A Guide to Corporate Taxes in Kenya

Introduction to Corporate Tax in Kenya

For companies operating in Kenya, understanding the corporate tax rate in Kenya is not just a regulatory requirement; it is a critical component of financial planning and risk management. The corporate tax system in Kenya includes a standard rate of 30% on taxable profits, with various incentives available for businesses in specific sectors or economic zones.

Effective corporate tax compliance in Kenya requires a clear understanding of filing deadlines, documentation requirements, allowable deductions, and incentive regimes. Businesses must also consider advance payments, penalties for non-compliance, and opportunities to reduce tax burdens through planning and treaty relief.

Commenda supports businesses by simplifying this, offering expert-led services in registration, filing, advisory, and tax optimization to help companies stay compliant and efficient in Kenya’s tax environment.

What is the Corporate Tax Rate in Kenya?

Understanding the corporate tax rate in Kenya is essential for businesses operating or planning to operate in the country. Kenya applies a standard corporate income tax (CIT) rate to resident and non-resident entities, with specific incentives for businesses in targeted sectors or locations. Here is a detailed breakdown:

Standard Tax Rates

• Resident Companies: Corporation tax in Kenya is at a flat rate of 30% on taxable profits.
• Non-Resident Companies: A 37.5% rate may apply where a non-resident company operates in Kenya through a permanent establishment.

Preferential Tax Rates

Certain companies are eligible for reduced corporate tax rate in Kenya based on the nature of their operations as per the corporate income tax rate in Kenya:

• Export Processing Zone (EPZ) Enterprises:
  • 0% for the first 10 years of operation.
  • 25% for the following 10 years.
  • Reverts to the standard 30% thereafter.
• Special Economic Zone (SEZ) Enterprises:
  • 10% for the first 10 years.
  • 15% for the next 10 years.
• Companies Engaged in Motor Vehicle Assembly:
  • 15% for the first 5 years, extendable for another 5 years with ministerial approval.
• Startups or SMEs may opt for alternative tax regimes if they meet the eligibility criteria, such as turnover tax.

Breakdown of Corporate Income Tax Components

The corporate tax rate in Kenya is primarily governed at the national level. Depending on their structure and activities, businesses may be subject to other levies and tax obligations in addition to the corporate income tax. Core components of corporation tax in Kenya include:

• Federal Corporate Income Tax: This is the main tax levied on corporate profits at a rate of 30%.
• Turnover Tax (ToT):
  • Applicable to businesses whose annual gross turnover is between KES 1 million and KES 25 million.
  • Taxed at 3% on gross receipts (not profits).
  • ToT payers are exempt from corporate income tax but cannot claim expenses or losses.
• Installment Tax:
  • Companies with estimated tax liability exceeding KES 40,000 must pay quarterly advance tax.
  • This tax is credited against the final tax liability.
• Withholding Tax:
  • Imposed on specific payments made to residents and non-residents, including dividends, interest, royalties, and management fees.
  • Rates vary from 5% to 20%, and double tax treaties may reduce these rates for non-residents.
• Local Taxes:
  • Kenya does not impose additional municipal or local government income taxes.
  • However, county governments may charge business licenses, property rates, or cess levies.

Corporate Tax Filing Requirements in Kenya

Corporate tax filing in Kenya involves electronic submission via the Kenya Revenue Authority’s (KRA) iTax platform. Companies must maintain proper records and ensure timely submissions to remain compliant and avoid penalties.

Who Needs to File?

• All resident and non-resident companies with operations or income derived from Kenya.
• Branches of foreign companies are also required to file.

Filing Process and Documentation

• Filing Platform: All returns are submitted through the KRA iTax portal.
• Key Documents:
  • Audited financial statements.
  • Tax computation schedule.
  • Completed IT2C tax return form.
• Declaration: Returns must be signed and submitted by an authorized officer of the company.

Filing Deadlines

• Returns must be filed within 6 months after the end of the company’s financial year, as per corporate tax payment deadlines Kenya.
• For example, a company with a December 31 year-end must file by June 30 of the following year.

Payment of Tax

• Payment can be made through KRA-approved banks or mobile money platforms using a payment slip generated on iTax.

Penalties and Interest

• Late Filing Penalty: Higher of KES 20,000 or 5% of the tax due.
• Late Payment Interest: Charged monthly on outstanding balances until full settlement.
• Audit and Enforcement: KRA conducts audits and can assess additional tax liabilities going back five years or longer in fraud or misrepresentation cases.

Tax Year and Payment Deadlines in Kenya

The tax year in Kenya can vary depending on the company’s internal accounting policies. Companies can select their fiscal year-end but must adhere to the KRA’s rules on payment timelines and advance tax obligations. Here are important deadlines:

Tax Year Options

• The standard tax year for companies is based on a self-selected accounting year, which must be consistently applied.
• The most common year-end is December 31, but any month-end is acceptable if declared and approved by KRA.

Payment Schedule

If the estimated annual tax exceeds KES 40,000, companies are required to make four advance payments as follows:

• 20th of the 4th month of the financial year.
• 20th of the 6th month.
• 20th of the 9th month.
• 20th of the 12th month.

Final Balance Payment

• Any outstanding balance after installment payments must be paid by the last day of the fourth month following the end of the accounting period.
• For example, for a December 31 year-end, the final payment is due by April 30 of the following year.

Withholding Taxes and Other Business Taxes in Kenya

Withholding tax (WHT) is deducted at the source from various payments to resident and non-resident payees. It serves as either a final tax or a payment on account. Kenya also imposes VAT, CGT, excise duty, and sector-specific levies. Below is detailed breakdown:

Other Business Taxes

• VAT: Standard 16%, with exemptions and zero-rating on essentials and exports.
• Capital Gains Tax: 5% on disposal of chargeable assets.
• Excise Duty: Levied on specific goods and services (e.g., fuel, alcohol, tobacco) under the Excise Duty Act 2015.

Corporate Tax Incentives, Deductions, and Exemptions

Kenya offers a range of tax reliefs, such as allowances, accelerated depreciation, and tax holidays, to promote investment in manufacturing, agriculture, R&D, and regional growth zones. Key deductions and corporate tax incentives Kenya include:

• Capital/Wear‑and‑Tear Allowances
  • Class 1 equipment (heavy machinery): 37.5% in the first year
  • Class 2 (IT equipment): 30%
  • Class 3 (light vehicles): 25%
  • Class 4 (phones): 12.5%
• Investment Deduction: 100% allowance on capital expenditure for buildings/machinery in select sectors or locations.
• Full Deduction on R&D Expenses: Businesses can claim a 100% deduction on all R&D expenditure incurred wholly and exclusively in the production of income.
• SEZ & EPZ Incentives
  • EPZ: 10-year tax holiday, followed by 25% for 10 years, then 30%; full deduction on capital expenditure; zero WHT on dividends, interest, royalties.
  • SEZ: 10% CIT for first 10 years and 15% for next 10; 100% investment deductions; reduced WHT (5%) on key payments.
• Sector-specific Allowances
  • Telecom equipment, software: 20% straight-line depreciation
  • Farm works: 100% initial allowance.
• Listed Companies: Preferential CIT rates for up to five years post-listing.
• Start-up Expenses: Pre-commencement costs may be deductible, subject to prevailing finance act provisions.

International Tax Treaties and Double Taxation Avoidance

Kenya has signed Double Taxation Avoidance Agreements (DTAs) to lower or eliminate double taxation on cross-border incomes. Here is how Kenya achieves double taxation avoidance:

Treaty Network & Benefits

• Countries Covered: UK, Germany, Canada, Denmark, Norway, Sweden, Zambia, India, France, South Africa, Iran, South Korea, Qatar, UAE, Seychelles.
• Typical Withholding Caps Under Treaties:
  • Dividends, interest, royalties, management fees: often 5–15%; e.g., India: 10% for all, UK: 15%.
• Mechanics:
  • Obtain a Kenyan tax residency certificate.
  • Submit the DTAA claim via iTax before payment.
  • Attach KRA-validated documents to claim reduced WHT.

In the absence of a treaty, local WHT rates apply, but non-residents can claim foreign tax credit in their jurisdiction.

How Commenda Supports Corporate Tax Compliance in Kenya

Kenya can be a different and challenging market for new businesses to enter, but we are here to help. Commenda offers end-to-end tax compliance services tailored to Kenya’s regulatory environment. Here is more about the services that we offer in detail: 

• Registration: KRA PIN, VAT, PAYE, WHT, ToT, SEZ/EPZ enrolment.
• Filing & Reporting: Preparing and submitting IT2C, VAT, WHT, ToT via iTax; closing returns for SEZ/EPZ.
• Advisory: CIT planning; investment and capital allowance optimization; sector-specific and startup incentives; DTAA treaty claims.
• Compliance Monitoring: Automated reminders for WHT filings, VAT returns, installment payments, penalty and interest assessments.
• Incentive Optimization: Identifying opportunities, preparing documentation, negotiating with authorities, and ongoing compliance support.

Know about corporate tax compliance services Kenya now! Book a free demo to see how Commenda helps with understanding what is corporate tax rate in Kenya.

Common FAQs About Corporate Tax in Kenya

Q. What is the current corporate tax rate in Kenya?

The standard corporate tax rate in Kenya is 30%, with reduced rates for EPZ, SEZ, listed firms, and assembly companies as per the corporate tax system Kenya.

Q. How is corporate income tax calculated?

Taxable income is calculated as gross receipts minus allowable deductions (capital allowances, expenses). CIT is applied to this base.

Q. Are there different rates for small businesses?

Yes, companies with annual turnover between KES 1 million and 25 million may elect the 3% Turnover Tax (ToT) instead of CIT.

Q. When are tax returns due?

According to the corporate income tax rate guidelines in Kenya, you are eligible to file your tax returns within six months of the end of the financial year. 

Q. What are the penalties for late corporate tax filing in Kenya?

Higher of KES 20,000 or 5% of tax due; interest at ~2% per month applies on overdue payment, as per the company tax filing in Kenya.

Q. What incentives or deductions are available?

Capital allowances (10–100%), investment deductions, EPZ/SEZ tax holidays, sector allowances, and startup expense deductions.

Q. Is there a minimum corporate tax?

A 1% minimum tax on turnover was introduced but remains suspended following a High Court ruling.

Q. Are foreign companies taxed differently?

Non-residents pay the same CIT, but their Kenya-source incomes are taxed via WHT. Treaty relief may reduce WHT.

Q. What services does Commenda provide for corporate tax compliance?

Commenda provides registration, filings, advisory, compliance tracking, and incentive optimization, tailored to Kenya’s tax system.