Nairobi at a Glance
Nairobi Expats: Cost of Living and Taxes
When you find employment in Kenya or go on an intra-company transfer to Nairobi, there are some things to keep in mind. You should have a look at your salary and the local cost of living.
Cost of Living in Nairobi
Nairobi is hardly the most expensive destination worldwide: It ranked as #117 out of 211 cities in the Mercer Cost of Living Survey 2014. But, the living expenses for expatriates are worth considering.
If your salary is going to be paid in a foreign currency, the exchange rate is going to influence your real income. A strong US Dollar, for instance, means that you have a higher disposable income while you are living in Nairobi – most expenses are paid in Kenyan shillings (KES) after all.
Unfortunately, the country’s high inflation rate has devalued the Kenyan shilling in the recent past. Though inflation seems to have abated for the time being, it remains difficult to list reliable information on prices for necessities such as food or toiletries. Due to the aforementioned inflation and fluctuating prices, figures like these are quickly outdated.
Generally speaking, several items are always going to take huge chunks out of your expat budget.
- Public healthcare and social security in Kenya are inadequate by first-world standards. You will pay a negligible amount of monthly contributions to Kenya’s national pension fund and healthcare plan; however, you should have your own provisions to rely on. Therefore, you need to lay aside some money for your retirement fund. Your employer should provide you with a private insurance policy for medical care. It’s worth checking this plan very carefully, to see if the insurance fits your individual needs.
- Rental housing in upmarket neighborhoods is fairly expensive. Expats spend about one third of their income on accommodation, i.e. rent, utilities, security, etc. However, the worst of the real estate bubble in Nairobi, especially in the upscale residential areas, seems to be over for now.
- Education at international schools in Kenya is a costly endeavor. Many companies include an education allowance in the remuneration package for expats with kids. If this is the case for you, make sure that your employer pays the fees directly to the school. Otherwise, the allowance might become taxable under Kenyan law.
Taxation in Kenya
As far as tax in Kenya is concerned, you first need to determine if you are a fiscal resident. In some cases, there are different regulations and tax rates for residents and non-residents. The rule of thumb for fiscal residency is the time you spend in Kenya. If you reside in Nairobi (or any other Kenyan city) for 183 days per tax year or more, you normally count as a resident for the Kenyan Revenue Authority.
Fiscal residents pay tax on all employment income, including overtime pay, bonuses, commissions, financial benefits, allowances, and some other benefits in kind. If you have employment income from foreign sources or profits on business activities across borders, you have to pay taxes on it, but only if you’re a resident. Other than that, it is just income accruing in or derived from Kenya that needs to be taxed.
If you collect any interest, dividends, royalties, or technical service fees which accrue abroad, you may or may not be subject to taxation according to Kenyan law depending on the country in which they were accrued. Kenya has treaties and agreements with some countries regarding such taxes, so the advice of a tax consultant is highly recommended.
In Kenya, the capital gains tax has been suspended for years. There is no inheritance tax, gift tax, estate tax, or wealth tax, either.
Income Tax for Expats
If your job is your only source of income while you are living in Nairobi, taxation is quite easy. Just check if your employer files monthly PAYE tax reports for you. The company then deducts all taxes and social security contributions directly from your salary as withholding tax. If the company does not take care of this, you have to file such reports yourself, at least once during each quarter. In this case (and/or if you have several sources of income in Kenya), it’s probably best to contact a tax accountant.
A tax consultant can easily calculate your taxable income, inform you about potential deductions, and tell you which benefits in kind are subject to taxation. Tax accountants can also be of help if you would like to know more about double taxation treaties.
At the moment, Kenya has tax relief treaties with Canada, Denmark, Germany, India, Norway, Sweden, the UK, and Zambia. Other agreements are under negotiation or signed, but not yet in force. Such tax agreements do not only prevent you from possibly taxing the same income twice; in some cases, they even provide a slightly lower tax rate on selected sources of income in Kenya.
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