Doing Business in Kenya - RSM International

4.0 Taxation4.1 Overview of Kenya Tax SystemThe Kenyan tax system comprises both direct and indirect form of taxes. These taxesare a major source of Government revenue and include Income Tax, Customs andExcise Duties and Value Added Tax (VAT).The collection and administration of these taxes falls under the responsibility of theKenya Revenue Authority (KRA), which was established in 1995. Penalties and interestlevied for non-compliance with the tax legislation is punitive, and new investors areadvised to familiarise themselves with the tax regime in Kenya. Brief descriptions ofvarious taxes are given below.4.2 Corporate Tax4.2.1 Basis of Taxation and Tax RatesThis is a direct tax on profits made by corporate bodies and it has its legal basisin the Income Tax Act (Cap 470). Kenyan income tax is payable at the corporationrate by companies and unincorporated organisations and associations (excludingpartnerships, sole proprietorships, and interest or dividend paid by a designated cooperativesociety) that have taxable income as defined by the Income Tax Act. Theincome of a partnership or a sole proprietorship is not taxable on the business entitybut is taxed on the individual partner or the proprietor. Each partner of a partnershipand a sole proprietor is therefore required to declare his business and professionalincome as part of his personal income and pay tax according to his respectivepersonal tax bracket.Exemptions from corporation tax, on the application to the Commissioner, may begranted to entities of public character established solely for the relief of poverty ordistress of the public, or for the advancement of religion or education and pensiontrusts and some other qualifying bodies.The Income Tax Act prescribes a charge of income tax on all income of persons,whether resident or non-resident, which accrues in or is derived from Kenya. Aresident person in relation to a body of persons (body corporate) means:• that the body is a company incorporated under a law of Kenya;• that the management and control of the affairs of the body was exercised inKenya in a particular year of income under consideration; or• that the body has been declared by the Minister by notice in the Gazette to beresident in Kenya for any year of income.DOING BUSINESS IN KENYA23