Taxation in Kenya is a critical tool for economic growth, wealth redistribution, and public service financing. The Kenyan tax system is evolving—balancing revenue needs with fair treatment of individuals and businesses. Whether you’re an SME, a multinational, or an employee, understanding how Kenya’s tax regime works can help you stay compliant and take advantage of available incentives.
In this comprehensive guide, we explore everything you need to know about taxation in Kenya in 2025: from corporate and personal income taxes to indirect taxes and digital economy levies.
1. Understanding the Tax System in Kenya
Kenya’s tax structure is administered by the Kenya Revenue Authority (KRA) and governed by laws including:
- Income Tax Act (Cap 470)
- Value Added Tax Act (2013)
- Excise Duty Act (2015)
- Tax Procedures Act (2015)
- EAC Customs Management Act (2004)
- Miscellaneous Fees and Levies Act
Taxes are categorized into:
- Direct Taxes: Corporate Tax, Personal Income Tax (PAYE), Withholding Tax, Capital Gains Tax
- Indirect Taxes: VAT, Excise Duty, Customs Duty
2. Corporate Tax in Kenya
Corporate tax is charged at 30% for both resident and non-resident companies.
Income Subject to Corporate Tax Includes:
- Business profits
- Rent from commercial properties
- Farming income
- Consultancy income
- Interest income
Allowable Deductions:
- Bad debts (as per KRA guidelines)
- Capital expenditure
- Pre-trading expenses
- Housing levy and social health insurance contributions
- Donations to exempt organizations
Non-Allowable Deductions:
- Personal/family expenses
- Unsupportive claims lacking eTIMS receipts
- Depreciation, amortization
- Fines, penalties
Compliance Obligations:
- Timely installment tax filings
- Accurate bookkeeping
- Capital allowance claims
- Proper computation of taxes
- Use of allowable tax rebates and incentives
3. Personal Income Tax (PAYE)
Kenyan residents are taxed on worldwide income; non-residents on Kenyan-sourced income.
Tax Bands (Progressive Rates):
As income increases, so does the tax rate, ensuring equity in tax distribution.
Taxable Benefits:
- Housing Benefit: Higher of 15% of total income or market rent
- Car Benefit: 2% of vehicle value
- Fringe Benefit Tax: 30% on subsidized loans
- Telephone Benefit: Up to Ksh 5,000/month
Tax Reliefs:
- Personal relief: Ksh 2,400/month
- Insurance relief: 15% of premiums (max Ksh 5,000)
- Pension, mortgage, SHIF contributions
4. Capital Gains Tax (CGT)
CGT is imposed at 15% on profits from sale of:
- Land and real estate
- Shares
Exemptions:
- Agricultural land below 50 acres
- Property sold for family trust or deceased estates
- Long-term owner-occupied residences
5. Withholding Tax (WHT)
Withholding tax is a mechanism where tax is deducted at source for:
- Management and professional fees
- Royalties and interests
- Contractual fees
- Digital content monetization
- Payments for goods supplied to public entities
Key DTAA Countries:
Kenya has signed Double Tax Agreements to avoid double taxation with several countries, including the UK, India, and UAE.
6. Turnover Tax (TOT)
TOT applies to resident businesses earning between Ksh 1M and Ksh 25M annually. The rate is 1.5% of gross turnover.
Not applicable to:
- Rental income
- Management or training fees
- WHT final income
7. Significant Economic Presence Tax (SEPT)
Applicable to non-residents earning from online/digital services in Kenya. Rate: 3% of gross revenue.
Excludes those with a permanent establishment in Kenya.
8. Rental Income Tax
Taxed at 7.5% on annual rental income between Ksh 288,000 – 15 million. Income above Ksh 15M is subject to corporate tax.
9. Indirect Taxes in Kenya
a) Value Added Tax (VAT)
- Charged on taxable goods/services
- Threshold for registration: Ksh 5M annual turnover
- VAT Rate: 16%
- Filing Due Date: 20th of every month
b) Excise Duty
Applied on:
- Excisable goods and services
- Imported excisable products
- Digital services by non-residents
c) Customs Duty
Levied on imports. Components include:
- Import Duty
- VAT
- Excise Duty
- Import Declaration Fee (2.5%)
- Railway Development Levy (2%)
10. Advance Tax on Vehicles
Paid before operating commercial vehicles:
- Ksh 2,500/ton or Ksh 5,000 (whichever is higher) for trucks
- Ksh 100 per passenger or Ksh 5,000 (for buses)
Final Thoughts
Navigating taxation in Kenya can seem complex, but understanding the system allows individuals and businesses to remain compliant, avoid penalties, and even unlock tax-saving opportunities. As Kenya continues to digitize and broaden its tax base, staying informed is more crucial than ever.
Need Help with Tax Compliance in Kenya?
At Ronalds LLP, we provide expert tax advisory and compliance services tailored to your business needs. Reach out for a consultation today.
📍 136 Manyani East Road, Nairobi
📧 info@ronalds.co.ke
📞 +254 717 558 212
