TAXATION OF EXPATRIATES IN KENYA (Nairobi)

Working in Kenya places you at the heart of the African economy. When you find employment or start a business in Kenya, there are some things to keep in mind.

Many expatriates live and work in Kenya; are they exempt from tax and other mandatory deductions such as NHIF and NSSF?

This article seeks to answer these questions.

INCOME TAX

When it comes to income tax, salary, or other remuneration that arises from employment received by expatriates, is considered income and is liable to income tax.

These include any of the following:

• Wages, salary, leave pay, sick pay, payment in lieu of leave, directors’ fees and other fees, overtime, commission, bonus, gratuity or pension.

• Cash allowances

• The amount of any private expenditure of the employee paid by the employer other than as a loan.

• Non-cash benefits where the aggregate value excess KES 3,000 per month taxed at the higher of cost or fair market value.

• Value of housing where provided by the employer.

As far as tax in Kenya is concerned, you first need to determine if you are a tax resident or a Non-Resident. This determines how you are treated with regard to taxation in Kenya.

RESIDENCY RULES

A PERSON IS RESIDENT WHERE:

i) They have a permanent home in Kenya and are in Kenya even for a single day in the tax year, or

ii) They do not have a permanent home in Kenya but are in Kenya for:
• Protected content or more in aggregate during the current tax year or
• An average of more than Protected content per year in the current tax year and the two preceding years.

If you don’t meet the above criteria, then you are a Non-Resident.

Individuals are liable to tax on employment income as follows:

I) Resident individuals - taxable on all worldwide employment income

II) Non-resident individuals - taxable on the income received only from Kenya from:

a) A Kenya resident company or

b) Permanent establishment in Kenya of a non-resident company (e.g. Kenyan branch of foreign company)

Note:
Where there is no Permanent Establishment in Kenya, the Kenyan entity that sponsors immigration documents is deemed to be the employer. The employer may opt to run a shadow payroll for purposes of PAYE. This may be done by either the permits sponsor or a third party.

TAXATION – TAX CREDITS

INBOUND EXPATRIATES

Individuals can sometimes claim foreign tax credits where they suffer double taxation on the same income. In Kenya, foreign tax credits are claimable for inbound employees (employees whose host country is Kenya but whose home country is abroad) as follows:

• Where there is a Double Taxation Agreement (DTA) between Kenya and the other country. (Currently, Kenya has concluded DTAs with: South Africa, Canada, Denmark, France, Germany, India, Iran, Norway, Sweden, United Kingdom and Zambia.)

• Inbounds exercising their employment in Kenya would be taxed in Kenya and claim the Kenyan taxes paid as a credit in their home country.

• Credits are generally limited to the lower of the foreign taxes paid and the Kenyan taxes due.

OUTBOUND EXPATRIATES

Outbound expatriates (employees whose home country is Kenya and who are on assignment outside Kenya) can claim credits in Kenya for foreign taxes suffered:

• Where the person involved is a Kenyan citizen who has suffered foreign taxation on his foreign employment income.

• Where there is a DTA between Kenya and the foreign country.

• Credits are generally limited to the lower of the foreign taxes paid and the Kenyan taxes due.

• Proof of foreign taxes paid is required when filing the Kenyan tax return.

TAX RATES

Expatriates are taxed using the same rates as Kenya citizens except that

a) Non Residents don’t enjoy tax relief

b) Non-Residents don’t enjoy deductible tax free pension contribution
This means Non-residents pay slightly higher taxes than Residents.

ANNUAL INCOME TAX RETURNS

All individuals must obtain a Personal Identification Number (PIN) from Kenya Revenue Authority (KRA) and file their income tax returns on or before 30th June.

Any unpaid Taxes must be paid on or before 30th April.

OTHER DEDUCTIONS AFFECTING EXPATRIATES WHETHER RESIDENT OR NON-RESIDENT

Both Residents and Non-Residents as far as they are employed, must pay NSSF and NHIF

NATIONAL SOCIAL SECURITY FUND – NSSF

Total contribution is KES Protected content per month shared as under:
Employee: KES Protected content
Employer: KES Protected content

• Expatriate exemption is possible if in Kenya for up to 3 years and can apply for exemption.

NATIONAL HOSPITAL INSURANCE FUND - NHIF

Required contributions:
Employee: Max KES 1,700 per month
Employer: Nil

For further clarification contact us we are here to assist you
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PATRICK KAGUNYA