange Losses

• The Finance Act, 2022 with effect from 1st July 2022 overhauled Section 4A of the Income Tax Act and “restricted” foreign realised exchange losses incurred by an entity whose gross interest paid or payable to “related persons and third parties” exceeded 30% EBITDA in any financial year.

• The Finance Act, 2023 with effect from 1st July 2023 introduced a timeline of “five years” within which deferred “realised” foreign exchange losses can be claimed from the date the losses were realized. 

• The realized losses are disallowed and deferred where the gross interest paid or payable to a ‘non-resident’ person exceeds thirty percent (30%) of the entity’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in any year of income.

g) Diminution in value of any implements, utensil or similar

• Effective 1st July 2025, a deduction from taxable income is allowable on amounts considered as representing the diminution in value of any implement, utensil or similar article, employed in the production of gains or profits not being machinery or plant in respect of which a deduction may be made under the Second Schedule of the Income Tax Act (investment allowances) at the rate of 100% in the year of income. Previously the deduction was claimable over 3 years at the rate of 33.3% per year.

h) Felling of Timber

• Effective 1st July 2025, The Finance Act, 2025 repealed Section 15 (2) (i) of the Income Tax Act that entitled owners of land who accrue gains or profits from sale of, or grant of the right to fell, standing timber which was growing at the time the owner acquired such land to a deduction where:

– Such land was acquired for valuable consideration, so much of the consideration on the Commissioner may determine to be just and reasonable a representing the cost of such timber or.

– No valuable consideration or was given for the lane so much of the amount on the commissioner may determine to be just and reasonable a representing the value of such standing timber at the one time the owner acquired such land, as is attributable to such timber sold during the such year of income, or 

• The Act also deleted Section 15(2)(j) of the Income Tax Act which entitled a person who purchases the right to feel standing timber and accrues gains or profits from sale of such timber to a deduction in respect of the price paid for such rights as the Commissioner may determine to be just and reasonable as attributable to the timber sold during the year of income. 

• Hence due to the repeal of Section 15(2) (i) a person is entitled to a deduction in respect of expenditure which is wholly and exclusively incurred in the production of income under Section 16.

5. INSTALMENT TAXES PAYABLE AND DUE DATES

• Instalment taxes are payable on the following basis: –

– 110% of Prior Year’s tax payable less any withholding and advance taxes paid, or

– Actual tax payable based on estimated total income of the current year. 

• When the Prior Year Plus 110% is used, there is a grace period to pay the final tax of up to the last day of the 4th month following the accounting year end date. 

• When the Actual Basis method is used, taxes are to be paid in full year by the last day of the accounting year end date. No grace period is given for the payment of final tax. 

• The method selected should be used consistently for the year.

• For all tax payers instalment taxes are payable as follows:

1st instalment Tax	25% on or before 20th Day of 4th month
2nd instalment Tax	25% on or before 20th Day of 6th month
3rd instalment Tax	25% on or before 20th Day of 9th month
4th instalment Tax	25% on or before 20th Day of 12th month

• On the Agriculture sector, the taxes are payable as follows:

1st instalment Tax	75% on or before 20th Day of 9th Month
2nd instalment Tax	25% on or before 20th Day of 12th Month

One qualifies to be in this sector, if two-thirds of the income is derived from agricultural, pastoral, horticultural or similar activities. 

• No instalment taxes need to be paid by an individual if the tax payable for the year does not exceed Shs. 40,000.

6. TURNOVER TAX

• Rate of Turnover Tax rate is 1.5% to (was 3% prior to 1st July 2023.)

• Turnover threshold to Shs. 1 million to Shs. 25 million 

• VAT is to be levied on the income over Shs.  5 million which even though Turnover Tax is applicable.

• Turnover tax is also applicable to incorporated entities. 

• TOT tax shall “not” apply to:

– Rental income
– Management professional and training fees services
– Any income which is subject to a Withholding Tax under the Income Tax Act.

• Penalty for late filing of a TOT tax return is to Shs. 1,000.

• Due date for payment of TOT shall be on or before 10th day of the month following the end of the tax paid.

7. BRANCH REPATRIATION TAX

• The Finance Act, 2023 effective 1st January 2024 introduced a Branch Repatriation Tax which is computed on the repatriated profit earned in Kenya by a non-resident who carries on business in Kenya through a permanent established (PE) such as a branch and sent to the head office for the year of income. The Branch Repatriation Tax is considered as dividend distribution by the PE to the head office and will be in addition to the tax charged on income of the PE and further provides a “formula” to be used by the PE in the computation of the Branch Repatriation Tax. The formula seeks to charge to tax the change in net assets in the year of income and the tax payable by the PE.

Repatriated Profit =Net assets at beginning of the year + Net profit for the year of income – Tax payable on chargeable income – Net assets at year end

• The net assets for purposes of determining repatriated income will be the total book value of assets less total liabilities for the year of income excluding the evaluation of assets, while the net profit will be circulated in accordance with generally accepted accounting principles.

• The repatriated income is taxed at 15%.

8. SIGNIFICANT ECONOMIC PRESENT TAX (SEPT)

• Digital Services Tax (DST) which was introduced in the Finance Act, 2020 with effect from 1st January 2021 was “replaced” with a new type of tax to be known as “Significant Economic Presence Tax (SEPT)” by the Tax Laws (Amendment) Act, 2024 effective 27th December 2024.

• The Finance Act, 2025, with effect from 1st July 2025 broadened the scope of SEPT beyond income from business carried out over a digital marketplace to include “all services provided through the internet or any electronic network”. 

• SEPT is payable by a non-resident person whose income from the provision of services is derived from or accrues in Kenya through a business carried over a digit market place.  The taxable profit of a person liable to pay SEPT shall be deemed to be 10% of the gross turnover.  This taxable profit will then be subjected to tax at the rate of 30%.

• The due date for paying SEPT and filing the corresponding tax return will be on or before the 20th day of the month following the end of the month in which the services was provided.

• The following are “exempt” for SEPT:

i) A non-resident person who offer the services through a permanent establishment or

ii) Income subject to withholding tax or 

iii) Income of a non-resident person who carries on in Kenya, the business of transmitting messages by cable, radio, optical fiber, television broadcasting, Small Aperture Terminal, internet, satellite or by any other similar method of communication or

iv) A non-resident providing services to an airline in which the Government of Kenya has at least 45% shareholding.

9. DIGITAL ASSET TAX  (DAT)

The Finance Act, 2023 introduced Digital Asset Tax (DAT) with effect from 1st September 2023 at the rate of 3% of the transfer or exchange value of the digital asset which is be payable by a person on the income derived from the transfer of digital assets.

A digital asset will be anything of value that is not tangible and cryptocurrencies, token code, number held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically and a non-fungible token or any other token of similar nature. 

The income derived from the transfer or exchange of a digital asset is the gross fair market value consideration received or receivable at the point of exchange or transfer of a digital asset.

DAT is to be deducted and remitted to the Commissioner by the owner of the platform or the person who facilitates the exchange or transfer of a digital asset and remitted within 5 working days together with a return of the amount of the payment, the amount of tax deducted, and such other information as the Commissioner may require and further provided that if the platform over which the digital asset was transferred or exchanged is owned by a non-resident person. The non-resident person is required to register under the simplified tax regime remit the DAT.

10. MINIMUM TOP-UP TAX (MMT)

• A Minimum Top-Up Tax (MMT) to be payable by a “covered person” whose Effective Tax Rate (ETR) for a year of income is less than 15%. (Effective 27th December 2024)

MTT and Combined ETR of a covered person are calculated as follows:

MTT   =   (15% of Net income/loss – Combined ETR) x Excess Profit

Combined ETR  =      Aggregate Covered Taxes          x 100
                                    Net Globe income/loss 

• The following are exempt for MTT:

– Public entity that is not engaged in business

– Institution body of persons or irrevocable trust, of a public character established solely for the purposes of the relief of the poverty or distress of the public, or for the advancement of religion or education. 

– Pension funds and assets of a pension fund

– Non-operating investment holding company

– Real Estate Investment vehicle that is an ultimate parent entity

– Investment Fund that is an ultimate parent entity

– Sovereign wealth funds

– Intergovernmental or supranational organization including wholly owned agency or organ or the inter-governmental or supranational organization. 

• Minimum Top-up is be payable by the end of the 4th month after the end of year of income.

Definitions

For purposes of the MTT, the following definitions apply:

11. RESIDENTIAL RENTAL TAX

• Residential Rental Income Tax, a simplified regime and was applied at the rate of 10% on the gross rental of a resident person in respect of residential property. The tax is payable on a monthly basis and monthly returns have to be filed.

• The Finance Act, 2023 with effect from 1st January 2024 amended Section 5 (j) (a) of the Third Schedule to the Income Tax Act to and reduced the tax rate from 10% to 7.5% on payments made in respect of rent, premium or similar consideration for the use or occupation of immovable residential property.

• The Finance Act, 2020 had with effect from 1st January 2021 increased the maximum income threshold subject to residential rental income from Shs. 10 million to Shs. 15 million.

12. TRUSTS AND FAMILY TRUSTS

• The Finance Act 2026 effective 1st July 2026 now provides that any income received by a “trustee” in the capacity as trustee, executor or administrator shall be deemed the income of the trustee.

• Qualified dividends and qualifying interest included in income are exempt from further taxation .

• The beneficiaries will not be subject to further tax on the income or distributions made by trustees. 

13. INVESTMENTS ALLOWANCES

The Tax Laws (Amendment) Act, 2020 repealed the Second Schedule of the Income Tax Act and capital allowances which included investment allowances and wear and tear allowances under the replaced Second Schedule of the Income Tax Act were deleted and superseded with a simplified “Investment Allowances”.

The Finance Act, 2021 further amended the deduction for investment allowances that was on a “reducing balance basis” to a “basis of equal instalment” with effect from 1st January 2022.

Investment

 

Item	Rate
Buildings used for manufacture to including any structures and civil works deemed to be part of a building where the structure of civil works relates or contributes to the use of a building. (Capital expenditure on construction of buildings does not include an acquisition of, or of rights in and over land). (Where a building is used partly for purposes other than purposes as specified, the capital expenditure on which the allowance of buildings is calculated shall be the expenditure attributable to that proportion of buildings used for those purposes, but where the expenditure attributable exceeds 90% of the total expenditure incurred on the construction, the whole building shall be treated as used for the specified purposes).	Year 1: 50% in the first year of use Year 2 onwards: 25% per annum on reducing balance basis and effective         1st January 2022 on equal instalments basis
Hotel buildings (eligible if licenced by the competent authority)	Year 1: 50% in the year of first year of use Year 2 onwards:  25% per annum on reducing balance basis and effective         1st January 2022 on equal instalments basis
Hospital buildings (eligible only when licenced by competent         authority).	Year 1: 50% in the first year of use Year 2 onwards: 25% per annum on reducing balance basis and effective         1st January 2022 on equal instalments basis
Petroleum and gas storage facilities	Year 1: 50% in the first year of use Year 2 onwards: 25%   per annum on reducing balance basis and effective          1st January 2022 on equal instalments basis
Education buildings, including students’ hostels. (Eligible when licenced by a competent Authority).	10% per annum on reducing balance basis and effective         1st January 2022 on equal instalments basis
Commercial buildings (Includes, a building used as an office, shop, showroom, go-down, storehouse or warehouse used for storage of raw materials for manufacture of finished or semi-finished goods).	10% per annum on reducing balance basis and effective       1st January 2022 on equal instalments basis
Industrial Buildings (Includes a building used for the purpose of transport, bridge tunnel inland navigation, water and electricity or hydraulic power undertaking Effective from 1st January 2024).	10% per annum on equal instalment basis from
Aircraft	Year 1: 50% in the first year of use Year 2 onwards: 25% per annum on reducing balance basis and effective 1st January 2022 on equal instalments basis

The applicable investment allowances are as follows:

Item	Rate
Ships –   More than 125 tonnes Ships –   Less than 125 tonnes	Year 1: 50% in the first year of use Year 2 onwards: 25% per annum on reducing balance basis and effective 1st January 2022 on equal instalments basis
Machinery used by manufacturer directly in the process of manufacture and includes machinery used for the following ancillary purposes: i)        Electricity generation, transformation and distribution ii)       Clean up and disposal of effluents and other waste products iii)      Reduction of environmental damage, iv)      Water supply or disposal, v)       Machinery maintenance vi)      Scientific research and development.	Year: 50% in the first year of use Year 2 onwards: 25% per annum on a reducing balance and effective 1st January 2022 on equal instalments basis
Machinery used for agricultural (Includes machinery used   directly in agricultural activities including tilling, planting, irrigation weeding and harvesting (effective 1st January 2024).	Year 1: 50% per annum or Year 2: 25% per annum on equal instalment basis.
Farm works (including farm houses, labour quarters, immovable buildings, fences, dips, windbreaks, water and electricity supply works excluding machinery and other works necessary for the proper operation of a farm).	Year 1: 50% in the first year of use Year 2 onwards:  25% per annum on reducing balance basis and effective 1st January 2022 on equal instalments basis.
Filming equipment used by licenced local film producers.	25% per annum on reducing balance basis and effective           1st January 2022 on equal instalments basis)
Heavy earth moving equipment	25% per annum on reducing balance basis and effective           1st January 2022 on equal instalments basis
Docks includes certain terminal berth, harbour, wharf, pier, jetty, storage yard or other works in or at which vessels board or unload merchandise but excluding a pier or jetty used for recreation (effective 1st January 2024)	10% per annum on equal instalment basis and
Tractors, lorries over 3 tonnes, heavy self-propelled equipment and earth moving equipment.	25% per annum on reducing balance basis and effective           1st January 2022 on equal instalments basis
Computer hardware, calculators, copiers and duplicating machines.	25% per annum on reducing balance basis and effective 1st January 2022 on equal instalments basis
Motor vehicles (a qualifying cost on non- commercial vehicles restricted to Shs. 3 million)	25% per annum on reducing balance basis and effective             1st January 2022 on equal instalments basis
Hospital equipment	Year 1: 50% in the first year of use Year 2 onwards: 25% per annum on reducing basis and effective 1st January 2022 on equal instalments basis.
Furniture, fittings and equipment and other machinery	10% per annum on reducing balance basis and effective 1st January 2022 on equal instalments basis
Telecommunications equipment (Includes civil works deemed as part of the tele- communications equipment or civil works that contribute to the use of the telecommunications equipment).	10% per annum on a reducing balance basis and effective        1st January 2022 on equal instalments basis
Machinery used to undertake operations under a prospective right or exploration under a mining right.	Year 1: 50% in the first year of use Year 2 onwards:  25% per annum   on reducing balance basis and effective 1st January 2022 on equal instalments basis
Software	25% per annum on reducing balance basis and effective          1st January 2022 on equal instalments basis
Indefeasible right to use fibre optic cable by a telecommunication operator.	10% per annum on reducing balance basis and effective          1st January 2022 on equal instalments basis
Spectrum licenses by telecommunication operators. (Licenses acquired prior to 1st July 2025, the investment allowances will be spread over the useful lives).	10% per annum on equal instalments basis

Investment allowances

The applicable investment allowances are as follows:

a) The written down or residual value of each item shall be calculated separately.

b) Incase of a change of a user for buildings for manufacture, hospital buildings, hotel buildings, petroleum or gas storage facilities, educational buildings and commercial buildings, the allowance shall be restricted to the residual value or unclaimed amount at the applicable rate.

c) Proceeds on sale of buildings or on cessation of business will now be treated as a trading receipts and taxed at the corporate tax rate.

d) Expenditure incurred by a person on behalf of another person shall not qualify for allowances.

e) Repeal of the provision that allowed related companies to elect transfers of machinery and equipment at the tax written down values. 

Accelerated investment allowances

• An accelerated 100% investment allowance was introduced for investments outside Nairobi and Mombasa which was previously deleted by the The Tax Laws (Amendment) Act, of 2020 and is effective 1st January 2022 for the following:

i) Cumulative investment in the “3 preceding” years outside Nairobi, and Mombasa counties is at least      “Shs. 2 billion”.  Additionally, where the cumulative investment amounting to “Shs. 2 billion” has made on or before 25th April 2020 and would have qualified for the rate of 150% they shall be eligible for investment allowance at the rate of 150% “(Taxpayers can file amended tax return for 2020)”.

Or

ii) Investment amount outside Nairobi and Mombasa counties is at least Shs. 250 million in a given year.

Or 

iii) Investment in a Special Economic Zone (SEZ) and in a Export Processing Zone (EPZ).

• Where a taxpayer had an accumulated investment of Shs. 2 billion in the preceding three years outside Nairobi and Mombasa Counties on or before 25th April 2020, the qualifying Investment Deduction of 100% would only be applicable to hotel buildings, buildings used for manufacture and machinery used for manufacturing. (Effective 1st July 2023)

Investment allowances

Effective 1st July 2022 investment allowances at the rate of 150% can be claimed on investments made outside Nairobi and Mombasa County if the criteria below are met:

• Cumulative investment value for the “4 years preceding” 1st July 2022 is atleast Shs. 2 billion.

        Or  

• Cumulative investment for the “3 succeeding years” from 1st July 2022 is atleast Shs. 2 billion.

a) Farm works

“Farm Works” to include:
–       Farmhouses
–       Labour quarters
–       Any other immovable buildings necessary for the proper operation of the farm.
–       Fences
–       Dips
–       Drains
–       Water and electricity supply works
–       Any other works necessary for the proper operations of the farm

b) Civil works

“Civil works” include:

– Roads and parking areas,
– Railway lines and related structures,
– Water, industrial effluent and sewerage work
– Communications and electrical posts and Pylons and other electrical supply works
– Security walls and fencing
– Earthworks for telecommunication equipment and construction works undertaking in connection with the installation and maintenance of telecommunication equipment and related structures.

14. Capital Gains

a) Rate

The rate is 15% of the net gain (Effective 1st January 2023) previously it was 5%. 

b) Capital Gains Tax is levied on:

• Individuals (including unincorporated entities) – On transfer of assets excluding those listed on the NSE.

• Companies – On transfer of assets, excluding shares listed on the NSE.

c) Exemptions from Capital Gains Tax:

• Transfers of property between:
– Spouses 
– Former spouses as part of a divorce settlement on a bonafide separation agreement
– Immediate family as part of a divorce or bonafide separation agreement (immediate family includes immediate family.
– To a company where an individual spouse and immediate family hold 100% shareholding (Effective 1st July 2025).

• Transfer in case of individuals of private residence subject to certain conditions to include if lived in residence for 3 years and temporary absences.

• Property (land) where transfer value is not more than Shs. 3,000,000.

• Agricultural land of less than 50 acres outside urban areas. 

• Property (including shares) transferred or shares to administer estate of a deceased person where transaction completed within 2 years of death of deceased or within such extended time as permitted by commissioner in wholly.

• Gains from property, plant and machinery that qualify for investment (capital) allowances.

• A gain or loss realised where a transfer of property is exchanged for other property in a restructuring arrangement where the transactions is found by the Cabinet Secretary in his/her discretion to be in public interest (Public interest is not defined in the Act).

• Transfer of property mainly to secure debt or loan and pledging of property as security.

• Transfer by creditor to return property used to secure debt.

• Transfer for purpose of vesting in personal representative of deceased person by operation of law.

• Transfer by personal representation of property to a person as legated in course of administration of estate of deceased person.

• Transfer of property through vesting in liquidator by order of court.

• Issuance by a company of its own shares or debentures. 

• Transfer of property through vesting in official receiver.

• Transfer by trustee of property subject to a trust to beneficiaries.

• Transfer of immovable property to a ‘’Family Trust’’.

• On compensation for property acquired by the Government for infrastructure development which is subject to tax under Section 3(2) (i) of the Income Tax Act.

• Gains arising from transfer of property by an insurance company that is connected to life assurance (if connected to general insurance then it is taxable).

• Transfer of property that is necessitated by a transaction involving the incorporation recapitalization, acquisition, amalgamation, separation, dissolution or similar reconstruction of a corporate entity where such transfers is:

– A legal or regulatory requirement

– A directive or compulsory acquisition by the government.

– An internal restructuring within a group which does not involve transfer of property to a third party and within a group which has existed for at 24 months.

– Where the transfer is in the public interest and approved by the Cabinet Secretary.

d) Capital Losses

The Finance Act, 2025 effective 1st July 2025 restricts capital losses made in year of income to be for carry forward.

e) Increased scope of transactions subject to CGT and measures to avoid misuse of capital gains exemption

• The Finance Act, 2023 with effect from 1st July 2023 widened the scope of transactions that are subject to Capital Gains Tax (CGT) to include:

i) the whole of the gains which accrued to a company, an individual or partnership on or after the transfer of property situated in Kenya, whether or not the property was acquired before 1st January 2015.

ii) gains derived from the alienation of shares or comparable interests, including in a partnership or trust, it, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more that 20% of their value directly or indirectly from immovable property situated in Kenya.

iii) gains, other than those to which (a) above applies, derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the 365 days preceding the alienation, held directly or indirectly at least 20% of the capital of that company. However, persons alienating the shares will be required to notify the Commissioner in writing where there is a change of at least 20% in the underlying ownership of the property. 

iv) Where a property is transferred in a transaction that is not subject to CGT and the property is subsequently transferred in a taxable transaction within a period of less than five years, then the adjusted cost in the subsequent transfer will be based on the original adjusted cost as determined in the first transfer.

f) CGT payable by partnerships

The Finance Act, 2023 with effect from 1st July 2023 requires capital gains enjoyed by partnerships from the date of transfer of immovable property will be subject to CGT at the “Partnership” level and not the “individual” level. This will reduce the tax compliance burden for the partners in partnership on CGT will be payable by one person (the Partnership) instead of all partners based on their revenue sharing agreements.

g) Clarity on the due date of payment of CGT

The due date for payment of CGT is the earlier of receipt of the full purchase price by the vendor or registration of the transfer.  

h)  Reduced capital gains tax rate of 5%

Effective 27th December 2024 an entity can qualify for the reduced CGT at the rate of 5% provided the Nairobi International Financial Centre Authority (NIFC) certifies that:

• A firm has invested at least Shs. 3 billion previously Shs. 5 billion) in at least one entity incorporated in Kenya within a period of two years and;

• The transfer of the investment is to be made after five years of the date of investment.

15. MOTOR VEHICLE ADVANCE TAX

Applicable to all commercial vehicles and PSV’s and is payable on or before the 20th day of month of the year of income.

The rates applicable are as follows:

 

Item	Current rate	New rate
Vans, pick-ups, trucks, prime movers, tractors, trailers and lorries. Except tractors and trailers used for agriculture purposes.	Higher of Shs. 1,500 per tonne or Shs. 2,400 per annum	Higher of Shs. 2,500 per tonne of load capacity or Shs. 5,000 per year.
Saloons, station wagons, mini buses, buses and coaches	Higher of Shs. 60 per passenger per month or Shs. 2,400 per annum	Higher of Shs. 100 per passenger capacity per month or Shs. 5,000 per year.

16. SELF ASSESSMENT RETURNS

• The due dates for filing self-assessment tax returns are as follows:

– Corporations – Within six months after the end of the accounting year-end

– Individuals and partnerships – By 30th April of the following year (Finance Act, 2026 – Effective 1st January 2027)

– Retirement Benefits Scheme and Provident Fund – By the end of 3 months following the end of the financial year.

• A wife’s employment income, profession gains or profits will not be accounted as a separate source of income by the husband.  Consequently, the wife required to account for her employment income, profession gains or profits separately.

• The Finance Act 2026, effective 1st July 2026 has introduced a self-declaration regime on gross rental income earned by a non-resident person to be known as “Non-residential Rental Income tax’’ and taxed at 30% on gross rental income. Non-resident persons will be required to register an account in iTax and submit a return and pay the tax by the 20th day of the following month in which the rent is receivable.

17. PAYE ON DIRECTORS’ FEES

• PAYE liability for directors’ fees as well as staff bonuses crystallize when it is paid and is defined as “distributed” credited, dealt with or deemed to have been in the interest or on behalf of a person.

• PAYE is due on the earlier of:
– 9th day of the month following the month in which the emoluments were paid or

– By the end of the fourth month after the “accounting date” if directors’ emoluments were “accrued”

18. STANDARDS LEVY

With effect from 8th August 2025, the Standard Levy is payable monthly by manufacturers at the rate of 0.2% monthly turnover, net of VAT, excise duty and discounts subject to a maximum of Shs. 4,000,000 per annum.

Payment is to be made by 20th of the following month.

19. CUSTOMS DUTY

• Customs duty is chargeable under the East African Community Customs Management Act, (EACCMA). 

• The East African Community Council (EAC) of Ministers consider and approve proposals of member states for setting common External Tariffs (CET) remission of duty on industrial inputs and amendment of the exemption regime under the fifth Schedules of the EACCMA.

• Measures are published in the EAC Gazette Notices which are generally geared towards promoting industrialisation encouraging local investments and promoting local production.

• Member countries have powers to levy additional anti-dumping or countervailing duty rates in addition to the normal duty rates.

• Certain capital goods, subject to treasury approval, are eligible for duty remission.

• Goods imported from COMESA and SADC have preferential rates provided under Section 112 of the EACCMA.

• Kenya is a member of the COMESA Free Trade Area (FTA) which include Burundi, Comoros, Djibouti, Democratic Republic of Congo, Egypt, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Uganda, Zambia and Zimbabwe whilst Tanzania is a member of SADC (Southern Africa Community Development)

• The EAC approved measures which include stays of application of the Common External Tariff (CET), remission of duty or industrial inputs and amendment of the exemption regime under the fifth schedule of EACCMA.

• The EAC publishes changes and measures in the EAG Gazette Notice.

• The EAC adopted a “Four-band” tariff structure within a minimum rate of 0% and rates of 10% and 25% and a new maximum rate of 35% in respect of all products imported in the EAC and those products that will attract the maximum rate stipulated. 

• The EAC publishes through the EAC Gazette Notices increases in duty rates of various items as well as approved various stays of application. The applied measures are generally geared towards promoting industrialization, protecting local industries, investments and creating incentives in the agricultural and manufacturing sectors.

• The EAC Gazette Notices are normally issued in June each year.

20. EXCISE DUTY

The Finance Act, 2026 has made the following changes effect 1st July 2026:

a) Refund On Inputs Used In Manufacturing Exempt Goods For Defense Welfare Services (DEFWES)

Introduction of a refund mechanism for excise duty paid on inputs used to manufacture goods supplied to Defence Forces Welfare Services, where such goods are exempt.

This extends the existing principle (currently limited to non-excisable outputs) to cover exempt supplies aligning the treatment across scenarios and eliminates embedded excise duty costs in the production chain, improving margins and pricing competitiveness for manufacturers supplying to DEFWES. However, the benefit is conditional on clear attribution of inputs and successful refund claims, requiring robust documentation and processes to substantiate eligibility.

b) Changes to description of excisable goods and services and revised excise duty rates

The changes in description of goods and excise duty rates are as follows from 1st July 2026: 

Previous description	New description	Previous rate	New rate
Imported gas cylinders	Imported gas cylinders of tariff code 7311.00.10	35%	35%
Imported sugar excluding sugar imported by a registered pharmaceutical manufacturer and raw sugar imported for processing a licensed sugar refinery	No change	Shs. 7.50 per kg	Shs. 40 per kg
Imported ceramic flags and paving, hearth or wall tiles; unglazed ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics of tariff 6907.	No change	5% of Shs. 300 per square metre, whichever is higher.	5% or Shs. 50 per kg, whichever is higher
	Imported MDF of tariff number 4411.12.00, 4411.13.00, 4411.14.00, 4411.92.00, 4411.93.00 4411.94.00	–	30%
	Imported particle boards of tariff number 4410.11.00, 4410.19.00, 4410.90.00	–	30%
–	Imported block board of tariff number 4412.51.00 4412.52.00 4412.59.00 4412.91.00 4412.92.00 4412.99.00	–	30%

Previous description	New description	Previous rate	New rate
	Imported plywood of tariff number 4412.10.00 4412.31.00 4412.33.00 4412.34.00 4412.39.00	–	30%
–	Imported timber of tariff number 4407.19.00	–	30%
–	Imported unprinted banner sheeting, flex banner and unprinted PVC sheeting of tariff 3921.12.10 AND 3921.90.10	–	Shs. 200 per kg or 35% whichever is higher
–	Imported shower heads (whether or not fitted with heating elements) including fully assembled units designed for domestic or commercial use of tariff heading 8516.10.	–	35%
–	Imported heating elements used exclusively in the manufacture of shower heads of tariff heading 8516.10	–	35%
–	Oral smokeless tobacco products (Swedish style snus) being processed tobacco intended for replacement in the mouth and not intended for smoking, combustion or heating.	–	Shs. 200 per kg
	Unprinted plastic sheets of tariff number 3920.43.10	–	10%
	Pre-personal chip modules of tariff number 8542.31.00	–	10%
–	Fruit juices (including grape must) and vegetable juice, unfermented and not containing added spirit		Shs. 14.14 per litre
–	Fruit juices (including grape must) and vegetable juice, unfermented, containing added sugar or other sweetening matter and not containing added spirit.		Shs. 20 per litre
Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices	Non-alcoholic beverages, not including fruit or vegetable juices.	Shs. 6.41                per litre	Shs.641 per litre (Bottled or similarly packaged waters are not subject to excise duty effective                            1st July 2026).
Antique, vintage and classic vehicles		–	50%

Previous description	New description	Previous rate	New rate
Spirits of undenatured extra neutral alcohol of alcoholic strength exceeding 90% purchased by licensed manufacturers of spirituous beverages.	Spirits of undenatured extra neutral alcohol of alcoholic strength exceeding 90%	Shs. 500 per litre	Shs. 80 per litre
Cigars, cheroots, cigarillos containing tobacco or tobacco substitutes	No change	Shs. 16,260.29	Shs. 18,000 per kg
Other manufactured tobacco and manufactured tobacco substitutes; “homogenous” and “reconstituted tobacco”, tobacco extracts and essences	No change	Shs. 11,382.48 per kg	Shs. 12,550 per kg
–	Imported articles of plastic of tariff heading 3923.30.00 and 3923.90.90.	–	10%
Imported ceramic sinks, wash basins, wash basic pedestals, baths, bidets, water closet pans, flushing cisterns, urinals and similar sanitary fixtures of tariff heading 6910	No change	5% of custom value or Shs. 50 per kg	5% of excisable value or Shs. 50 per kg whichever is higher
Excise duty on betting shall be on the amount deposited into a customer’s betting wallet. Provided that this paragraph shall not apply to horse racing.	Excise duty on betting shall be on the amount deposited for betting purposes	–	5%
Excise duty on gaming shall be on the amount deposited into a customer’s gaming wallet.	Excise duty on gaming shall be on the amount deposited for gambling purposes.	–	5%
Excise duty on fees charged on virtual assets transactions by virtual asset providers	Excise duty on fees charged on virtual assets transactions by virtual asset service providers.	–	10% of excisable

c) Broadening of excise duty base on betting and gaming deposits

The excise duty on betting remains unchanged at 5%. However, the Finance Act, 2026 replaced the wallet-based charging mechanism with a broader charge on “amounts deposited” for betting purposes, regardless of whether the funds are held in a betting wallet.

The Finance Act, 2026 expanded the scope of transactions subject to excise duty by aligning taxation with the underlying economic activity rather than system design. Transactions relating to horse racing, which were previously excluded, now fall within the scope. 

“Amount deposited” means the total value of money or money’s worth paid, transferred, credited or otherwise made available for betting or gambling purposes to a person who has been issued a license under the Gambling Control Act, whether provided by a player or the operator, whether in cash or cash equivalents, whether or not such amount is held in an account operated by a player, operator or licensed person, or converted into chips, tokens, tickets, credits, or similar instruments.

This broadens the excise duty base, confirming the shift away from a narrow “wallet-based” trigger to any value made available for betting or gaming purposes. This removes reliance on from (i.e, wallets) and captures a wider range of transactions, including operator-funded incentives and non-cash equivalents, thereby eliminating gaps and avoidance risks.

d) Formal recognition of virtual assets in the excise duty

The Finance Act, 2026 inserted new definitions in Part III of the First Schedule: “Virtual Asset” has the meaning assigned to it in Section 2 of the Virtual Asset Service Providers Act, 2025:

“Virtual Asset Service Provider” has the meaning assigned to it in Section 2 of the Virtual Asset Service Providers Act, 2025.

The amendments clarifies and standardizes the terminology by aligning it with the Virtual Asset Service Providers Act, 2025 and provides legal clarity and reduces ambiguity for taxpayers and the KRA, ensuring consistent interpretation of what constitutes virtual assets and who qualifies as a service provider. It also signals a clear policy direction to formalize and regulate the digital assets sector, laying the groundwork for enhanced compliance, enforcement, and potential future expansion of tax measures in this space.

e) Extension of excise exemption to goods supplied to National Intelligence Service

The Finance Act, 2026 effective 1st July 2023 has extended the excise duty exemption to cover goods supplied for official use by the National Intelligence Services (NIS) and aligning with other key national security agencies (Kenya Defence Forces, the Defence Forces Welfare Services and the National Police Service).

21. WITHHOLDING TAX

a) Rat

– The standard withholding tax rates are as follows 

Nature of payment	Notes	Residents Rates	Non – Residents Rates
Management, professional, or training fees		5%	20%
Consultancy fees (EAC Citizens)		5%	15%
Royalties and natural resources income		5%	20%
Dividends		5%                               (Exempt if shareholding > 12.5%)	15%
Interest (Banks and regular sources)		15%	15%
Contractual fees (e.g., construction, supplies)		3%	20%
Supply of goods to a public entity		0.5%	5%
Commercial immovable property rent		10%	30%
Residential rent		7.5%	30%
Equipment leasing (movable assets)		N/A	15%
Digital content monetization/creators	3	5%	20%
Winnings from betting and gaming	2	20%	20%
Sales promotion, marketing and advertising	1	5%	20%
Insurance or reinsurance premiums		N/A	5%                                (Excludes aviation)
Sales of scrap metal (Effective 1st July 2026)		1.5%	1.5%

Notes:

1) Sales promotion, marketing advertising services and transportation of goods

East African Community citizens are exempted from withholding tax on transportation of goods. Air and shipping transport services are also exempt from withholding tax.

2) Winnings 

The Finance Act 2026, effective 1st July 2026 reintroduced the definition of winnings which was repealed by the Finance Act 2025 and winnings are pay-out from a lottery or prize competition by a person licensed order the Gaming Control, Act.

3) Digital Content monetize 

Digital content monetization refers to offering for payment of entertainment, social, literal, artistic, education or any other material electronically thorough any medium or channel, in any of the following forms:

i) advertisement on websites, social media platforms or similar networks by partnering with brands including endorsements from sellers of such brands.

ii) sponsorship where a brand owner pays a content creator for content creation and promotion.

iii) affiliate marketing where the content creator earns a commission whenever the audience of the content creator clicks on the product displayed.

iv) subscription services where the audience pays a periodic fee to access the content and support the content creator.

v) merchandise sales where physical goods and services are sold featuring a logo, brand or catchphrase to the audience of the content creator, eBulks, courses, or software.

vi) membership programmes for exclusive content including early access.

vii) licensing the content including photographs, music or other businesses or individuals for use in the user’s own projects.

viii) crowfunding for raising funds for specific goals for a content creator or another person.

b) Court ruling in date of payment of withholding tax

The Court of Appeal delivered a judgement on 5th February 2019 to the effect that an “accrual” of an expense in the books of account of an expense in the books of accounts fails within the meaning of the word “paid” for Income Tax purposes and therefore withholding tax becomes payable due upon such accrual. This ruling has a major implication for all taxpayers both from a practical perspective. The ruling reverses the prevailing practice of payment withholding tax on actual payment.

The implication is that tax papers will be required to deduct and remit withholding tax on the eligible amounts at the “point when accrual is recorded in the books of account” which will have negative cash flow impact on taxpayers.

c) Payment of withholding tax

• Withholding tax is payable within 5 days after ‘’payment’’.

• “Payment” is deemed to be the earlier of:

i) date of accrual
ii) date of issuance of invoice; or
iii) date of settlement of the obligation 

22. DOUBLE TAX TREATIES (DTT)

• Lower rates may apply to non-residents where there is a DTT in force. The table below shows the maximum rates of tax that recipients in those countries with a DTT that are currently in force.

Recipient	Dividends %	Interest %	Royalties and management/ Professional fees %
Canada	15	15	15
Denmark	20	20      (i)	20
France	10	12	10   (v)
Germany	15	15      (i)	15
India	15	15	20   (iv)
Norway	15	20       (i)	20
South Africa	10	10	10   (v)
Sweden	15	15	20
United Kingdom	15	15     (i)	15     (ii)
Zambia	0        (iii)	0     (iii)	0      (iii)
Mauritius	5	10	10
UAE	5	10	5  (vi)

NOTES:

i) Interest paid by the Government and the Central Bank of Kenya is tax-exempt
ii) The rate is 12.5% for management and professional fees
iii) No Kenyan tax is due if subject to tax in Zambia
iv) The rate is 17.5% for management and professional fees 
v) Management and professional fees subject to normal WHT rates.
vi) If UAE company operates with no permanent entity In Kenya then withholding tax on royalties, management and professional fees is 0 %.

23. STAMP DUTY

a) Stamp Duty Rates

Details	Rate
Creation or increase of share capital	1%
Transfer of stock or marketable security (except quoted securities, which are exempt)	1%
Registration of debentures, mortgages and charges	0.1%
Transfer of immovable property:
–          Within a municipality	4%
–          Outside a municipality	2%
Leases:
–          Between 1 and 3 years	1% of annual rent
–          Over 3 years	2% of annual rent
Registration of debentures, mortgages and changes:
–          Primary security	0.1%
–          Axillary security	0.1%

b) Exemptions From Stamp Duty

• New listing or expanded listing of a securities in the Nairobi Stock Exchange (NSE).

• Transfer of immovable property between husband and wife or transfer of a family property to a limited liability company wholly owned by the husband or wife or immediate family members.

• Land acquired or transferred for construction or expansion of educational institutions.

• Instruments creating asset-backed securities through a scheme approved by the Capital Markets Authority.

• Transfers between holding and subsidiary companies were shareholding exceeds 90%.

• Instruments executed by Commissioner for purposes of collection and recovery of tax.

• Instruments relating to the business activities of Special Economic Zone Enterprises (SEZ).

• Transfers of properties to a “Registered Family Trust”. 

• Transfer of properties by a company to its shareholders as part of an internal reorganization.

Provided: 

a) The property is transferred to the shareholders in proportion to their shareholding in the company immediately before the transfer.

b) Where the property consists of shares such shares should be in a subsidiary of the company undertaking the transfer.

• Purchase of a house by a first-time home owners under Affordable Housing Scheme.

• Certain exemptions for Islamic related transfer. 

24. TAX PENALTIES & INTEREST

a) Penalties and interest

The applicable penalties and interest applicable are as follows:

 

Tax Head	Offense	Penalty/fine
Income Tax	Late filing of return	Higher of 5% of tax due or Shs. 2,000 for individuals and Shs. 20,000 for non- individuals.
	Late payment of tax	5% of tax due and an interest of 1% per month
	Underpayment of instalment tax	5% of the difference between the amount of instalment tax payable and the instalment tax actually paid, multiplied by 110\5 and interest of 1% per month on unpaid tax.
Pay As You Earn (PAYE)	Late filing of return	Higher of 25% of tax due or Shs. 10,000
	Late payment of tax	5% of tax due and interest of 1% per  month.
Value Added Tax	Late filing of return	Higher of 5% of tax due or Shs. 10,000
	Late payment of tax	5% of tax due and an interest of 1% per month
	Failure to apply for registration or deregistration	Fine not exceeding Shs. 200,000 or imprisonment not exceeding 2 years or both
	Applying for cancellation when still required to register Fails to display the tax registration certificate at all premises. Failure to notify, the commissioner of any changes in name, address, place of business and nature of business with 21 days of change Failure to pay tax due on any trading stock at time of de-registration that input tax was allowed at acquisition or importation. Any disclosure that a person is registered on any document while is not registered Failure to issue a tax invoice for non-vatable supply or by all persons Failure to issue a tax invoice for non-vatable supply or by all persons Failure to maintain proper records, using of an ETR or provide access to an authorised officer.	Shs. 1 million or imprisonment not exceeding 3 years or both (general penalty)
Excise Duty	Late filing of return	Higher of 5% of tax due or                          Shs. 10,000
	Late payment of tax	5% of tax due and an interest of 1% per month

Tax Head	Offense	Penalty/fine
Monthly Rental income	Late filing of return	Higher of 5% of tax due or Shs. 2,000 for individuals and Shs. 20,000 for non-individuals
	Late payment of tax	5% of tax due and an interest of 1% per month
Capital gains tax	Late payment of tax	5% of tax due and interest of 1% per month
Turnover tax	Late filing of return	Shs. 1,000
	Late payment of tax	5% of tax due and interest of 1% per month
Stamp duty	Late payment of tax	5% of the duty payable
Withholding tax, withholding VAT and withholding Rental Income Tax	Failure to withhold and payment	10% of the amount of the tax involved
	Late payment of tax	5% of the tax due
General penalties	Failure to apply for registration or deregistration (excluding VAT)	Shs. 100,000 for each month or part thereof subject (Max Shs. 1 Million)
	Failure to retain or maintain documents required	Higher of Shs. 100,000 or 10% of tax payable relating  to documents
	A person knowingly makes a false or misleading statement or omitting from a statement any matter that leads to a shortfall	·   200% of the tax shortfall when the statement or omission was made deliberately ·  Increased by 10% on second application and 25% on third or subsequent applications ·  Reduced by 10% on voluntary disclosure
	Tax avoidance or fraudulent claim for a refund	Double the amount of tax avoided/claimed
	Failure to submit a tax return electronically or pay tax due electronically and where the commissioner is not satisfied with the reasons for non-failure	2 times the tax due
	Non-compliance with common reporting standards	·     False statement or omission of information required under a return Shs. 100,000 or imprisonment not exceeding 2 years or both ·     When required to file a return by a financial intuition but fails or files a ‘’nil’’ return, Shs. 1 million for each failure ·     In any other case failure to file return Shs. 20,000 and Shs. 20,000 per day (Max of 60 days)
	Failure to honour the commissioners summon	Shs. 10,000 for individuals and Shs. 100,000 for non- individuals
	Failure to submit return by an EPZ	Shs. 2,000 per day for as long as the failure continues

Offence	Penalty/fine
Specific VAT Penalties:
Unauthorized and improper use of computerized tax system.	Individual – Imprisonment not exceeding 2 years or fine not exceeding Shs. 40,000 or both.   Body corporate – A fine not exceeding Shs. 1,000,000.
Interest on late payment	1% per month part thereof and restricted to a maximum of the principal tax due.

25. EXTENSION OF TIME TO FILE TAX RETURNS

i) A written application to the Commissioner is to be made at least;

– 15 days before the due date, in the case of monthly returns
– 30 days before the due date, in the case of annual returns

ii) The Commissioner has to respond within 15 days from the applications otherwise the application shall be deemed to be granted.

iii) Only one extension can be granted in respect of a tax period. 

iv) The extension of the date of filing the returns shall not alter the date for payment of any tax due under the return as specified in the tax laws. 

 26. AMENDING TAX RETURNS

 

i) Application for amending tax returns shall be through filing of an amended return.

ii) A taxpayer who has filed a self-assessment tax return may submit an amended tax return to the Commissioner within the period specified and the Commissioner may accept or reject the amended tax return.

iii) In case the Commissioner rejects the amended tax return, he shall furnish the taxpayer with the reasons or rejection. 

 

27. VALUE ADDED TAX

 

Rates

• Standard rate – 16%.
• Zero rate – 0% on supply of specified taxable goods.
• Catering levy for hotels and restaurants – 2% but not subject to VAT.

Registered Threshold

• Shs. 5 million turnover per annum. 

Due Date on Payment

• By 20th of the following month.

Reverse VAT

• The Finance Act, 2021 with effect from 1st July 2021 amended the definition of supply of imported services in Section 2 (I)of the VAT Act which clarified the applicability of “Reverse VAT” for:

i. Persons who are not registered for VAT.
ii. Persons registered for VAT but not entitled to claim input VAT.

This is a clean-up of the reverse charge VAT provisions which are applicable to all persons i.e. both VAT registered and non-VAT registered persons. For VAT registered persons. reverse charge VAT on imported services is only applicable if the registered person is not entitled to claim in full input tax payable in that tax period when they import a service.

Time of supply

• The earliest of the date on which the goods are delivered or services performed, the issuance of a certificate by an architect, the issuance of an invoice or the receipt of payment.

Bad Debts

• The Finance Act, 2025 with effect from 1st July 2025 reduced the timelines for applying for refund of tax paid on bad debts from 3 years to 2 years and also allows offset of the refund against other VAT liability upon approval by the Commissioner.

Credit note  

• A credit note can only be issued within 6 months of the issuance of an original tax invoice.

• The Finance Act, 2021 amended the provision to Section 16(1) of the VAT Act which allows for a credit note to be issued within 30 days of a determination of a matter in court where the matter relates to a commercial dispute in court with regard to the price payable. The amendment affords taxpayers an opportunity to claim relief from tax invoices that have been subject of a commercial dispute that exceeds six months from the date when the original tax invoice was issued and is aimed at limiting instances where taxpayers claim refund of VAT on bad debts, where VAT was already paid on account of invoices that are subject of commercial disputes. This is because the revenue authority will likely insist that a Court determination is required for such a claim to be allowed. The amendment however falls short of addressing the issue of credit notes relating to cases that are resolved through arbitration or other forms of alternative dispute resolution since this is increasingly becoming the preferred mode of resolution of most commercial disputes.

Withholding VAT  

• The Finance Act, 2014 re-introduced withholding VAT which was at the rate of 6% of the taxable value to be withheld at the time of paying for supplies by Government Ministries and Departments, County Governments and appointed withholding VAT agents. This was reduced to 2% with effect from 1st November 2019 in the Finance Act, 2019.

• The tax withheld is payable by the 5th of the month when deduction is made.

• Failure to withhold VAT or to remit the tax withheld attracts a penalty of 10% of the amount involved. 

• The Finance Act, 2021 deleted Section 42a (4A) of the TPA and removed the option for qualifying suppliers to apply to the Commissioner for exemption from WHVAT with effect from 1st July 2021.

With the amendment, taxpayers who were in a perpetual VAT credit position because of the application of withholding VAT will no longer have a reprieve. This will however have cash flow implications on taxpayers given that VAT refund claim payments are a tedious and time-consuming process.

Suppliers who have been in a VAT credit position for a period of twenty-four months or more owning to the operation of withholding VAT were eligible for WHVAT exemption status provided that they can demonstrate that the VAT refund position would persist in the subsequent twenty-four months. The exemption status was valid for a period of twenty-four months and renewals could be done upon expiry.

Input VAT restriction

• Recovery of VAT restricted on acquisition and repairs of passenger cars or mini buses unless used in supplying taxable services; and on entertainment, restaurant and accommodation services, unless they are provided in the ordinary course of business or while the recipient is away from home for the purposes of business.

VAT refunds   

• Where input VAT exceeds output VAT, the excess is refundable if such excess arises from making zero-rated supplies or where tax has been paid in error (application to be made within 12 months from the date the tax becomes due and payable).

Export of goods

An export shall be a taxable supply:

• In the case of goods, when the taxable supply involves the goods being entered for export under the East African Community Customs Management Act and delivered to a recipient outside Kenya at an address outside Kenya.

• In the case of services, when the taxable supply involves the service being provided to a recipient outside Kenya for use of consumption or employment outside Kenya. 

Clarity on the time of supply in respect to export of goods      

An export is defined as taking or causing to be taken from Kenya to a foreign country, for the purposes of export of goods, the time of supply shall be when the registered person is in possession of the certificate of export or such other equivalent documents issued by Customs to include:

• A valid commercial invoice,
• Certificate of origin
• Permit/licence for restricted goods
• Personal or taxpayer identification number (Pin certificate)
• Purchase orders/contacts, and
• Packing list

Minimum requirements for all

The following minimum requirements for a tax invoice under the Tax Procedures Act, 2015.

• The words “Tax Invoice”
• The name, address and PIN of the supplier
• The name, address and PIN if any, of the purchaser,
• The serial number of the tax invoice
• The date and time which the tax invoice was issued and the date and time which the supply was made, if it is different from the date the tax invoice was issued 
• The description of the supply including quantity of the goods or the type of services
• The details of any discount allowed at the time of supply
• The consideration for the supply
• The tax rate charged and total tax amount of tax charged
• Any other prescribed information and 
• The amount of tax due

Imported services      

Imported services are:

• The supply is made by a person who is not a registered person to any person (Both registered and unregistered).

• The supply would have been taxable if it had been made in Kenya.

• The registered person would not have been entitled to a credit for the full amount of input tax payable in the services had been acquired by the person in a taxable supply.

VAT on online transactions       

• VAT is applicable on all online transactions that are conducted over the internet or on an electronic network and emphasizes that a “digital marketplace is an online platform, which enables users to sell or provide services, goods or other property to other users” (A digital marketplace includes “all goods and services” provided they only cover an online platform that enables users to sell goods or services to a other users).

• Any persons doing online business be it sale of goods or provision of services are required to register and charge VAT if the taxable sales exceeds the set threshold of Shs. 5 million annually.

Removal of VAT on transfer of business as a going concern 

• The Finance Act, 2023 with effect from 1st July 2023 “exempted” from VAT the transfer of business as a going concern (TOGC) which was previously at the standard rate of 16%. 

Output VAT to be accounted on insurance claims on taxable

• The Finance Act, 2023 with effect from 1st July 2023 requires the imposition of the output VAT at the rate of 16% on any insurance compensations for loss of taxable supplies, in instances where the taxpayer originally claimed input VAT on the taxable supplies. The taxpayer must declare the compensation as a taxable supply and remit the corresponding output VAT to KRA. Where the compensation does not include VAT, the taxpayer will still be required to account for output VAT.

Refund of excess input VAT

• Payment of excess input tax to a taxpayer who has made a claim for the refund within 24 months from the date the tax became due where the excess arises from making zero-rated supplies or tax withheld by an appointed withholding agent.

Refund of VAT Paid in Error

• The Commissioner shall only refund any tax paid in error only if the tax cannot be used to offset against any future tax liabilities.

• Further, the Commissioner upon approval by the CS responsible refund VAT paid in error where a taxpayer’s application for exemption or zero rating was not processed within 6 months.

Apportionment of input VAT for mixed supplies (Taxable and Exempt Supplies)

• A person who deals in mixed supplies and makes at least 90% taxable supplies shall be eligible to claim 100 percent (100%) of the input VAT whereas if a person who makes less that 10% percent (10%) taxable supplies is not eligible to claim any input VAT.

• The Tax Laws (Amendment) Act, 2024 effective 27th December 2024 amended the above provision which now means the apportionment of input VAT shall be done based on the “Actual Percentages” regardless of the percentage of taxable to the exempt supplies.

• Restriction will only be based on direct attribution of such input VAT incurred in generation of taxable supplies. 

Changes to VAT

The Finance Act, 2026 has made the following changes in VAT rates with effect from 1st July 2026.

 

Item	Current VAT status	Enacted change in VAT status
The Act has amended the wording in paragraph 89 by deleting “any other aircraft spare” and replacing this with the word “aircraft”. The new paragraph 89 now reds “aircraft parts” are exempt from VAT. This read together with paragraph 49 of the VAT Act, 25013 i.e, all goods and parts thereof of chapter 88 still provides for VAT exemption on aircraft and its parts.	Exempt	Exempt
Direction – finding compasses, instruments and appliances for aircraft.	Exempt	Vatable @ 16%
Taxable goods and services for direct and exclusive use for the construction of tourism facilities, recreational parks of fifty acres or more, convention and conference facilities upon recommendation by the Cabinet Secretary responsible for matters relating to recreational parks. “Recreational parks” means an area or a building where a person can voluntarily participate of general health, well-being and the development of skills.	Exempt	Vatable @ 16%
Goods imported or purchased locally for the direct and exclusive use in the construction of houses under an affordable housing scheme approved by the Cabinet Secretary on the recommendation of the Cabinet Secretary responsible for matters relating to housing.	Exempt	Vatable at 16%
Dialyzers of tariff number 8421.29.00.	Vatable @ 16%	Exempt
Scrap metal	Vatable @ 16%	Exempt
Inputs or raw materials locally purchased or imported for the manufacture of pharmaceutical products upon recommendation by the Cabinet Secretary for the time being responsible for matters relating to health.	Zero rated	Exempt
Bioethanol vapour (BEV) stoves classified under HS Code 7321.12.00 (cooking appliances and place warmers for liquid fuel)	Zero rated	Exempt
The supply of goods and services for the direct and exclusive use in the implementation of infrastructure projects undertaken under a public private partnership framework, upon approval by the cabinet Secretary on the recommendation of the Cabinet Secretary for the Ministry responsible for the implementation of the project.	Vatable @ 16%	Exempt

• Related parties are required to develop an appropriate Transfer Pricing Policies (TPP) based on one of the following methods for transactions with non-resident related parties:

– Comparable uncontrolled price method
– Cost plus method
– Resale price method
– Profit split method
– Transnational net margin method
– Any other method prescribed by the Commissioner

This includes transactions with non-resident entities EPZ’s and SEZ’s. Documentation of a TP Policy is a mandatory requirement. 

• Failure to comply is an offence under Section 82 of the Tax Procedures Act, 2015 which attracts a penalty equal to the “higher” of:

i) 10% of the amount of tax payable by the person under the tax law to which the document relates to for the reporting period to which the failure relates to or;

ii) Penalty of Shs. 100,000.

• The Finance Act, 2022 has with effect from 1st July 2022 expanded the scope of transactions between a resident person and a non- resident person or associate of a non- resident person operating in a preferential trade area and a person established for a non- resident person operating in a preferential trade area.

• The Finance Act, 2025 with effect from 1st July 2025, introduced Section 189 to the ITA which provides for Advance Pricing Agreements (APA) on transactions between related parties subject to transfer pricing rules where a taxpayer is allowed to agree with KRA the appropriate criteria for the determination of the arm’s length price for future related party transactions and is valid for 5 years. 

29. SPECIAL ECONOMIC ZONES (SEZ)

Special Economic Zones (SEZ) were established on 15th September 2015 when the Special Economic Zones Act, 2015 was enacted and is applicable as follows: 

• Any goods brought into the SEZ enterprise shall be deemed to have been exported from that territory including Kenya and imported to the SEZ enterprise. 

• All local supplies of goods and services are zero-rated (0%) from VAT.

• SEZ enterprises are taxed on its business profits at the rate of 10% for the 10 years from the date of first operations and at 15th for next 10th years and thereafter at 30%.

• SEZ enterprises are eligible to claim investment allowances at the rate of 100% on buildings and machinery used for manufacturing.

• Withholding tax on dividends paid to ‘’residents’’ and ‘’non residents’’ shareholders is exempt permanently.

• Withholding tax on royalties, interest, management fees, professional fees and contractual fees paid to residents is at the rate of 5% and for non-residents is exempt for first 10 years and thereafter at the rate of 5%.

• The Finance Act, 2025 effective 1st July 2025 now exempts from capital gains tax the transfer of property within a Special Economic Zone by a Licensed Special Economic Zone Developer, Enterprise or Operator. 

30. EXPORT PROMOTION ZONES (EPZ)

The taxation of companies operating in EPZ is indicated in the Eleventh Schedule of the Income Tax Act, (cap 470) and Section 2 (F) of the Third Schedule of the Income Tax Act, (Cap 470) as follows:

• Exempted from corporation tax from a period of 10 years commencing from the year in which it commences activities and has been licensed as an EPZ enterprise and thereafter the rate will be 25% for next 10 years and subsequently at 30%.

• Employee and directors, other than non- residents of an EPZ enterprise shall be liable to Personal Income Tax. 

• EPZ enterprises are required to submit an annual returns of income and business accounts and examined by another person in a professional capacity. 

• An EPZ enterprise shall maintain its business accounts in a convertible currency of its choice provided the Commissioner’s consent of that choice has been requested and obtained.

• During the first 10 years tax withholding EPZ enterprises are ‘’exempt’’ from withholding tax on dividends paid to non-residents and thereafter at rate of 15%.

• Exempt from customs import duty and VAT on raw materials, machinery, construction materials and fuels. Exempt from stamp duty.

• Withholding tax on payment of dividends to residents is at the rate of 5%.

• Withholding tax on interest paid to residents is at the rate of 15% and exempt for non-residents for 10 years.

• Withholding tax on royalties management fees, training fees is at the rate of 5% paid to residents and exempt for non-residents for 10 years.

• Withholding tax on contractual fees paid to residents is at the rate of 3% and to non-residents exempt for 10 years. 

• 100% investment allowances are available on buildings and machinery used for manufacturers.

• The EPZ enterprise must hold a clear export-oriented operational focus and atleast 80% of all finished productions to be designated for foreign market. 

• Exempt from stamp duty on instruments relating to business activities but not ‘’land’’.

31. PERMANENT ESTABLISHMENT (PE)

A permanent establishment (PE) is defined as:

a) a fixed place of business through which business is wholly or partly carried on and includes a place of management, has a branch, a factory, a workshop, a mine, an oil or gas, a well, a quarry or any other place of extraction or exploitation of natural resources, a warehouse in relation to a person whose business is providing storage facilities to others, a farm, plantation or other place where agricultural forestry, plantation or related activities are carried on and a sales outlet.

b) A building site construction assembly or installation project or any supervisory activity connected to the site or project, but only if it continues for a period of more than one hundred and eighty-three days.

c) The provision of services including consultancy services by a person through employees or other personnel engaged for that purpose but only where the services are connected business in Kenya continue for a period of or periods exceeding in aggregate 91 days in any 12 months period commencing or ending in the year of income earned.

d) An installation or structure used in the exploration for natural resources, where the exploitation activities continue for periods not less than 91 days.

e) A dependent agent of a person who acts on their behalf in respect of any activities which that person undertakes in Kenya including habitually concluding contracts or playing the principal role leading to the conclusion of contracts that are routinely concluded without matched modification by the person.

32. MISCELLANEOUS FEES AND LEVIES

Railway development levy rates

• RDL is 2.5% (was previously 1.5%) on goods imported in Kenya.

Import declaration fee (IDF)

• IDF is 2.5% (previously 3.5%) on goods imported into Kenya.

Introduction of Export and Investment Promotion Levy (EPL)

• The Finance Act, 2023 effective 1st July 2023 introduced a new levy known as “Export and Investment Promotion Levy (EPL)” that is imposed on specified goods listed in the Third Schedule of the Miscellaneous Fees and Levies Act (MFLA) when imported into Kenya for home use excluding goods originating from the EAC Partner States in accordance with the EAC rules of Origin.

• The Act also established a fund where, collected EPL will be paid to in accordance with the Public Finance Management Act, 2012 and the purpose of the levy is to provide funds to boost manufacturing, increase experts, create jobs, save on foreign exchange and promote investments.

Introduction of Export and Investment Promotion Levy (EPL)

• The Export and Investment Promotion Levy chargeable effective 27th December 2024.

 

HS Code	Description	New                  rate	Old rate
Chapter 4.2a	Goods on articles of leather of Chapter 4.2	20%	0%
Chapter 64	Imported footwear of Chapter 64	20%	0%
2207.20.00	Denatured ethyl alcohol and other spirit	20%	0%
2208.40.00	Rum and other spirits obtained by distilling fermented sugar	3%	0%
2208.60.00	Vodka	3%	0%
2523.10.00	Cement clinker	10%	17.5%
2523.29.00	Portland cement	10%	0%
2523.30.00	Aluminous cement	10%	0%
2523.90.00	Other hydraulic cements	10%	0%
3401.30.00	Organic surface-active products and preparations for washing the skin	3%	0%
0401.20.00	Milk and cream of a fat content by weight, exceeding 1% but not exceeding 6%	3%	0%
6910 6910.10.00	Ceramic sinks, wash basins, pedestals, baths, bidet, water closet pans, flushing cistern, urinals and similar sanitary fixtures –  of porcelain or China	3%	0%
6910.90.00	Other	3%	0%
720711.00	Billets	10%	17.5%
7321.12.00	Cooking stoves for liquid fuel	3%	0%
8711.10.90	Fully built motorcycles with internal combustion engine not exceeding 50cc	3%	0%
8711.20.10	Fully built motorcycles with internal combustion engine exceeding 50cc but not exceeding 250cc	3%	0%
8711.20.90	Fully built motorcycles with internal combustion engine exceeding 50cc but not exceeding 250cc	3%	0%
8711.10.90	Fully built motorcycles with internal combustion engine exceeding 250cc but not exceeding 500cc	3%	0%
8711.20.90	Fully built motorcycles with internal combustion engine exceeding 500cc but not exceeding 800cc	3%	0%
8711.30.90	Fully built motorcycles with internal combustion engine exceeding 800cc	3%	0%
8711.40.90	Fully built motorcycles with internal combustion engine exceeding 500cc but not exceeding 800cc	3%	0%
8711.50.90	Fully built motorcycles with internal combustion engine exceeding 800cc	3%	0%
8711.60.00	Fully built electric motorcycles	3%	0%
9403.10.00	Metal furniture of a kind used in offices	3%	0%
9403.20.00	Other metal furniture	3%	0%
9403.30.00	Wooden furniture for office	3%	0%
9403.40.00	Wooden furniture for kitchen	3%	0%
9403.50.00	Wooden furniture for bedrooms	3%	0%
9403.60.00	Other wooden furniture	3%	0%
9403.70.00	Furniture plastics	3%	0%
9403.82.00	Furniture bamboo	3%	0%
9403.83.00	Furniture of rattan	3%	0%

HS Code	Description	New                  rate	Old rate
9403.89.00	Furniture of cane, osier or similar material	3%	0%
9403.91.00	Parts of furniture of wood	3%	0%
9403.99.00	Parts of furniture not of wood	3%	0%
9404.10.00	Mattress support	3%	0%
7213.10.00	TMT/construction	10%	0%
7213.91.10	Wire rods	10%	17.5%
7216.10.00	Channels	10%	0%
7216.21.00	Angles	10%	0%
7216.61.00	Flats	10%	0%
7217.10.00	Binding wire	10%	0%
7217.20.00	Galvanized wire	10%	0%
7217.30.90	Cold drawn wire	10%	0%
7217.30.90	Agriculture benches	10%	0%
7217.90.00	HT cable wire	10%	0%
7217.90.00	Bailing ties	10%	0%
7312.10.00	Stranded wire	10%	0%
7312.10.00	Stay wire	10%	0%
7312.90.00	Rope wire	10%	0%
7312.90.00	Electric cable wire	10%	0%
7313.00.00	Barbed wire	10%	0%
7314.20.00	BRC/weld mesh	10%	0%
7314.41.00	Chain link	10%	0%
7314.42.00	PVC coated chain link	10%	0%
7314.49.00	Gabions	10%	0%
7317.00.00	Nails	10%	0%

The Finance Act, 2025 added the following items to the EPL effective 1st July 2025: 

 

Tariff Heading	Tariff description	New rate
69.07	Ceramic flags and paving, hearth or wall tiles; unglazed ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics.	3%
69.10	Ceramic sinks, wash basis, wash basin pedestals, baths, bidets, water closet pans, flushing cisterns, urinals and similar sanitary fixtures.	3%
72.06	Iron and non-alloy steel in ingots or other primary forms (excluding iron of heading 72.03).	17.5%
72.07	Semi-finished products of iron or non-alloy steel.	17.5%
72.13	Bars and rods, hot-rolled, in irregularly wound coils, of iron or non-alloy steel;	17.5%
72.14	Other bars and rods of iron or non-alloy steel, not further worked than forged, hot-rolled, hot-drawn or hot-extruded, but including those twisted after rolling.	17.5%
72.24	Other alloy steel in ingots or other primary forms; semi-finished products of other alloy steel.	17.5%

Export

Effective 1st July 2023 export levy rates are as follows:

 

Tariff description	Rate
Whole unsplit hides and skins, of a weight per skin not exceeding 8kg when simply dried,10 kg when dry salted, or 16kg. when fresh, wet salted or otherwise preserved (Tariff 4101.20.00)	80% or USD 0.52 per Kg
Raw skins of sheep or lambs (pickled, but not tanned, parchment dressed or further prepared), without wool on whether or not split, other than those excluded by Note 1(0) to Chapter 41                    (Tariff 4101.21.00)	50% 0r USD 0.32 whichever Is higher
Other raw skins of sheep or lamb (fresh or salted dried-timed pickled or otherwise preserved but not tanned parchment dressed or further prepared) without wool on whether or not split other than those excluded by Note (c) to Chapter 41 (Tariff 4101.29.00)	50% 0r USD 0.32 whichever Is higher
Other raw hides and skins (fresh, or salted, dried limed pickled or otherwise preserved but not tanned parchment dressed or further prepared) whether or not debarred or split other than those excluded by Note 1 (b) or (c) to this Chapter of reptiles.  (Tariff 4103.20.00).	50% 0r USD 0.32 whichever Is higher
Other raw hides and skins (fresh or salted, dried limed pickled or otherwise preserved but not tanned parchment dressed or further prepared) but not debarred or split, other than those excluded by Note 1 (b) or 1(c) to this Chapter of swine. (Tariff 4103.30.00).	50% 0r USD 0.32 whichever Is higher
Other raw hides and skins other than of reptiles, swine goats or kids of                                     (Tariff 4104.19.00)	50% 0r 0SD 0.32 whichever is higher
Other tanned or crust hides and skins of bovine (including buffalo) or equine animals, without hair on, whether or not split, but not further Prepared in the wet state (including wet – blue) (Tariff 4104.19.00)	50% 0r US0 0.32 whichever is higher
Hides and skins of equine animals.  [Tariff 4101.40.00]	–
Whole hides and skins, of weight exceeding 16 kg. (Tariff 4101.50.00)	50% or USO 0.32 whichever is higher
Other, including butts, bends and bellies.  (Tariff 4101.90.00)	50% 0r USD 0.32 whichever is higher
Raw skins of sheep or lamb (fresh or salted dried, limed, pickled or otherwise preserved, but not tanned parchment dressed or further prepared) with wool or whether or not split.  other than those excluded by Note 1(c) to Chapter 41.                                               (Tariff 4102.10.00)	50% 0r USD 0.32 whichever Is higher
Raw furskins of mink whole, with or without head tail or paws.                                                 (Tariff 4301.10.00)	50% 0r 0SD 0.32 whichever is higher
Other raw furskins, whole, with or without head, tail or paws.                                                 (Tariff 4301.80.00)	50% 0r 0SD 0.32 whichever is higher
Heads, tail, paws and other pieces or cuttings, suitable for furriers’ use.                                           (Tariff 4301.90.00)	50% 0r USD 0.32 whichever is higher
Whole skins, with or without head, tail or paws, not assembled, of mink.                                               (Tariff 4302.11.00)	50% 0r USD 0.32 whichever is higher
Other whole skins, with or without head, tail or paws, not assembled.                                      (Tariff 4302.19.00)	50% 0r USD 0.32 whichever is higher
Heads, tails, paws and other pieces or cuttings, not assembled.                                                 (Tariff 4302.20.00)	50% 0r USD 0.32 whichever is higher
Bismuth and articles thereof including waste and scrap containing more than 99.99% of bismuth, by weight (Tariff 8106.10.00)	20%
Other bismuth and articles thereof including waste and scrap [Tariff 8106.90.00]	20%
Waste and scrap of zirconium containing less than 1 part hafnium to 500	20%
Cobalt mattes and other intermediate products of cobalt metallurgy; cobalt 20% and articles thereof including waste and scrap (Tariff 8105)	20%
Other waste and scrap (Tariff 8109.39.00)	20%
Molasses resulting from the extraction or refining of sugar	20%

33. TAX PROCEDURES

Withholding Tax

• WHVAT agent who fails to subject a payment to WHVAT is subject to a penalty of 10% of the amount involved and if the agent has no good reason. 

• The Tax Procedures Act, 2015 allows the Commissioner to appoint a person to withhold 2% (previously 6%) of taxable value on purchasing taxable supplies at the time of paying for the supplies and remit VAT withheld to the commissioner. A person appointed by the Commissioner as a withholding VAT agent is required to withhold 2% of the taxable value at the time of paying for the supplies and remit the same directly to the Commissioner by the 5th day of the following month.

PIN Requirement for Remote Employees of Kenya Employers

The Tax Procedures (Amendment) No. 2 Act, 2024 effective 27th December 2024 requires employees working remotely outside Kenya for an employer in Kenya who were not required to register for a PIN with the exception of persons employed by the National Carrier.

Certificate of

The Finance Act, 2025 effective 1st July 2025 introduced a definition of the term “Certificate of Origin” which mandates the presentation of such certificates for all imported goods.

Agency Notices to non-

The Finance Act, 2025 effective 1st July 2025 expanded the powers of the Commissioner to issue ageing notices to non-residents persons who are subject to tax in Kenya particularly in relation to the digital economy by enabling the recovery of un-paid taxes through third parties holding funds on behalf of non-resident.

Waiver of penalties in electronic

The Finance Act, 2025 effective 1st July 2025 empowers the Cabinet Secretary to waive penalties and interest arising from errors, delays or malfunction in the KRA’s electronic systems or from incorrect registration of tax obligation.

34. ALTERNATE DISPUTE RESOLUTION (ADR) FRAMEWORK

KRA launched an elaborate inbuilt “Dispute Resolution” mechanism in 2016. The Alternate Dispute Resolution (ADR) has been introduced as an additional and/or alternative means of resolving tax disputes outside the judicial process (quasi-judicial process via tribunals which replaced the local committees and litigation in the courts).

ADR is a voluntary and participatory and facilitates discussions over tax disputes between the tax payers and the Commissioner. It is in the form of facilitated mediation and not “arbitration” as the facilitator has no power to impose any decision regarding the outcome of the dispute which commences with an objection to a disputed assessment / decision by KRA after a confirmation of the assessment / decision, ADR is an internal process controlled by KRA.

Benefits of ADR are that it can expedite tax disputes and decrease the cost of disputes resolution associated with litigation. It enhances and manages relationship between KRA and the tax payer and does not replace the Commissioner’s / Tax payer’s rights in law to proceed to Tax Appeals Tribunal / Court of Law.

ADR is voluntary and ADR discussions may be initiated by either the Taxpayer or the Commissioner. ADR is engaged where a taxpayer raises an objection against an assessment / decision of the Commissioner, which the Commissioner has three ways to deal with the objection: –

• Amend the assessment in accordance with the objection, or,
• Amend the assessment in light of the objection according to the best of his/her judgment, or,
• Refuse to amend the assessment.

If the Commissioner’s decision is to amend the assessment partially or totally declining to amend the assessment, the Commissioner shall before confirmation give the Tax Payer who wishes to be heard that opportunity to engage ADR.

The Commissioner / Tax payer can either accept or reject the request and shall communicate their decision to the other party.

The role of the Tax Consultant / Legal Advisor is an important one as they interact with tax payers from the onset of an audit /tax dispute.

An ADR evaluation team has been established by KRA and comprises of KRA Technical / Legal Experts and who shall not be involved in the investigations/ audit of the disputed assessment or in making the disputed decision.

Both parties may agree to terminate the ADR discussions where a party fails to attend the ADR meeting after he has been served and no justifiable cause / reason are given or a party fails to carry out a reasonable request by the facilitator or where parties are of the opinion that the dispute cannot be resolved due to demonstrated conduct by one or both parties, or where both parties or one of the parties wish to terminate the discussion upon giving reason to the facilitator. 

Where parties have reached an agreement, the issues agreed upon shall be put in writing as agreement terms and details to include.

• Issues resolved and issues not resolved and justification thereto.
• Amount of tax recoverable / not recoverable
• Withdrawal of any proceedings pending before a court of law / Tribunal
• Undertakings given by each party
• Mode of payment by Taxpayer of any

Where an assessment has been adjusted in terms of the agreement, the Commissioner shall within 14 days after the signing of the agreement, amend the assessment to give effect to the agreement terms.  Where a taxpayer after an agreement has been reached wishes to seek a waiver of penalties and interest that accrues on the agreed settlement, the taxpayer should do so within the time limits provided in the tax statutes.

The Finance Act 2022, effective 1st July 2022 increased the period to pursue an out of court settlement or tribunal settlement from the current 90 days to 120 days to include resolving tax conflicts through ADR.