Kenya has a relatively mobile, well-educated workforce labour force that is growing rapidly in line with the country’s population and economic growth. A large segment of the country’s labour force operates in the informal economy, which is often not covered by statutory provisions.
Foreign companies operating in Kenya may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Kenya are: Individual income tax (IIT) for employees in Kenya, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.
Foreign nationals wishing to work in Kenya are required to obtain a work permit. However, work permits are generally only granted in instances where the employer can prove that doing so would be beneficial to Kenya and the position cannot be filled by any suitable Kenyan applicants.
There are three types of business forms available to foreign companies in Kenya. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to Kenya and the planned business activity.
When setting up a company in Kenya, you have the following options:-
This article provides a general guideline for foreign businesses on entering Kenya for business purposes. In particular, it looks at common pathways to establishing a business presence in Kenya, generally through a corporation, branch office or liaison office. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Kenyan economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.
Data is based on the time of writing, November 2015 or closest available dates.
GEO Solutions or DIY Employment
Companies entering Kenya must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Kenya Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Kenyan entity established that can run payroll.
A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
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Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
|Tax Returns Supplied||
|Corporate Tax Requirements||
Generally, the tax year follows the company’s fiscal accounting year.
A company is required to make payment equal to 25% of its estimated tax for the year, by the 20th day of the 4th, 6th, 9th and 12th months of its financial accounting year. The estimated tax must equal either 110% of the previous year’s tax or 100% of the tax estimated to be due for the current year.
A company must file a self-assessment return within six months after the end of its financial year. It must also file financial statements within six months after the end of its financial year.
|Employers Social Security and statutory contributions||
The employer is required to contribute 6% of an employee’s monthly wages to the National Social Security Fund. For more details, please refer to the section on Employment.
|Employees Social Security and statutory contributions||
The employee is required to make contributions to the National Social Security Fund (NSFF) as well as the National Hospital Insurance Fund (NHIF).
The contribution rates are as follows:
NSFF: 6% of monthly wages
NHIF: Ranging from KES30 up to KES320
For more details, please refer to the section on Employment.
|Corporate Income Tax Rate||
The current corporate income tax rate is 30% for resident companies, and 37.5% for non-resident companies.
VAT is imposed on the supply of taxable goods and services in Kenya. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods which they receive (input tax).
The current standard rate of VAT imposed on taxable goods and services is 16%, with reduced rates of 12% (industrial fuel and electricity) and 0% (exports). Some goods and services such as unprocessed agricultural products and financial services are exempt.
Kenya imposes withholding tax (WHT) on certain classes of income earned by non-residents:-
A reduced rate may be available under an applicable Double Tax Treaty.