(d) Loans to employees Instalment Taxes Set-Off of Tax

PERSONAL INCOME TAXATION For loans before 11.06.1998 tax is payable by the Instalment tax where applicable is payable as follows:
Income Tax Rates for Indivuduals employee at the prescribed rate less actual rate paid Fourth Sixth Ninth Twelfth (a) Tax paid in another country on employment income by
by the employee. Month Month Month Month a Kenyan citizen can be offset against tax payable on
Taxable income Rate Cumulative tax For loans after 11.06.1998, fringe benefit tax is payable All taxpayers except that income in Kenya to the maximum of tax payable in
by the employer at rate given by the Commissioner from agricultural enterprises 25% 25% 25% 25% Kenya on the said income.
Kshs p.a. % payable Kshs. p.a
time to time less actual rate paid by employee. The tax Agricultural enterprises - - 75% 25% (b) Any tax or duty payable to Kenya Revenue Authority
0 - 121,968 10 12,196 rate to be applied is the corporate rate.
th
Instalments are payable on 20 of the month they fall due. (except VAT and duty on imports) may be offset against
121,969 - 236,880 15 29,432 Basis for Instalment Tax: Lower of preceding year’s tax any refund of tax or duty confirmed by the Kenya
(e) Other benefits
236,881 - 351,792 20 52,414 multiplied by 110% and current year’s estimate. Revenue Authority on request. The request must be
Furniture 1% of cost p.m.
351,793 - 466,704 25 81,142 made 30 days before tax is due.
Telephone 30% of cost p.m.
Over 466,704 30 Self Assessment Returns (SAR)
Taxable benefit for employee share ownership plan Motor Vehicle Advance Tax
(ESOPs). The difference between market price of shares SARs fall due six months after the end of the accounting
Personal Allowances and option grant price. The benefit accrues at the earlier of year. The balance of tax due is however payable by the end • For public service vehicles (PSV), pick-ups, vans, lorries
vesting period and exercising the option. and commercial vehicles:
of the fourth month. Emloyees earning only salary income
Kshs. Higher of Kshs.1, 500 per ton of load capacity p.a. or
are also required to submit SARs. A spouse’s income may
p.a. Kshs.2, 400 p.a.
be filed and taxed separately.
Registered Pension/Provident PENSION AND PROVIDENT FUNDS • For passenger carrying vehicles: For every driver
Schemes relief limits 240,000 Deductible Business Expenses Kshs. 3,600 and for every conductor Kshs. 1, 200.
Tax exempt lump sum withdrawals from both registered • For minibus, station wagons and saloon cars:
Personal relief 13,944
pension and provident funds is Kshs. 48,000 for each year of Higher of Kshs.60 per passenger capacity or Kshs. 2, 400 per
Mortgage interest relief for owner Expenses are deductible if incurred wholly and exclusively to
pensionable service, subject to a maximum of Kshs. 480,000. year whichever is higher.
occupied property - maximum 150,000 produce income. Capital and personal expenditure is
Withdrawals based on 1991 and prior contributions are exempt.
Home ownership savings plan 48,000 generally disallowed with certain exceptions.
Earnings from non-commuted pensions are exempt up to
(for first 10 years)
Kshs.180,000 p.a. Monthly pension payments to persons Charitable donations and social projects costs are deductible WITHHOLDING TAX
Insurance relief (life, health and education) subject to the charity being registered and tax exempt and
60,000 over 65 years of age are tax-free.
15% of premiums - maximum ministerial approval of the projects. Witholding Tax Rates
Withholding tax rates for pension/provident fund withdrawals
and lump sum beyond exempt limits: Transfer pricing between related parties should be based on Resident Non- Resident
Employment Benefits a) Withdrawal before 15 years expire: Kshs. arms length prices. Where this is not possible any one of the
following methods may be used to apply prices: Investment income
All benefits are taxable at the higher of cost and the fair 10% on the first 121,968
15% on the next 114,912 Qualifying dividends
market value except:- • Comparable uncontrolled price method
(a) Tax-free benefits 20% on the next 114,912 (for E.A.C. citizens, the
• Cost plus method
medical, school fees (if employer 25% on the next 114,912 resident rate is applied) 5% 10%
• Resale price method
taxed), registered provident/pension contributions 30% on amounts over 466,704 Subsidiary and associated
• Profit Split method
(exempt payments to non-registered funds or in excess company dividends
b) Withdrawal after 15 years, attaining age of 50 years or • Transaction net margin method
of relief for registered funds where the employer is tax (with > 12.5% shareholding) N/A 10%
retirement on health grounds: Kshs. • Other prescribed method
exempt), passage for expatriates and employer’s Interest from banks 15% 15%
canteen meals for low income staff. 10% on the first 400,000 Capital Allowances Interest on housing bonds 10% 15%
15% on the next 400,000 Rent N/A 30%
Non-cash benefits Wear and Tear Allowances:
20% on the next 400,000 Two year govt. bearer bonds 15% 15%
Exempt if the cost does not exceed Kshs. 36,000 p.a. • Tractors, lorries over 3 tonnes, heavy
25% on the next 400,000 Other bearer bonds 25% 25%
Tax-free medical benefits for directors owning over 5% 30% on amounts over 1,600,000 37.5%
self-propelled vehicles. Services payments
shareholding is limited to Kshs. 1.0 million. • Computer hardware, calculators, copiers and
• Employee not entitled to employer’s contribution before Royalties 5% 20%
Reimbursements duplicating machines. 30%
the retirement age. • Motor vehicles and aircrafts (Saloon cars qualifying Equipment leasing
For employees working out of station the first • Any surplus refunded to/withdrawn by employer from (Aircraft leasing is exempted) 3% 15%
Kshs. 2,000 per diem is deemed to be value limited to Kshs. 2.0 million). 25%
registered fund shall be deemed the income of the Insurance agency commissions 10% 20%
reimbursement and not taxable. Expense reimbursements • Ships, plant, machinery, furniture and equipment. 12.5%
employer. Insurance brokerage
are generally not taxable but require to be supported. • Loose tools and implements – what is just and reasonable
• Withholding tax under (b) is final tax. commissions 5% 20%
to the commissioner.
(b) Motor vehicles Building, civil and engineering
The benefit is the higher of 2% p.m. of the initial cost of Industrial Building Allowance: contractual fees (for local
vehicle and prescribed scale rates.For leased vehicles BUSINESS INCOME TAXATION • Factories 2.5% payments, this applies for
the benefit is the cost of leasing. Employees with • Prescribed low-cost residential housing payments exceeding
Corporate Tax Rates Shs. 24,000 p.m.) 3% 20%
restricted private usage can apply for a lower benefit developments. 5%
valuation. Prescribed hotels - up to 2006 4% Management, consultancy, agency
Prescribed hotels - from 2007 10% and professional fees (for local
(c) Housing
Resident companies 30% Hostels and approved educational buildings payments, this applies for payments
Non-working directors:
Non-resident companies 37.5% - from 2007 10% exceeding Shs. 24,000 p.m.)
15% of total income in case of arms-length lease.
Export Processing Zone enterprises: Farm Works Deductions 50% (for E.A.C. residents the rate is 15%) 5% 20%
Whole time service directors: First ten years Nil Telecommunication Services - 5%
15% of emoluments in case of arms-length lease. Investment Deductions:
Next ten years 25% Shipping and airline income N/A 2.5%
• Factory building and civil works - 2004 to 2008 100%
All directors: Newly listed companies over 20% capital listed (3 years) 27% Entertainment & Sports fees N/A 20%
• Hotel building and civil works - 2004 to 2008 100%
Market rent for premises owned by employer or higher of Newly listed companies over 30% capital listed (5 years) 25% • Manufacturing machinery - 2004 to 2008 100%
market rent and rent paid in case of non-arms length lease. Newly listed companies over 40% capital listed (5 years) 20% Pensions
• Shipping 40% Pension withdrawals 10%-30% 5%
Agricultural employees: • Mining capital expenditure - year 1 40% (graduated scales)
10% of emoluments
- year 2 - 7 10%
Other employees: Turnover tax is applicable to small businesses with a
• Manufacturing under bond 100%
The higher of the rent paid and 15% of emoluments for turnover per annum of up to Shs. 5 million at the rate of
• Workshop machinery used for factory maintainance
arms-length lease. 3% of turnover. This will be final tax.
is eligible for investment deduction.
 Finished goods 25%
VALUE ADDED TAX (VAT) IDF fees (exempt for EAC) 2.25% TAX PENALTIES
Standard rate Export duties - lead acid batteries 20% Offence Penalty
(applicable on taxable goods and services) 16% - raw hides and skins 40%
Failure to furnish returns 5% of tax due
Zero rate
Penalty on unpaid tax 20% of unpaid tax
(applicable on exports and specified Internal Tariffs for Kenyan exports to Uganda and
zero-rated goods) 0% Tanzania are gradually being eliminated and should be
Registration threshold (turnover p.a.) Shs. 5 million zero by the year 2008.
Interest on unpaid tax 2% per month compounded
Taxable Value
Excise Duties Fraud or wilful omission Double the amount of tax
VAT is chargeable on the supply of taxable goods and in a return underpaid
services as well as on the importation of goods and services Excise duties are charged on a variety of products:
Fine not exceeding Kshs.
into Kenya. 200,000
Beer, wines and spirits specific
Special Considerations Imprisonment not exceeding 2
(Shs. 50 to Shs 280per litre)
years
Commercial property rent taxable (w.e.f. Jan 08) Tobacco products advolerum (per pack)

QUICK
Insurance proceeds are exempt from VAT.(w.e.f. 15.06.07) Petroleum advolerum Failure to deduct or 25% of the amount of tax
Imported services attract reverse VAT, payable by the Vehicles-locally assembled 0% remit PAYE involved (min.Kshs.10,000)
importer. - imported 10%-20% VAT operations failure fines ranging from Shs. 10,000
Used motor-vehicle spare parts 20% to Shs. 500,000
Withholding VAT Jewellery 10%
The Commissioner of Domestic Taxes has appointed Gambling 5%

TAX
various bodies (government departments, parastatals, Mobile cellular phones 10% E.A.C. TAX RATES
banks and insurance companies for instance) as withhoding Plastic bags 120%
VAT agents. They are required to withhold and remit VAT Bottled water and sodas 10%
Corporate Tax Rates
directly to the revenue authorities on a weekly basis. They
then issue a certificate of payment to support input tax NATIONAL SOCIAL SECURITY FUND Resident Non-Resident
claims by the payee. Companies Companies

GUIDE
Contributions set at 10% of monthly income up to a
VAT Refunds maximum of Kshs. 400 per month; half paid by employer Kenya 30% 37.5%
and half by employee. Compulsory for employers with five Uganda 30% 30%
VAT is refundable where credits arise from: making zero- or more employees. Tanzania 30% 30%
rated supplies; capital investments (with VAT exceeding
In case of casual employees only the employer pays 5% of Rwanda 35%
Shs. 1.0 million); tax paid in error and on debts exceeding
gross wages. Burundi 35%
three years; withholding VAT credits.

NATIONAL HOSPITAL INSURANCE FUND KENYA

MISCELLANEOUS TAXES Payments are set at graduated scale starting at Shs. 30 to
a maximum of Shs. 320 on salaries of Shs. 15,000 and VAT Standard Rates
Training Levy
above.
The Directorate of Industrial Training is a government
department that levies and administers the industrial
training levy.
STAMP DUTY
Increase in share capital 1%
Kenya
Uganda - Standard
- On residential property
16%
18%
5%
2007 / 2008
The levy ranges from Shs. 150 to Shs. 300 per employee Transfer of stock or marketable security 1%
Tanzania 20%
per half a year depending on the industry sectors. (No duty on quoted securities)
Rwanda 18%
Contributing employers qualify for reimbursement of Transfer of immovable property in:
Burundi (Sales tax) 17%
approved training expenses. Municipalities 4%
Outside municipalities 2%
Standards Levy Debenture or mortgage:
Primary security 0.2%
Due from manufacturers at the rate of 0.2% of ex-factory

Kenya
Auxiliary security 0.1%
price subject to a minimum of Shs. 1,000 p.m. and a This information is prepared for guidance only and is not a
Lease 1 and 2 years 1% of annual rent
maximum of Shs. 400,000 p.a. Lease over 2 years 2% of annual rent substitute for professional advice. Although the Guide includes
amendments up to and including Finance Bill 2007,the Finance
Catering Levy Exemptions: Act 2007 may bring in more amendments. Whilst every care Accountants &
Husband wife transfers. has been taken to ensure accuracy of information contained
The catering levy is a 2% tax levied on hotels and Family to family controlled company land transfers. herein, PKF Kenya, its partners or associates cannot accept business advisors
restaurants billing. Transfers between holding and subsidiary companies responsibility for any action taken without appropriate
with shareholding > than 90% . professional advice.
CUSTOMS AND EXCISE DUTIES Transfer of land for school construction.
A member of International
Customs Duties
Duties are chargeable on imports, exports and on
specified goods and services. Customs duties are
charged under the East African Community Common www.pkfea.com
External Tariff.
Customs Duty Rates:
Raw materials 0%
Semi-finished goods 10%