pkf kenya quick tax guide 2016

7/25/2019 PKF Kenya Quick Tax Guide 2016

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Quick Tax GuideKenya

2016/2017

Global Expertise Local Knowledge


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PERSONAL TAXATION

Income Tax Rates For Individuals

Tax Bands Taxable

income p.a.

KShs.

Taxable

income p.m.

KShs.

Rate

On the rst 121,968 10,164 10%

On the next 114,912 9,576 15%

On the next 114,912 9,576 20%

On the next 114,912 9,576 25%

Excess of 466,704 38,892 30%

w.e.f. 01/01/2017

Tax Bands Taxableincome p.a.

KShs.

Taxableincome p.m.

KShs.

Rate

On the rst 134,164 11,180 10%

On the next 126,403 10,534 15%

On the next 126,403 10,534 20%On the next 126,403 10,534 25%

Excess of 513,373 42,781 30%

Personal Allowances Kshs. p.a. Kshs. p.a.

2017 2016Registered Pension/Provident

Schemes relief limits 240,000 240,000

Personal relief 15,360 13,944

Mortgage interest relief for owner

occupied property - maximum 150,000 150,000

Home ownership savings plan

(for rst 10 years) 48,000 48,000

Insurance relief (life, health and education) 15% of

premiums to a maximum of Kshs. 60,000 p.a.

TAX AMNESTYTax amnesty granted on payment of principal taxes,penalties and interest for taxpayers who earn taxableincome outside Kenya. This is conditional on declarationof the same between 1 January 2017 and 31 December2017 and that there is no existing tax investigation pending

EMPLOYMENT BENEFITS

All benets are taxable at the higher of cost and the fairmarket value except:

(a) Tax-free benets

First Kshs. 150,000 for the disabled exempt Deduction of Kshs. 50,000 on drugs treatment

and home care service for the disabled allowed asa deduction

Medical, school fees (if employer taxed),registered provident/pension contributions (except

contributions to non-registered funds or in excessof relief for registered funds where the employer istax exempt)

Passage for expatriates Canteen/cafeteria established/operated by

employer or a tax registered third party wherevalue of meals provided to staff does not exceedKshs. 4,000 per employee per month.

Gratuity up to Kshs. 240,000 p.a. paid into aregistered pension scheme by an employer

Group life premiums that do not confer benet toemployee


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Insurance premiums paid to a registered orunregistered pension scheme, pension fund orindividual retirement fund

Bonuses, overtime and retirement benets

to employees whose taxable employmentincome before bonuses and overtime does notexceed Kshs. 121,968 per annum in 2016 andKshs.134,164 per annum in 2017

(b) Non-cash taxable benets Exempt if the cost does not exceed Kshs. 36,000

p.a. Tax-free medical benets for directors (and their

beneciaries) owning over 5% shareholding limitedto Kshs. 1 million

Tax-free medical benets for partners and soleproprietors limited to Kshs. 1 million

(c) Reimbursements For employees working out of station the

rst Kshs. 2,000 per diem is deemed to bereimbursement and not taxable. Reimbursementexpenses are generally not taxable but require to

be supported Double taxation relief for Kenya citizen artisticperformers and sportsmen

(d) Motor vehiclesThe benet is the higher of 2% p.m. of the initial costof the vehicle or prescribed scale rates. For leased

vehicles the benet is the cost of leasing. Employeeswith restricted private usage can apply for a lowerbenet valuation

(e) HousingNon-working directors: The higher of 15% of totalemoluments, fair market rental value and rent paid

Whole time service directors: The higher of 15% ofemoluments, fair market value and rent paidAgricultural employees: 10% of emoluments lessany rent charged to the employeeOther employees: The higher of rent paid and 15%of emoluments or rent paid by the employer under

an arms-length agreement with a third party

(f) Loans to employeesFringe benet tax is payable by the employer atthe rate given by the Commissioner less actual ratepaid by employee. The tax rate to be applied is thecorporate rate

(g) Other benets Furniture 1% of cost p.m. Telephone 30% of cost p.m. Taxable benet for employee share ownership

plan (ESOPs) is the difference between the market

price of shares and option grant price. The benetaccrues at the end of the vesting period

PENSION / PROVIDENT FUNDS

Tax exempt lump sum withdrawals from both registeredpension and provident funds is Kshs. 60,000 for each

year of pensionable service, subject to a maximum ofKshs. 600,000. Withdrawals based on 1991 and priorcontributions are exempt. Earnings from non-commutedpensions are exempt up to Kshs. 300,000 p.a. Lumpsum payments and monthly pension payments topersons over 65 years of age are tax-free.

Employees are not entitled to employers contributionbefore the retirement age

Any surplus refunded to / withdrawn by employer fromregistered fund shall be deemed to be the income ofthe employer


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Withholding tax rates for pension/provident fund with-drawals and lump sum payments beyond exempt limits:(a) Withdrawal before 15 years expires: Kshs.

10% on the rst 121,968

15% on the next 114,912

20% on the next 114,912

25% on the next 114,912

30% on amounts over 466,704

(b) Withdrawal after 15 years, attaining age of 50

years or retirement on health grounds:Kshs.

10% on the rst 400,000

15% on the next 400,000

20% on the next 400,000

25% on the next 400,000

30% on amounts over 1,600,000

Withholding tax under (b) is nal tax

TAXATION OF RESIDENTIAL RENT

Rental income tax on gross residential income earned by

resident persons at a tax rate of 10%, where the rentalincome is up to Kshs. 10,000,000 per annum (no tax isdue where annual residential rent does not exceed Kshs.144,000 per annum). One may elect, in writing, to remainunder the old regime (w.e.f. 01/01/2016)

BUSINESS INCOME TAXATION

Corporate Tax Rates

Resident companies 30%

Non-resident companies 37.5%

Export Processing Zone enterprises:

First ten years Nil

Next ten years 25%

Newly listed companies over 20%

capital listed (3 years) 27%

Newly listed companies over 30%

capital listed (5 years) 25%Company introducing shares through listing

w.e.f. 01/01/ 2016 25%

Newly listed companies with over 40%

capital listed (5 years) 20%

Developers constructing at least onethousand residential units annually 20%

Turnover tax (of gross turnover) 3%

Tax exemptions are valid for a period of 5 years

Employer engaging atleast 10 university graduate

apprentices allowed to claim 150% of salaries andwages paid to the graduates

Dividends received by Special Economic Zoneenterprises, developers and operators exempted fromwithholding tax

Instalment TaxesInstalment tax where applicable is payable as follows: Fourth Sixth Ninth Twelfth Month Month Month Month

Agricultural enterprises - - 75% 25%All other taxpayers 25% 25% 25% 25%

Instalments are payable on or before the 20th of themonth they fall due

Basis for Instalment Tax:Lower of preceding years taxmultiplied by 110% and current years estimate


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Self Assessment Returns (SAR)

SARs for non-individuals fall due six months after theend of the accounting year. The balance of tax due ishowever payable by the end of the fourth month.

SARs re-introduced for all individuals whose onlysource of income is one employment income nowcompulsory. A spouses income may be led andtaxed separately

SARs must be submitted on iTax

Deductible Business ExpensesExpenses are deductible if incurred wholly and exclusively

to produce income. Capital and personal expenditure are

generally disallowed with certain exceptions. Charitable

donations and social project costs are deductible subject

to the charity being registered as tax exempt and the

donor providing proof of donation.

Losses will be carried forward for ten years including theyear they were incurred w.e.f. 01/01/2016

Thin Capitalisation

Deemed interest is to be calculated in the form and

manner prescribed by the Commissioner

For Petroleum Contractors debt to equity ratio 2:1

For foreign controlled entities debt to equity ratio is 3:1

Transfer pricingbetween related parties should bebased on arms length or using the following methods:

Comparable uncontrolled price method Cost plus method

Resale price method

Prot split method

Transaction net margin method

Other prescribed method

Capital allowances

Tractors, lorries over 3 tonnes, heavy

self-propelled vehicles 37.5%

Computer hardware, calculators, copiers

and duplicating machines 30%

Motor vehicles and aircrafts 25% (saloon cars qualifying value limited

to Kshs. 2 million)

Plant, machinery, petroleum pipeline,

furniture and equipment 12.5%

Loose tools and implements (straight-line) 33.3%*

Petroleum and Mining Exploration Machinery 100%

Telecommunication equipment used bytelecommunication Operator (straight-line) 20%

Machinery, roads, bridges under

concessionairing agreement straight line basis i.e.,

Amortised over the concession period* this is the generally accepted rate but it could be lower orhigher depending on the exact nature of the tools.

Industrial Building Allowances

Factories 10%

Commercial buildings places (up to 31/12/12) 10%

Commercial buildings with services 25% Prescribed low-cost residential

housing developments 5%

Prescribed hotels up to 2006 4%

Prescribed hotels from 2007 10%

Hostels and approved educational

buildings from 2007 10%

Hostels education buildings 50%

Rental residential buildings with services 25%

Farm Works Deductions 100%


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Investment Deduction Allowances Qualifying investment exceeding Kshs.200

million outside Nairobi, Mombasa or Kisumu 150% Manufacturing (Building or Machinery) 100%

Hotel 100% Film equipment by local lm producer 100% Ships over 125 tonnes (w.e.f. 1/1/2016) 100%

Specied Expenditure on Intangible Assets Software rights 20%

Right to bre optic cable by atelecommunication operator 5%

Other Petroleum and Mining Development

Expenditure 20%

Set-off of Tax Tax paid in another country on employment income by

a Kenyan citizen can be offset against tax payable onthat income in Kenya to the maximum of tax payable inKenya on the said income.

Any tax or duty payable to Kenya Revenue Authority(except VAT and duty on imports) may be offset

against any refund of tax or duty conrmed by theKenya Revenue Authority on request. The requestshould be made 30 days before the tax is due

WITHHOLDING TAX RATES

Resident***Non-

Resident

Investment Income

- Qualifying dividends (for E.A.C

citizens, the resident rate is applied)

- Subsidiary and associated company

dividends (with >12.5% shareholding)

- Interest (including deemed interest)- Qualifying interest on - housing bonds

- bearer instruments

- any other

- Two year government bearer bonds

- Other bearer bonds

- Ten year bearer bonds

- *Rent - Buildings (immovable)- Others (except aircraft, aircraft

engine, locomotives and rolling stocks)

5%

N/A

15%10%

20%

15%

15%

25%

10%

10%

N/A

10%

10%

15%N/A

N/A

N/A

15%

25%

15%

30%

15%

Services payments

Royalties

Insurance commission paid to - brokers

- others

Building, civil and engineering contractual

fees (for local payments, this applies for

payments of/or more than Kshs. 24,000 p.m.)

** Management, consultancy, agency

professional and training fees (for local

payments, this applies for payments of/or

more than Kshs. 24,000 p.m.)(for E.A.C residents the rate is 15%)

Paid by Petroleum Contractor on

Management, training or professional fee

Telecommunication services/messages

Shipping gains/prots

Entertainment and Sports fees

Winnings from betting and gamingNatural Resource Income

Service fee paid by Petroleum contractor

to Non-Resident sub-contractor

Service fee paid by Mining licensee to

Non-resident sub-contractor

Winnings from Bookmakers

PensionsPension withdrawals (graduated rates)

5%

5%

10%

3%

5%

N/A

N/A

N/A

N/A

20%5%

N/A

N/A

7.5%

10-30%

20%

20%

20%

20%

20%

12.5%

5%

2.5%

20%

20%20%

5.625%

5.625%

7.5%

5%

* Only by approved agents** Excludes commission paid to non-residents for international

travel air tickets*** Rate may be less for countries with double tax treaty with Kenya


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MOTOR VEHICLE ADVANCE TAX

For public service vehicles (PSV), pick-ups, vans, lorriesand commercial vehicles:

Higher of Kshs. 1,500 per ton of load capacity perannum or Kshs. 2,400 per annum

For passenger carrying vehicles: For every driver Kshs.3,600 and for every conductor Kshs. 1,200

For minibus, station wagons and saloon cars: Higherof Kshs. 60 per passenger capacity or Kshs. 2,400 per

year whichever is higher Payment has to be on or before 20th of the rst monthof the year

CAPITAL GAINS TAX (CGT)

Self Assessment Tax

Transfer of property and unlisted securities 5% (naltax)

Property Transfer CGT due date - On or before the date of application for

transfer is made to lands ofceExemption

Transfer of assets to a company where spouses or aspouse and immediate family hold 100% shareholding

Land transfer by an individual value of which is Kshs.3,000,000 and below

Transfer of Agricultural land by an individual having anarea of 50 acres and below

Transfer of assets between former spouses or theirimmediate family as part of divorce settlement or bonade separation agreement

Transfer of assets between spouses or immediate family Transfer of property within 2 years of issue of probate

under estate administration Transfer of listed securities

VALUE ADDED TAX (VAT)

Charge to TaxVAT is chargeable on the supply of taxable goods andservices as well as on the importation of goods and

services into Kenya. The liability to account for the tax is onthe supplier. Liability to VAT on imported goods is on theimporter and is collected by customs. Liability on importedservices is on the importer and the tax is paid directly to thecommissioner by registered partly exempt suppliers

Standard rate

Applicable on taxable goods and services 16%Zero rateApplicable on exports and speciedzero-rated goods and services 0%Services supplied to transit goods 0%

Registration Registration threshold (turnover per annum)Kshs. 5,000,000

Discretionary voluntary registration can be granted The commissioner must be notied of any changes

affecting registration Group registration is available on application but subject

to specied conditions Application to the Commissioner may be submitted

within 3 months of registration for VAT incurred oninventory and assets held in the last 24 months prior toregistration date or exempt goods becoming vatableand if approved may be claimed in the VAT return asinput VAT.

Time of supplyTime of supply is earliest of supply of goods or services,issuance of an invoice, issuance of architects certicate orpayment date


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Value of supplyThe value for tax is the price paid for local supply of goodsor services. The value for imported goods is the valuefor duty plus duty paid. The price includes any cost of

wrapping or packaging (except returnable containers)andall other incidental costs (except hire purchase interest)

Place of supply of services in Kenya if:The VAT Act, 2013 has extensively enlarged provisions onthis. Please consult us when necessary

VAT withholdingVAT withholding agent to withhold 6% of taxable valueat the time of paying for purchases (taxable supplies forofcial aid funded projects excluded) (w.e.f. 19/01/2016)

VAT refundsVAT is refundable where credits arise from: making

zerorated supplies; tax paid in error; tax on debtsexceeding three years Input tax claimable within 6 months of the date tax

became payable Credit notes to be issued within 6 months of the date

tax became payable

VAT refund claims must be lodged within 12 monthsfrom the time the tax became due and payable

MISCELLANEOUS TAXES

Training LevyThe Directorate of Industrial Training levies administers

the Industrial Training Levy. The levy is Kshs. 50 peremployee per month. Contributing employers qualify forreimbursement of approved training expenses

Standards LevyDue from manufacturers at the rate of 0.2% of ex-factoryprice subject to a minimum of Kshs. 1,000 per month anda maximum of Kshs. 400,000 per annum

Catering LevyThe catering levy is a 2% tax levied on hotels andrestaurants

CUSTOMS AND EXCISE DUTIESCustoms DutiesDuties are chargeable on imports, exports and onspecied goods and services. Customs duties arecharged under the East African Community CommonExternal Tariffs

Customs Duty ratesRaw materials 0%Semi-nished goods 10%Finished goods 25%IDF fees (exempt for EAC) 2.25%Export duties - lead acid batteries 20% - raw hides and skins 40%Railway Development Levy on all imports 1.5%

Internal tariffs for Kenyan exports to Uganda, Tanzania,Burundi and Rwanda have now been eliminated as aresult of the fully edged Customs Union

Excise DutiesExcise duties are charged on a variety of products:Vehicles 20%Mobile cellular phones services 10%Other mobile phone services 10%Bottled water Kshs. 5 per litre

Cosmetics & beauty products 10%Fees charged for money transfer servicesby cellular phone service providers, banks,money transfer agencies 10%Other fees charged by nancial institutions 10%


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NATIONAL SOCIAL SECURITY FUND

Old NSSF ActContributions are set at 10% of monthly income up

to a maximum of Kshs. 400 per month; half paid byemployer and half by employee. In case of casualemployees only the employer pays 5% of gross wages.Payable even for one employee

New NSSF Act (under court injunction)

12% of the pensionable earnings of anemployee; half paid by employee and half by employer Pensionable Earnings dened as the lower of the

members monthly wage and Upper Earnings Limit Currently Upper Earnings Limit is Kshs. 18,000 and

Lower Earnings Limit at Kshs. 6,000. Upper EarningsLimit will move up gradually to the average levelof earnings equal to 4 times the National AverageEarnings (NAE)

Compulsory contributions to NSSF up to 12% ofLower Earnings Limit. Excess contribution over 12%Lower Earnings Limit may be contributed to NSSF orany other registered retirement scheme

NATIONAL HOSPITAL INSURANCE FUND

Payments are set at graduated scale rates starting atKshs. 150 to a maximum of Kshs. 1,700 on salaries ofKshs. 100,000 and above (for self employed Kshs. 500

per month)

STAMP DUTY

Increase in share capital 1% Transfer of stock or marketable security

(no duty on quoted securities) 1%

Transfer of immovable property in: - Municipalities 4% - Outside municipalities 2% Debenture or mortgage: - Primary security 0.1% - Auxiliary security 0.1% Lease 1 and 3 years 1% of annual rent Lease over 3 years 2% of annual rent

Exemptions under Real Estate Investment Trust(REIT) Transfer of benecial interest from one trustee to the

other or an additional trustee Transfer of benecial interest in property from a person

or persons for transfer of units REIT

Other Exemptions Husband/wife transfers Family to family controlled company land transfers Transfers between holding and subsidiary companies

with shareholdings > than 90%

Transfer of land for school construction Revenue stamps abolished

TAX PENALTIES

Offence Penalty

Failure to apply forregistration/licensing orderegistration under taxlaw (except VAT)

Kshs. 100,000 for each monthor part thereof but not exceedingKshs. 1,000,000

Failure to keep records asrequired under tax law

The higher of Kshs. 100,000 or 10%of tax payable relating to unavailable

records

Failure to le tax return bydue date

Employment Income- Higher ofKshs. 10,000 or 25% of PAYE due;all other cases the higher of Kshs.20,000 or 5% of the tax due


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Offence Penalty

Failure to submit adocument under tax lawother than a tax return

Kshs. 1,000 for each day or partday of default - Maximum Kshs.50,000

Making misleading orfalse statement leading to

tax shortfall

75% of tax shortfall if falsestatement is deliberate; or 25%

if otherwise; 85% if offencecommitted for the second timeand 100% if offence committedfor the third time and subsequent;65% on voluntary disclosure priorto discovery by Commissioneror commencement of KRA auditwhichever is earliest

Tax avoidance or falseclaim of tax refund

Double the tax amount avoided orrefund claim led

Failure to le return or

pay tax under iTax

Kshs. 100,000

Specifc Income Tax Act penalties

Tax unpaid by due date 20% of unpaid tax

Underestimation ofinstalment tax if currentyear basis of instalmenttax calculation adopted

20% of difference betweeninstalment tax payable and 110% ofinstalment tax paid

Specifc VAT Act 2013 Penalties

Failure to applyfor registration orderegistration

Failure to display tax

registration certicate

Fine not exceeding Kshs. 200,000and/or a jail term not exceeding2 years

Offence which no penaltyis provided for under the

VAT Act 2013

Fine not exceeding Kshs. 1,000,000and/or jail term not exceeding 3years

Late payment interest calculated on simple interest at 1% per

month or part thereof. No waiver application for interest but

waiver application available for penalties

Income Tax in dispute30% of income tax in dispute, interest and penalties tobe paid before appealing to tribunal for late appeals

E.A.C. TAX RATES

Corporate Tax Rates Resident Non - resident companies companies

Kenya 30% 37.5%Uganda 30% 30%Tanzania 30% 30%Rwanda 30% -Burundi 35% -

VAT Standard RatesKenya 16%Uganda - Standard 18%Tanzania 18%Rwanda 18%

Burundi (Sales tax) 17%

This information is prepared for guidance only and is not a

substitute for professional advice. Although the Tax Guide includes

amendments up to and including the Finance Bill 2016, the Finance

Act 2016 may bring in more amendments. Whilst every care has

been taken to ensure accuracy of information contained herein,

we will not accept any responsibility for errors or omissions or forany action taken without appropriate professional advice. This

tax guide is for exclusive use by the clients of PKF Kenya and its

associates and no part of it may be reproduced without our prior

written consent.

PKF rms in Kenya, Uganda, Tanzania and Rwanda are member

rms of the PKF International Limited family of legally independent

rms and do not accept any responsibility or liability for the actions

or inactions of any individual member or correspondent rm or rms.

A full directory of our ofce network, contacts, products

and services can be found at our website www.pkfea.com

pkf kenya quick tax guide 2016

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