Kenya Tax 101

Who is liable to pay tax in Kenya?

Resident employees are taxed on worldwide earned income, in respect of any employment or services rendered in Kenya or outside Kenya. Residents are also taxed on any other income that has accrued in or is derived from Kenya.

A person is considered to be tax resident in Kenya if they:

have a permanent home in Kenya and were present in Kenya for any period in a particular year of income under consideration, or
do not have a permanent home in Kenya but were:
present in Kenya for 183 days or more in that year of income, or
present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income.

Any amount paid to a non-resident in respect of any payment with or services rendered to an employer who is resident in Kenya or to a permanent establishment in Kenya is subject to income tax charged at the prevailing individual income tax rates

Non-residents are however not entitled to any personal relief.  

Internships – there is no tax law that exempts interns from paying income tax so PAYE has to be paid. NSSF is clear that for students in college or universities who are engaged as interns will not be liable to pay Tax. NHIF is silent on exemption which means it has to be paid.  

Independent Contractor – Independent contractor is not treated as an employee of a company, the company treats you as a service provider and withholds a certain amount of tax on your behalf and pays to KRA, the tax may or may not be final depending on the type of service and terms of the contract.

Tax Statuses / Types of employment

Resident and Deemed Resident (Standard) Employment: Progressive Tax Rate.
Foreign Employment (No Relief): Progressive Tax Rate but no relief is applicable.
Apprentice No NSSF: Progressive Tax Rate – Employees linked to this status will not contribute to Social Security.
Disability Tax Exception – Persons with disabilities have been exempted from tax on their taxable income of up to Kshs. 1.8 million per annum (Kshs. 150,000p.m). NSSF and NHIF contributions are still applicable.
Secondary Employment including NSSF and NHIF – When an employee is placed on this tax status, they will be taxed at the fixed rate of 30 %. Social securities will be applicable
Secondary Employment excluding NSSF and NHIF – When an employee is placed on this tax status, they will be taxed at the fixed rate of 30%. Social securities will not be applicable.

Taxable Income /Employment Income

Individual Income tax is charged for each year of income on all the income of a person, whether resident or non-resident which accrued in or was derived in Kenya.
Taxable employment income in Kenya includes all payments made by an employer to an employee. This will include salaries, wages, bonuses, and fringe benefits received or enjoyed by virtue of employment. Fringe benefits will typically have a specific tax treatment (as in the case of housing, vehicles, and other benefits indicated below). Where no specific tax treatment is prescribed, the taxable value will be the higher of the cost to the employer or the fair market value of providing the benefit.
Non cash benefits exceeding KShs 36 000 p.a. in the aggregate, with a few exceptions
Where an employee is paid a relocation allowance, this will be treated as a taxable emolument, except where the allowance is a reimbursement of actual costs incurred by the employee in relocating to a new work location
Per diems in excess of Kshs. 2 000 per day (Local/Foreign Travel)

Exempt Income

The following income and benefits are exempt from tax:

Leave passages: expatriate employees
Medical services
Employer’s contribution to pension funds
Education fees taxed on the employer
Reimbursement of expenses incurred by employee wholly and exclusively in production of income
Lunch benefit subject to a maximum value of KES 4 000 per month
Withdrawal benefits from a registered pension or provident fund. 
Group life policy premiums paid by an employer on the life of an employee where such policy does not confer benefit to the employee or his dependents.
Non-cash benefits up to a maximum of KES 36 000.00 per year.
Benefit arising from low or free interest loans advanced to an employee by an employer.
Interest earned on deposits to registered Home Ownership Savings Plan (HOSP) of up to KES 3m deposit. (This has been removed effective Jan 2021 – to be confirmed)
Income earned by individuals who are registered under the Ajira Digital Program for three years commencing January 2020.
Interest income accruing from all listed bonds, notes or other similar securities used to raise funds for infrastructure projects and assets defined under Green Bonds Standard and Guidelines

Benefits in Kind (BIK) / Fringe Benefits

Benefits in kind other than those exempt are included in taxable income and are subject to tax at the applicable rate. These include housing benefits, car benefits, tax benefits, full board and lodging to expatriates or locals, personal expenses of the employee which are borne by the employer and any other advantage in kind/cash.  

The total of all Non-cash fringe benefits excluding Housing and Company Car are only subject to employee tax if the total value exceeds 3,000.00 Kshs per month, 36,000.00 Kshs per annum.  

 Housing benefit is taxed at the higher of 15% of gross remuneration (excluding housing) and the rent paid by the employer. Where the property is owned by the employer or the rental agreement is not at arm’s length, reference is made to the fair market value rent of the property.
Motor vehicles supplied by the employer are taxed on a monthly basis at the higher of 2% of the initial cost of the vehicle (where the employer owns the car) or prescribed standard rates.
For interest-free or low-interest loans granted to employees, the tax burden has been shifted to the employer under the fringe benefit tax (FBT).
Education fees of employees’ dependents or relatives borne by the employer are taxed on the employee unless the employer disallows the related costs for corporate tax purposes.

Deductions from Taxable Income

An individual who is not a resident in Kenya for tax purposes is not entitled to any tax relief. Expatriate employees of accredited regional offices of foreign corporations who spend at least 120 days during the fiscal year working outside Kenya may deduct one-third of their total income.  

Personal Deductions:

Mortgage relief - interest payments on loans borrowed for the purposes of improvement or construction of residential premises are deductible, subject to a limit of KES 300,000 per year.
Contributions to a registered pension or provident fund up to a maximum of KES 240 000 per year.
Contributions to a home ownership savings plan up to a maximum of KES 48 000 per year.
Personal relief – This is deducted from the tax payable by every resident individual. The amount of relief is currently fixed at Kshs 28 800. 00 per year.
Insurance relief –

The following components will be considered when the Insurance Rebate is applied up to 15% of the annual maximum limit of KES60 000.00.

Component Names	Tax Rebate Percentage	Rebate Annual Maximum Limit (KES)
NHIF Employee Contribution Advised Insurance (Education or Medical) Deduction             Group Life Deduction (Education or Medical Insurance) Insurance (Education or Medical) Personal	15%	60 000.00

Social Security

The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employee’s contribute 6% (up to KSH 2160) per month or employees can contribute to the new tier scheme

The NSSF Tier I and II contributions will be tax deductible on the employee contribution under the same Kshs. 25 000.00 monthly (300 000.00 per annum) relief threshold.  

Tier 1 Contributions:

Up to lower earnings limit 6000 per month (max KES 360 contribution)

Tier 2 Contributions:

Up to upper earnings limit 18000.00 per month (max KES 720 contribution)

Tier 3 / Voluntary Top Up:

The contributions are paid by the employee with a minimum of Kshs. 4.800 per annum.

An employer may opt to pay Tier II contributions in respect of its employees into a contracted– out scheme it participates in or opts to establish or to participate in

Kenya is a member of the International Social Security Association. 

Monthly contributions should be made to the authorities for social security payment by the 15th of the following month.

National Health Insurance Fund (NHIF)

Employees in Kenya are required to contribute to the NHIF. There is no corresponding employer contribution.

The contributions are graduated, with the maximum contribution currently being KES 1,700 and lowest being KES 150 per month based on gross income.

Salary Bracket in Ksh	Monthly Contribution in Ksh
0 – 5,999	150
6,000 – 7,999	300
8,000 – 11,999	400
12,000 – 14,999	500
15,000 – 19,999	600
20,000 – 24,999	750
25,000 – 29,999	850
30,000 – 34,999	900
35,000 – 39,000	950
40,000 – 44,999	1 000
45,000 – 49,000	1 100
50,000 – 59,999	1 200
60,000 – 69,999	1 300
70,000 – 79,999	1 400
80,000 – 89,999	1 500
90,000 – 99,999	1 600
100,000 and Above	1 700
Self-Employed (Special Type)	500

Affordable Housing Levy

An employer shall pay in respect of each employee.

The employer’s contribution at 1.5% of the employee’s monthly gross salary; and
The employee’s contribution at 1.5% of the monthly gross employee’s salary.

“Gross monthly salary” constitutes basic salary and regular cash allowances. This include housing, travel or commuter, car allowances and such regular cash payments and would exclude those that are non-cash as well as those not paid regularly such as leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues and benefits.

National Industrial Training levy (NITA)

This levy is mandatory for every employer to contribute to the NITA levy, as this is to encourage employers to train their employees. Registration is mandatory for all persons registered as an Employer with effect July 2007.

The rate of contribution is 50.00 per employee payable latest by the 9 of each month. Contribution is by the Employer only.

Workmen’s Compensation for Death, Injury or Disease

Employers have a duty under both common law and statutory law to provide safe working conditions and to take reasonable care to ensure the health and safety of employees. Compensation for death, injury or disease is based on the Workmen’s Compensation Act (Cap 236) and Common law.   

Compensation under the Act excludes employees (not being manual labourers) who earn over Kshs. 33,333/= per month. Compensation under the Act is calculated on the basis of the workman’s earnings and the degree of injury resulting in the employee being incapacitated. In case of fatal injuries, compensation is paid to dependents. Employers can take insurance cover for payment of claims.

Gratuity / Severance / Termination Payments

Every Employer has an obligation under section 37 of the Income Tax Act to recover appropriate tax from any lump sum amount before releasing the difference/balance to the employee. The following is a Guide to Employers on how to compute tax on lump sum payments:

Severance Pay - Employees are entitled to severance pay (15 days for every year worked), one month’s wages in lieu of notice and accrued leave payments and all other benefits due.
Pay in lieu of notice (i.e. notice pay) is assessable in the period immediately after the date of termination of employment.
Leave pay should be assessed in year to which it relates.
If termination of employment occurs in the course of the year, the portion of lump sum payment for that period is taxable in that particular year.
Calculate the tax for each year using annual rates of tax and then add up tax for all the years involved to arrive at total tax to be deducted from the lump sum payment. It should be noted that any lump sum payment relating to the year of income 2010 and prior years is assessable in 2011 being the 5th year prior to the year of receipt (2016)

Tax Brackets

Annual Tax Bands	Rate
First KShs. 288,000	10%
Next KShs. 100,000	25%
Next KShs. 5,612,000	30%
Next KShs. 3,600,000	32.5%
Above Kshs 9,600,000	35%

Personal Relief of Kshs. 28,800 per annum (Kshs. 2,400 per month)

Employers Notes / Statutory Reporting Requirements

Taxable period – The year of income is the calendar year.

Tax Deduction Cards

Form P9A – The P.9 Form must be prepared for every employee liable to tax. It provides for the recording, of gross pay, housing, benefits, chargeable monthly income, monthly personal relief, and PAYE tax deducted each month throughout the calendar year and payments for past years on the reverse side
Form P9A (HOSP) – This card is used where employee is eligible for a deduction in respect of funds deposited in approved Institution, under “Registered Home Ownership Savings Plan”, in addition to the conditions for P9A (No. (A) above). (HOSP exemption has been removed effective Jan 2020)
Form P9B – This card is used in circumstances where the employer bears the burden of tax on behalf of the employee, in addition to the conditions for P9A (No. (A) above). At the end of the year the employer should give to the employee a certified copy of the Tax Deduction Card – P9A, P9A (HOSP), P9B which will serve as a “Certificate of Pay and Tax deducted”. When a liable employee leaves employment the employer should prepare and hand over to the employee a certificate of pay and tax showing details of pay and tax deducted up to the date of cessation.

statutory requirements

Country	What are the contributions?	Requirement Monthly	Requirement Annual/ Periodic	What type of Filing is required n is required?	Can it be submitted online?	Can it be paid via EFT?	Source
KENYA
	Tax/ PAYE	Monthly	Annual P9 no actual submission just supplied to employees	P10	Yes	Yes	https://itax.kra.go.ke/KRA-Portal/
	The National Social Security Fund (NSSF)	Monthly		NSSF VIA KRA	Yes	Yes	https://www.nssf.or.ke/employers
	National Health Insurance Fund (NHIF)	Kenya National Health Insurance		NHIF	Yes	Yes	https://www.nhif.or.ke/
	National Housing Development Fund (NHDF)			Return	Yes	Yes	https://bomayangu.go.ke/
	National Industrial Training levy (NITA)	NITA Levy Monthly Return Form NITA Levy Monthly Return NATIONAL INDUSTRIAL TRAINING AUTHORITY Monthly 10th of the following month		NITA	Yes	Yes	https://www.nita.go.ke/news/content/99.html
	Workmen’s Compensation for Death, Injury or Disease			Private sector Managed.	Yes	Yes

Tax Framework:

Tax Framework

Reasonability Tests:

Reasonability Tests

Last Review

May 2023

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