Kenya accounting & tax considerations in 2021
Since 2003, Healy Consultants Group PLC assists our Clients with timely compliance of their annual legal, accounting and tax obligations in Kenya.
- Resident and non-resident companies in Kenya suffer a standard corporate income tax of 30% on taxable income generated in, or sourced from, Kenya. Taxable income for a Kenya company is calculated on the audited accounting profit, as adjusted for tax purposes, for the accounting year ending in the preceding calendar year.
- Branches of foreign companies registered in Kenya suffer a corporate tax of 37.5% on taxable income. While a subsidiary would normally be subject to thin capitalisation restrictions, a branch is not. In addition, a Kenya branch is not subject to remittance tax.
- Capital gains in Kenya are considered ordinary corporate income and are taxed at a standard final rate of 5%.
- The income of companies registered in an Export Processing Zone (EPZ) in Kenya is tax-exempt for the first 10 years. EPZ companies are subject to a reduced rate of 25% after 10 years.
- Dividends paid by a Special Economic Zone (SEZ) company to a non-resident are free of withholding tax.
- A 5% withholding tax is applicable on dividends paid to non-resident entities. A company is considered non-resident in Kenya if it is not incorporated under Kenyan law, or if its management and control is exercised outside Kenya. However, a non-resident entity is exempt from withholding tax if the Kenya-resident recipient company holds a more than 12.5% share in the paying entity.
- A 5% to 25% withholding tax is applicable on interest paid to resident and non-resident entities. The amount varies based on the business activity and whether the company is established on the Kenyan mainland or in an EPZ.
- A 5% withholding tax is levied on technical services fees and royalties paid to companies based in a Kenyan Special Economic Zone. A 20% rate is applicable for non-resident entities.
- Dividends paid from a foreign company are not taxable in Kenya.
- Kenya-resident employees are taxed on both local and international income, either from their employer or independent services rendered locally or internationally.
- Employers must withhold 5% tax on employee gross remuneration (Pay As You Earn (PAYE)) and submit the same to the National Social Security Fund (NSFF).
- Personal income tax is levied at 10% (on the first US$1,500), 15% (on the next US$1,400), 20% (on the next US$1,400), 25% (on the next US$1,400) and 30% (on the next US$5,650).
Value Added Tax (VAT)
- In accordance with the Kenya Tax Act Chapter 470, every entity must register for VAT at the Kenya Revenue Authority.
- VAT is levied at 14% on taxable goods and services. An EPZ entity is exempt from VAT.
Filing due dates
- Tax year is the calendar year. However, companies are free to adopt their own fiscal year end. All companies must file their annual tax returns within six months of the end of the calendar/adopted accounting year. All Kenya-incorporated companies must file their corporate tax return electronically via the iTax portal on or before the sixth month after the end of an accounting period. iTax will then generate a payment slip. Payment can be made at a KRA-approved bank in Kenya.
- The KRA recommends a company appoint a certified auditor when filing corporation tax returns. Healy Consultants Group PLC is happy to act as your auditor in Kenya to ensure the timely, accurate filing of your corporate tax return.
- Every trading company must file electronic VAT returns every month on or before the 20th day of the following month.
- Every taxable individual must file an electronic return by 30 June every financial year via iTAX.
Consequences of late / non-filing of tax returns
- The KRA levies a range of penalties for tax filing offences. For example i) failure to pay tax on the due date results in an additional 20% charge of the tax and ii) failure to file annual returns by the due date will attract a penalty of an additional tax equal to 5% of the normal tax.
- Late payment of VAT attracts a government penalty of 5% on the outstanding tax.
Kenya tax relief and business grant schemes
- A newly-listed company in Kenya enjoy a reduced 25% corporate income tax rate (compared to the usual 27.5%) for up to five years from listing.
- Entities set up in Kenya’s Export Processing Zones benefit from a 10-year tax holiday.
- An entity set up in a Kenyan Special Economic Zone (SEZ) pays 10% corporation tax for the first 10 years, and 15% for the next 10 years.
- Kenya has a limited double tax treaty network with countries including Denmark, Germany, Canada, India, Norway, United Kingdom and South Africa. These treaties provide for a reduction in or exemption from tax on certain types of income for a Kenyan company.
Tax reporting, accounting and auditing considerations
- In accordance with the Kenya Tax Act Chapter 470, each entity must register for corporate tax at the Kenya Revenue Authority (KRA).
- Before the KRA allocates a tax registration number (PIN) to a foreign-invested Kenyan company, the company must i) appoint a local registered tax agent and ii) demonstrate a minimum investment of US$100,000 in a foreign or local bank account.
- Kenya tax reporting is straight forward, all returns are submitted online to the KRA. The KRA is generally quite efficient.
- Consolidated returns are not accepted.
- All companies must prepare financial statements annually to international reporting standards.
- A company is exempt from audit if it has been dormant since formation or since the end of the preceding fiscal year. This exemption does not apply to financial services and insurance companies.
- The director of a company which must undergo an audit must ensure the company’s annual financial statements are duly audited and submitted to KRA every fiscal year.
- Losses may be carried forward in the year in which they occur, plus the subsequent nine years.
- A Kenyan company can consider the payment of foreign taxes as a permitted expense.
- Kenya tax law makes no provision for holding company structures.
Healy Consultants Group PLC fees for accounting and tax support
Kenya accounting & tax task US$ Tax and VAT registration 850 Annual tax and accounting fees (active trading company) 2,300 Annual tax and accounting fees (dormant company) 950 Act as our Client’s local registered tax agent 1,600
These accounting and tax fees are an estimate of Healy Consultants Group PLC fees to efficiently discharge your annual company accounting and tax obligations. Following receipt of a set of draft accounting numbers from your company, Healy Consultants Group PLC will more accurately advise accounting and tax fees.
Monthly bookkeeping service
Healy Consultants Group PLC will be happy to provide a monthly book-keeping service for your Kenyan company. Typically, our Accounting & Tax Department (ATD) team will receive a Dropbox of data from our Client and will immediately thereafter timely supply our Client with i) a general ledger ii) trial balance iii) monthly and quarterly management accounts and iv) monthly and quarterly government reporting, including sales tax and payroll.
For further details of our book-keeping service and our fees, visit this page.
Maintaining accounting, secretarial and corporate structure data
- A company must keep proper accounting records from the date of inception. Each officer of a defaulting company will be considered to have committed a crime and is liable to either i) a fine not exceeding US$10,000 or ii) imprisonment of not more than two years.
- Kenyan law states that every company must generate accounting records that demonstrate and explain the company’s financial status for the most recent three-month period. Examples of records include i) daily receipts and expenses ii) documentation of assets and liabilities.
- Records must be kept for at least seven years, either in electronic or paper format.
It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile, and that they fulfil those obligations annually in a timely and efficient manner. Let us know if you need Healy Consultants Group PLC’s help to clarify your annual reporting obligations.
Legal and compliance
- According to the Companies Act, to register a company in Kenya, you must have at least one director above 18 years of age;
- To form a Kenyan company you must have at least one shareholder who must be above 18 years and according to the revised companies act of 2017, the Kenyan company no longer requires to appoint at least one Kenyan (citizen by birth) to hold at least 30% stake for the company to be incorporated or registered;
- Shareholders who wish to travel to Kenya to do business will be required to prove that US$100,000 in capital has been set aside for the Kenya business setup, as a requirement of a successful entrepreneur work permit application. This does not apply to shareholders who do not plan on travelling to Kenya;
- Each company must have a registered office in Kenya. Healy Consultants can provide this for monthly fee of US$1,450;
- Each time a change occurs in the particulars of the Kenya business or to its officers, the change must be lodged with the Kenyan Companies Registry;
- A Kenyan company must file Annual Return with Company Registrar and Annual Tax Return with Revenue Authority to meet the legal requirements of the Kenya Companies Act;
- Foreign ownership is restricted in the aviation, insurance, telecommunications and agricultural industries, with listed companies also facing restrictions;
- The process of de-registering a company is dictated by the Government. This process will take a minimum of 6 months. Healy Consultants fee to project manage company de-registration is US$1450. During this 6 month period it is mandatory to maintain a resident company secretary and a legal registered office in Kenya.
- Each director of the Kenyan company, whether local or foreign, must have a personal Kenyan tax number (PIN).
Recruitment in Kenya
- Recruitment of foreign labour requires the employer to justify the hiring of the foreign worker in place of a Kenyan. The foreign employee is expected, but not required, to have professional and educational qualifications relevant to the position;
- Citizens of the East African Community (Uganda, Rwanda, Burundi, Tanzania) can be hired more easily than employees from other countries, with a simplified application process for a special Class B work permit following Kenya company registration;
- When employing local or foreign workers, employers must make sure to stay compliant with the 2007 Employment Act and the 2007 Labour Relations act, which are the two main laws governing labour in Kenya. The new labour laws most resemble the English system of labour laws, in terms of employer responsibilities.
Licensing in Kenya
- To complete Kenya company formation, firms will be required to apply for a license for Kenya business setup. Read more about Kenya business setup licenses;
- Any Kenya business setup registered within an EPZ is exempt from all licensing requirements, with only a single EPZ business license required to conduct business.