Business Environment

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In this page: Accounting Rules | Tax Rates | Intellectual Property | Legal Framework | Standards | Business Practices

 

Accounting Rules

Tax Year
The tax year is the calendar year, but a company (except for financial institutions) can choose any date as the end of its financial year.
Accounting Standards
The financial statements must comply with International Financial Reporting Standards (IFRS) or International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs). ICPAK also requires that all audits are conducted in accordance with International Standards on Auditing (ISA).
Accounting Regulation Bodies
Public Accounts Committee (Parliament)
Registrar of Accountants  Board (RAB)
Accounting Reports
Companies must prepare: a balance sheet, income statement, statement of cash flows, statement of changes in equity, the explanatory notes to the financial statements and disclosures required by IFRS and international auditing standards (IAS).
Publication Requirements
The financial statements must be prepared every 12 months.
Professional Accountancy Bodies
Institute  of  Certified  Public  Accountants  of  Kenya  (ICPAK) , Institute  of  Certified  Public  Accountants  of  Kenya
Certification and Auditing
Regarding audits, the law requires companies to appoint auditors who are ICPAK members. See specialized audit firms:Deloitte, Ernst & Young, PriceWaterHouseCoopers, KPMG.
Accounting News

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Tax Rates

Consumption Taxes

Nature of the Tax
Value Added Tax (VAT)
Tax Rate
16% (effective from 01 January 2021)
Reduced Tax Rate
A reduced rate of 8% applies to motor fuel; aviation fuel; gas oil; natural gas.
Zero-rated items include: exportation of goods and taxable services; goods and services supplied to export-processing zones; international transportation of passengers; goods and services supplied to special economic zones; supply of liquefied petroleum gas (will be taxed at the standard VAT rate from 1st July 2021); supplies to the Commonwealth; supplies to other governments; supplies to diplomats.
Several goods and services are exempt from VAT: unprocessed agricultural products; direction-finding compasses; passenger baggage; financial services; insurance; medical services; agricultural and horticultural services and animal husbandry; transportation of passengers by any means of conveyance, excluding international air transport or where the means of conveyance is hired or chartered; entry fees into national parks and national reserves.
Other Consumption Taxes
Other taxes include: excise duties, tax on sugar and advance tax on motor vehicles.
An import declaration fee is levied on all imports into the country at 3.5% of the customs value of the goods (the rate is reduced to 1.5% for
raw materials, intermediate goods, and inputs for the construction of houses under the affordable housing scheme). A railway development levy is payable on all imports into the country at 2% on the customs value of the goods (1.5% in certain cases).
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20% excise duty applies on the amounts wagered or staked in betting activities. Moreover, lottery and gaming companies are subject to an additional 15% turnover tax.

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Corporate Taxes

Company Tax
30% (was 25% from 30th April 2020 to 31st  December 2020)
Tax Rate For Foreign Companies
Resident and non-resident companies are subject to tax on all income accruing in or derived from Kenya. The corporate income tax rate for branches of foreign companies and permanent establishments is 37.5%.
Capital Gains Taxation
Capital gains are taxed at 5% of the net gain (except the transfer of shares traded on any securities exchange licensed by the Capital Markets Authority, which are exempt).
Gains derived on the sale or transfer of property are also subject to a final tax of 5%.
Main Allowable Deductions and Tax Credits
Expenses incurred wholly and exclusively to generate taxable income are generally tax-deductible.
Accounting depreciation or impairment does not give rise to a deduction. However, capital allowances are granted at varying rates (10% to 50%) for certain assets uses for business purposes. Any other expense, that is capital in nature, including goodwill, is not deductible.
Start-up and interest expenses are generally deductible. Bad debt is deductible in the year in which it becomes apparent that the debt is not recoverable. Charitable contributions, including donations to the Kenya Red Cross, country governments or any other public institution that is in charge of disaster relief, are deductible.
Fines, penalties and taxes are not deductible.
Net operating losses can be carried forward up to ten years. Carryback of losses is not permitted, except in the case of petroleum companies, which are entitled to carry back their losses indefinitely.
Other Corporate Taxes
Employers and employees are required to contribute up to KES 200 per month each to the National Social Security Fund (NSSF). The new NSSF Act provides for a higher contribution rate of 6%; however, this has yet to be applied, thus the former rate of 5% continues to apply.
Employers are liable for the National Hospital Insurance Fund (NHIF), but they are required to withhold up to KES 1,700 per month from their employees' salaries.
A tourism levy that corresponds to 2% of the annual turnover is payable by all companies involved in tourism activities.
Employers are required to pay a monthly training levy of KES 50 per employee to the Directorate of Industrial Training. Companies liable for the tourism levy are exempt.
A fringe benefit tax of 30% applies to interest-free or low-interest loans granted to employees by their employers and is payable by the employer.
A 1% stamp duty applies to increases of authorised shared capital and transfer of shares and securities (shares/securities listed on the Nairobi Exchange are exempt). The rate is 4% on immovable properties (2% if the property is located outside of municipalities).
A 20% withholding tax applies to demurrage charges paid to non-resident ship operators.
Other Domestic Resources
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  Kenya Sub-Saharan Africa United States Germany
Number of Payments of Taxes per Year 24.0 36.6 10.6 9.0
Time Taken For Administrative Formalities (Hours) 179.5 284.8 175.0 218.0
Total Share of Taxes (% of Profit) 37.2 47.3 36.6 48.8

Source: Doing Business - Latest available data.

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Individual Taxes

Tax Rate

Personal Income tax Progressive rate from 10% to 30%
On the first KES 288,000 10%
On the next KES 100,000 25%
On income over KES 388,000 30%
Residential rental income tax 10% of the gross proceeds in case of rental income between KES 144,000 and 15 million per year.

Taxpayers earning residential rental income exceeding KES 15 million per annum are taxed on a net income basis.
Allowable Deductions and Tax Credits
Mortgage interest expenses (up to KES 300,000 per year or KES 25,000 per month) are deductible. Contributions to a registered pension or provident fund in Kenya are deductible up to KES 240,000 per year (capped at 30% of the employee income). A daily subsistence allowance up to KES 2,000 paid when working away from the normal place of duty is not taxable, same as for any expense incurred wholly and exclusively in the production of employment income.
Bonuses, overtime allowances, and retirement benefits paid to employees earning less than KES 147,580 per year are exempt from tax.
A credit against the tax liability equivalent to KES 28,800 per year applies to all individuals (KES 2,400 per month).
Special Expatriate Tax Regime
Kenyan residents are taxable on their worldwide employment income; non-residents are taxable only on Kenyan-source employment income.
Expatriates may claim a 33.3% deduction from taxable income if they are employed by a regional office that carries on no business in Kenya and if they do not carry on business activities in Kenya for at least 120 days in any tax year.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of Tax Conventions signed by Kenya
Withholding Taxes
Dividends: 0% (paid by an SEZ enterprise to a non-resident)/5% (residents)/10% (non-residents); Interests: 5% (paid by an SEZ enterprise to a non-resident)/10% (paid on bearer bonds)/15% (paid by financial institutions)/25% (paid on bearer certificates); Royalties: 5% (paid by an SEZ enterprise to a non-resident; paid to a resident)/20% (non-resident).

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Intellectual Property

National Organisations
The Kenya Industrial Property Institute (KIPI).

Kenya Copyright Board (KECOBO)

Regional Organisations
Kenya is member of the African Regional Intellectual Property Organization, ARIPO.
International Membership
Member of the WIPO (World Intellectual Property Organization)
Signatory to the Paris Convention For the Protection of Intellectual Property
Membership to the TRIPS agreement - Trade-Related Aspects of Intellectual Property Rights (TRIPS)
 

National Regulation and International Agreements

 
Type of property and law Validity International Agreements Signed
Patent
 
Industrial Property Act, 2001
20 years from the request made by the inventor or the beneficiary at the Kenya Intellectual Property Institute Patent Cooperation Treaty (PCT)
Trademark
 
Trademark Act (Amendment, 2007)
10 years renewable Trademark Law Treaty
Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks
Design
 
Industrial Property Act, 2001
5 years renewable from the date of registering the request.  
Copyright
 
Chapter 130, The Copyright Act, 2001
50 years after the death of the author or up to 50 years after the death of the last author in the case of a joint work. Berne convention For the Protection of Literary and Artistic Works
Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms
WIPO Copyright Treaty
WIPO Performances and Phonograms Treaty
Industrial Models
 
Industrial Property Act, 2001
Ten years non-renewable  

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Legal Framework

Independence of Justice
Government decisions are often closely linked to personal motivations of judges and officials. Despite this, Kenyan courts generally have qualified judges. Furthermore, Kenya disposes, since the enactement of the 2010 Constitution, of an independent judicial system, including a Supreme Court. Finally, the Head Judge of Kenya must report on the state of the Kenyan judicial system each year.
Equal Treatment of Nationals and Foreigners
Foreigners have much less local political influence than any Kenyan citizen. Justice tends to favour Kenyans.
The Language of Justice
Both English and Swahili are ​​accepted in the courts, but English is hierarchically more important.
Recourse to an Interpreter
Yes, the right to use an interpreter is guaranteed by law.
Sources of the Law and Legal Similarities
The Kenyan judicial system is founded on British law.
Checking National Laws Online
Kenya Law
Library of Congress, United States

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Standards

National Standards Organisations
Kenya Bureau of Standards (KEBS), Kenya Bureau of Standards

National Environment Management Authority, National Environment Management Authority
Division of Environmental Health, Division of Environmental Health
Integration in the International Standards Network
Kenya is a member of the International Organization for Standardization (ISO).
Classification of Standards
Kenyan standards (KS) are grouped into six categories: terminological glossaries or definitions; dimensional standards; performance standards; test methods standards; codes of practice and standards of measurement.
Online Consultation of Standards
See the Library Catalogue of the Kenyan Bureau of Standards.
Certification Organisations
SGS Kenya
Bureau Veritas
Pharmacy and Poisons Board (PPB)
Ministry of Health

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Business Practices

General Information
Internations-Business Etiquette in Kenya
Commisceo Kenya Business Practices
U.S. Commercial Service Country Guide
Opening Hours and Days
Business hours are generally from 8 a.m. to 1 p.m. and from 2 p.m. to 5 p.m. Banks are open from 9 a.m. to 3 p.m. Most shops open from 9 a.m. to 6 p.m., some supermarkets are open 24-7 and in shopping centres some shops remain open until 8 p.m.
 

Public Holidays

New Year Day 1 January
May Day 1 May
Madaraka (Independence Day) 1 June
Mashujaa 20 October
Jamhuri 12 December
Christmas Day 25 December
Boxing Day 26 December
Holy Friday Date varies
Easter Date varies
Easter Monday Date varies
Idd-ul-fitr Date varies
 
Holiday Compensation
Yes
 

Periods When Companies Usually Close

Christmas and New Year Day Several days between Christmas and the New Year
Ramadan Several days during Eid al-Fitr and Eid- al-Adha
 

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Latest Update: April 2022