Simple Tax Guide for Americans in Kenya
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Kenya for over 8 years. Our clients hail from all parts of the country - Nairobi and Mombasa, Nakuru and Kisumu, Eldoret and Nyeri.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Kenyan Tax System for the American Expatriates.
Kenya personal income tax rates are progressive up to 30%, as follows:
Yearly income (Kshs) Tax Rate
0 to 121,968 10%
121,969 to 236,880 15%
236,881 to 351,792 20%
351,793 to 466,704 25%
Over 466,704 30%
Basis – All income accruing in, or derived from, Kenya is subject to tax in Kenya. Kenyan residents are taxable on their worldwide employment income, whereas a nonresident is taxable on Kenyan-source employment income. Only Kenyan citizens may offset tax on foreign employment income against the tax charged in Kenya on such income. Non-citizen residents must include their after-tax foreign-source employment income in their Kenya taxable income.
Residence – An individual is resident in Kenya if he/she has a permanent home in Kenya and is present in Kenya for any time during the year. An individual present in Kenya for at least 183 days in the tax year is resident, as is any person who has averaged 122 days in country in the tax year and the previous 2 tax years.
Tax Filing status – A married couple living together may elect to file separate returns. Otherwise (unless they are living apart, when separate returns are filed), the tax on their combined income is assessed on them proportionately, with the tax on the wife's earned and investment income calculated as if it were the sole source of joint income.
Taxable income – All income accruing in, or derived from, Kenya is subject to tax in Kenya in the same way as applies to the business income of companies. Employment income is broadly defined and includes amounts paid outside Kenya. Fringe benefits are taxable on the employee, at either actual or deemed cost.
Capital gains – Capital gains are not taxable in Kenya.
Tax Deductions and allowances – Personal tax relief in Kenya is KES 13,944 per annum. The following may be deducted from taxable income: up to KES 150,000 annually in mortgage interest for owner-occupied property; contributions to a registered pension or provident fund up to KES 240,000 annually (the deduction may not exceed 30% of employment income); and 15% of health or life insurance premium payments (up to KES 60,000 annually). The daily subsistence allowance up to KES 2,000 paid when working away from the normal place of duty is not taxable.
Other taxes on individuals:
Stamp duty – Stamp duty is charged at nominal or ad valorem rates on certain financial instruments and transactions.
Capital duty – No
Capital acquisitions tax – No
Real property tax – No
Inheritance/estate tax – No
Net wealth/net worth tax – No
Social security contributions – Employees must contribute to the national social security and hospital insurance funds up to an annual maximum of KES 2,400 and KES 3,840, respectively, per employee. The percentage rates are 5% and approximately 1% of payroll, respectively.
Administration and compliance:
Tax year – Calendar year
Tax Filing and tax payment – Any balance of tax payable is due by 30 April in the following calendar year. Personal tax returns are due by 30 June following the end of the tax year. A personal tax return is required even where an individual's personal tax has been fully settled through the PAYE system.
Penalties – See under "Corporate taxation".
Kenya Corporate income Tax
The general corporate income tax rate in Kenya is 30%, with a branch of a foreign company taxed at 37.5%.
Newly listed companies enjoy a reduced rate for 3-5 years following the year of listing, the rate (20%-27%) and period depending on the percentage of capital listed (must be more than 20%).
Residence – A company or similar corporate entity is tax resident if incorporated under Kenyan law, if management and control of its affairs are exercised in Kenya or if the Minister of Finance declares the entity to be tax resident in a notice published in the Kenya Gazette.
Basis – Resident and nonresident corporate entities are subject to tax on all income accruing in or derived from Kenya.
Taxable income – Income tax is imposed on a company's gross income minus allowable deductions. In general, expenses must be incurred "wholly and exclusively" in the production of income and not be capital in nature to be deductible for tax purposes.
Taxation of dividends – Dividends from a Kenyan company are not subject to additional tax other than what is deducted at source (see "Withholding tax", below).
Attributable expenses are disallowed as deductions. Dividends from a foreign company are not taxable in Kenya.
Capital gains – Capital gains are not taxable in Kenya (while there is capital gains legislation, it has been suspended since 1985).
Losses – Business income, investment income (other than for financial institutions, for which investment income is considered business income), rental income and income from agriculture are assessed separately and losses only may be utilised against taxable income from the same source. As from 12 June 2009, tax losses may be deducted in the year in which they arise and the 4 following years of income (previously, an indefinite carryforward was allowed). Losses may not be carried back and capital losses are not deductible.
Surtax – No
Alternative minimum tax – No
Foreign tax credit – Foreign taxes paid are treated as an allowable expense, except where a tax treaty applies, in which case a tax credit is granted.
Participation exemption – No
Holding company regime – No
Tax Incentives – Kenya provides for a 100% investment deduction on hotel buildings and on buildings and machinery used in manufacturing. Manufacturing investment in buildings and machinery situated within satellite towns adjoining Nairobi, Mombasa or Kisumu attract an investment allowance of 150%. Enterprises in export Processing Zones enjoy a 10-year tax holiday.
Dividends – No withholding tax is imposed if the recipient is a qualifying Kenyan financial institution or the resident recipient company controls 12.5% or more of the capital of the payor. Otherwise, the rate is 5% for dividends paid to residents of Kenya and on listed shares for citizens of the East African Community, and 10% for other nonresidents.
Interest – The general rate on interest paid to residents and nonresidents is 15%.
Royalties – Royalties paid to residents are subject to a 5% withholding tax; the rate is 20% for royalties paid to nonresidents.
Branch remittance tax – No
Other taxes on corporations:
Capital duty – See under "Stamp duty."
Payroll tax – No
Real property tax – Land rates are assessed by local authorities. See also "Transfer tax".
Social security contributions – An employer must contribute 5% of payroll to the National Social Security Fund, up to an annual maximum of KES 2,400 per employee.
Stamp duty – Stamp duty is charged at nominal or ad valorem rates on certain financial instruments and transactions. Stamp duty of 1% is payable upon the creation and increase of authorised share capital. Stamp duty is levied at a rate of 4% on immovable property (2% if levied outside the municipalities) and 1% on the transfer of shares and other securities. An exemption applies if the shares/securities are listed on the Nairobi stock exchange.
Transfer tax – See under "Stamp duty."
Other – Compensating tax is imposed on dividends declared from untaxed profits and is calculated as the cumulative tax paid since 1988 (including compensating tax and tax attributable to dividends received), less the cumulative tax attributable to dividends paid at the standard rate. This tax is not recoverable against future income tax liabilities. Fringe benefits tax is chargeable on companies in respect of concessionary rate loans granted to employees. All other benefits are taxable to the employee.
Transfer pricing – Kenyan law requires arm's length pricing between related enterprises. Compliance with the OECD guidelines generally ensures compliance.
Thin capitalisation – Interest expenses are proportionately restricted for foreign controlled companies (other than licensed financial institutions) when the ratio of all interest-bearing liabilities exceeds 3 times the payer's issued and paid up capital and revenue reserves/accumulated losses. Control, for CFC purposes, includes participations of at least 25%.
Controlled foreign companies – No
Other – No
Disclosure requirements – The tax authorities have the statutory right to require information from a taxpayer concerning its own tax affairs, and also may require information from banks about payments of interest.
Administration and compliance:
Tax year – The tax year is the calendar year, although a company may adopt any year end. All taxable income is assessed in the fiscal year in which the company's accounting year ends.
Consolidated tax returns – Consolidated returns are not permitted; each company must file a separate return.
Tax Filing requirements – The self-assessment and compensating tax returns must be filed within 6 months of the end of the company's accounting period. Tax instalments are due within 20 days of the end of each quarter year based on the relevant proportion of the estimated current or 110% of the tax for the prior year, less previous instalments paid and withholding tax deducted by customers, with the balance of tax, if any, due 4 months after the company's year end. Agricultural companies make their first instalment payment 20 days after the third quarter.
Employers are required to submit quarterly Pay As You Earn (PAYE) returns before the 10th of the month following the end of each quarter, in respect of emoluments earned in each of the three months, including the tax deducted.
Penalties – Late payments of self-assessed tax are subject to a 20% penalty, plus 2% per month. Late filing is subject to a 5% penalty (minimum KES 10,000) on any amount still owed 4 months after the company's year end.
Rulings – Taxpayers may seek non-binding interpretations by the Kenya Revenue Authority of tax legislation as it applies in general, or to specific situations.
Kenya VAT (value added tax) Rate
The standard rate of VAT in Kenya is 16%. Zero-rated supplies include the export of goods and taxable services and the supply or import of specified goods, particularly where used in agriculture, health and education, computer hardware and software, international air travel and supplies to licensed oil exploration companies. Exempt supplies include financial services provided by banks and most agricultural produce in its unprocessed or preserved state.
Taxable transactions – VAT is imposed on the supply of taxable goods and services made or provided in Kenya by a taxable person in the course of or in furtherance of any business carried on by that person and on the importation of goods and services into Kenya.
VAT Registration – Registration for VAT is compulsory where the turnover of taxable supplies is, or is expected to be, KES 5 million or more in a 12-month period.
Filing and VAT payment – VAT returns and any related payments are due by the 20th day of the following month.