Kenya

Kenya is one of East Africa’s most politically and economically influential nations.

Spanning the equator, Kenya’s southeastern coast borders the Indian Ocean, while it is bordered to the north by Ethiopia and South Sudan, and to the south and west by Uganda and Tanzania.

Civilisation in Kenya dates back to the Paleolithic era, and indigenous Bantu and Nilotic populations - while European and Arab colonisation of the territory took place in the 19th century.

The British Empire exerted political control over Kenya from 1895 - until the country obtained its independence in 1963. 

Kenya’s environments and landscapes are varied, ranging from the tropical warmth of the coastline, to the cool, dry, interior savannah grasslands, and the snow-capped Mount Kenya.

Kenya’s geographic diversity has given rise to a spectrum of animal and plant species which, combined with the country’s natural beauty, attract thousands of tourists each year.

General Information

• Full Name: Republic Of Kenya
• Population: 49.7 million (World Bank, 2017)
• Capital: Nairobi
• Major Language: Swahili, English
• Major Religion: Christianity, Muslim
• Monetary Unit: Kenyan Shillings
• GNI Per Capita: $2,107 (World Bank 2022)
• Main Exports: Tea, coffee, spices, vegetables, clothing, fruit, gems and pharmaceuticals
• Internet Domain: .ke
• International Dialling Code: +254

How Do I Say in Swahili?

• Hello: Jambo
• Good Morning: Habari Ya Asubuhi
• Good Evening: Habari Ya Jioni
• Do You Speak English?: Unajua Kizungu?
• Goodbye: kwaheri
• Thank You: Asante
• See You Later: Tutaonana

Dates

The date is written in the format date/month/year, for example 1 July 2019 is 1/07/19.

Numbers are written with a comma to denote fractions, for example KES 150 000,75.

On the western shores of the Indian Ocean, and sharing land borders with Somalia, Ethiopia, South Sudan, Uganda, and Tanzania, Kenya has become one of East Africa’s most prominent economies.

Built on a strong agricultural sector, and having developed rapidly in the 21st century, Kenya’s economy is now the largest in the East and Central Africa region, with a range of high-performance industries including tourism, telecommunications, energy, mining, and oil exploration.

Driven by numerous government reforms, Kenya’s business landscape is changing positively and positioning to become more attractive to foreign investment, especially small to medium-sized enterprises.

A continental gateway, Kenya is a thriving hub for regional and international business interests, and organisations seeking to set up in the country will find a range of business support services to help with the process.

Kenya is a member of the UN, the IMF, COMESA, the Commonwealth of Nations, and the EAC trade bloc, and has close social and economic relations with its neighbours around the African Great Lakes.

The Kenyan government is usually identified as investment-friendly and has represented numerous regulatory reforms to simplify both foreign and local investment.

Kenya has a well-developed social and physical infrastructure. It is considered the main alternative location to South Africa, for major corporations seeking entry into the African continent.

There are plenty of reasons to regard Kenya as an investment target, including:

• Economic potential: Kenya represents an exciting economic environment in which to do business across a wide range of sectors, including agriculture, manufacturing, transport, energy, communications and more. Innovative, creative entrepreneurs will find plenty of opportunities to gain a foothold in the country.
• International gateway: Kenya is a gateway to continental Africa, and benefits from numerous international trade relationships. Beyond its membership of the EAC, Kenya is part of trade schemes within the Africa Growth and Opportunity Act, the WTO, COMESA, and SADC (soon to be a Free Trade Area).
• Business reform: Kenya’s economic profile is trending upwards. The development of the country’s financial sector is growing - and in 2016 it was ranked 42 (out of 140 countries) for ‘Financial Maturity’, by the World Economic Forum. Over 44 international banks are registered in Kenya, and it has the most developed stock market in the East and Central Africa region.
• Transport infrastructure: Kenya is served by an extensive network of road, rail, sea and air links, which connect domestically and internationally. Jomo Kenyatta International, and the port of Mombasa, are respectively the busiest air and sea ports on the African continent.
• Market strength: Kenya is a growing consumer market and has the second-largest population in the EAC. The country’s middle class is expanding, while income per capital has grown at a rate of 2% over the past 10 years. A young, digitally-connected population (with an average age of 18) is driving a buoyant consumer culture.

It is not mandatory to make employee salary payments from an in-country bank account, however, it is mandatory to make third party authority payments from an in-country bank account.

The Central Bank of Kenya is tasked with formulating and implementing monetary and fiscal policies.

Banks are open from 9:00am to 3:00pm Monday to Friday. Some branches open on Saturdays from 9:00am to 11:00am.

Small scale businesses are providing more and more jobs in Kenya. With increased but simplified regulations, they are able to blossom into large, legitimate businesses that can eventually create more jobs and government revenue.

The step-by-step guide to registering a company in Kenya is:-

• State registration of legal entity, statistical, and tax registration with the Center for Public Registration.
• Stamp the memorandum and articles of association, and a statement of the nominal capital
• Pay Stamp Duty at a designated bank
• Sign the Declaration of Compliance before a Commissioner of Oaths or a Notary Public
• Register with the Registrar of Companies at the Attorney General Chambers in Nairobi
• Register with the Tax Department for the single taxpayer identification number online (PIN)
• Apply for a Business Permit
• Register with the National Social Security Fund (NSSF) & National Hospital Insurance Fund (NHIF)
• Make a company seal after a certificate of incorporation has been issued

All non-Kenyan citizens must be in possession of an entry/work permit or exception that is issued by the Office of the Director of Immigration Services, before they can take up employment in Kenya, whether paid or unpaid.

Any non-Kenyans seeking to carry out short-term business assignments like assembling machinery, maintenance or performance whether paid or unpaid must obtain a Kenya Special Pass from The Director of Immigration Services.

There are various classes for such permits, depending on the motive for coming to Kenya. These are detailed below:

• Class D: This is issued to a person who is offered specific employment by a specific employer who is qualified to undertake that employment.
• Class I: Work/Residence permit issued to a member of missionary society approved by the Government of Kenya and whose presence is beneficial to the country.
• Class B: Work permit issued to a person wishing to invest in Agriculture and Animal Husbandry
• Class A: Issued to a person who intends to engage in prospecting for Minerals or Mining
• Class G: Work permit issued to investors in specific Trade, Business or Consultancy
• Class K: Residence Permit issued to a person who has an assured income derived from sources outside and undertakes not to accept paid employment of any kind
• Class M: Work Permit issued to Conventional Refugees.

Applications for renewal of entry permits should be done three months prior to the expiry date.

These permits are normally issued for a period of two years.

The Tax Year in Kenya runs from 1st January to 31st December.

The key legislative authorities in Kenya are :

• Kenya Revenue Authority (KRA)
• National Social Security Fund (NSSF)
• National Hospital Insurance Fund (NHIF)
• Directorate of Industrial Training (NITA)

Payroll providers do not need to be licenced to make any tax or social security filings on behalf of their clients in Kenya.

All tax returns should be completed by 30th June.

Income Tax

Income tax is charged on the income earned by anyone resident in Kenya. A resident is an individual who has permanent residence in Kenya and has spent any part of the working year in the country or has spent 183+ days working in the country. A foreign employee in a non-Kenyan firm who is resident in Kenya is subject to tax on all emoluments.

Income tax is a direct tax charged on incomes of individuals from: -

• Employment
• Self-employment
• Profits from business entities
• Income taxes such as rent incomes, dividends, interests, pensions, royalties, income from management or professional fees

The method of collecting tax at source from individuals in formal employment is called Pay As

You Earn (PAYE). The employer deducts a certain amount of tax from the employee’s salary or wages on each payday then remits the deductions to the KRA.

The four main taxes include:

• Customs and Excise
• Income Tax
• Value Added Tax (VAT)
• Motor Vehicle Road Licenses and Driving Licenses

Income tax is taxable to individuals and limited companies (including trusts). The income of a partnership is charged to the partners who share the income. Apart from collecting taxes directly, the commissioner may employ agents to collect taxes on his behalf and remit that tax (and account for) to him. The monthly personal relief is KES 2,400 per month.

Monthly contributions are made to the tax authority by the ninth of the following month.

The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employees contribute to this scheme.

NSSF Rates

National Health Insurance Fund

An individual earning more than KSH 1,000 per month must make a monthly contribution to the National Hospital Insurance Fund which entitles them to a reduction in certain hospital charges. The calculation will be based on the salary as per the new NHIF rate table. Effective 1st January 2022 NHIF will be subject to a tax relief of 15% of the contribution amount.

Monthly contributions should be made to the authorities for social security payment by the 9th of the following month.

Housing Levy

A housing levy at 1.5% of the employee's gross salary, matched by another 1.5% by the employer, has been implemented towards the Housing Development Fund.

NITA

This is a levy payable to the Directorate of Industrial Training. It is not deducted from the employee however it is a levy of KES 50.00 per employee payable by the employer.

All the reports are prepared and generated by the payroll processor in Kenya.

These are provided in soft copy and the filing and remittance is done online through the various authority portals.

PAYE, NITA and housing levy are paid to KRA.

NSSF and NHIF are paid to the respective authorities.

New starts have to be registered with local authorities only if they do not have an existing Personal Identification Number (PIN), National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF) numbers. They must be registered prior to the payroll run being completed.

For setting up a new start, the details required include:

• Full name
• Bank details
• PIN
• NSSF
• NHIF
• Identification Number

This process should also be followed for any expats. There is no set timeline for this to happen.

Employers cannot unfairly terminate the employment of an employee. Employers must prove justified reasons for the termination of an employee’s employment.

The termination must be investigated and an appeal heard before resorting to termination. If the employer fails to adhere to this then it will be considered unfair.

It is legal in Kenya to provide online payslips and there are no procedures to be followed.

Reports

Payroll reports must be kept for between 7 and 10 years depending on the type of report.

Kenya Payslip Example

Holiday Accrual / Calculations

Annual leave is a period off that an employee is entitled to after every 12 consecutive months with the same employer. Where the employee works for less than a year, the number of days will be reduced accordingly.

The period that the employee is entitled to is a minimum of 21 working days and the employee is entitled to full pay. However, many contracts and collective agreements provide for annual leave of between 30 to 45 days. On average, Kenyan employees enjoy an annual leave allowance of 24 days. With an agreement between an employer and an employee, annual leave can be taken in proportion though the law allows that one part of the agreed-upon period should consist of at least two uninterrupted working weeks.

Maternity Leave

A female employee in Kenya is entitled to 3 months of maternity leave with full pay in addition to any annual and sick leave (should the employee fall ill during confinement).

The employee will be entitled to maternity leave if she gives no less than seven days written notice in advance, or a shorter period as may be reasonable in the circumstances. She must, however, provide a certificate from a qualified practitioner or midwife confirming her condition.

On the expiry of the maternity leave, the employee shall be entitled to return to the job that she held prior to maternity leave.

Paternity Leave

The law allows a male employee two weeks of paternity leave with full pay.

Sickness

The minimum period of entitlement for sick leave is seven days with full pay and seven days with half-pay for every twelve months, subject to production of a certificate of incapacity to work duly signed by qualified medical practitioner. However, some companies will pay more on the designation of personnel.

National Service

There are no compulsory National Services in Kenya.

Minimum Wages in Kenya remained unchanged in 2024. The minimum wage is at 15120 KES/Month.

Most businesses in Kenya are open from Monday to Friday, though some also trade on Saturday. Business hours are 9:00am to 5:00pm, closing for an hour over lunch (1:00pm – 2:00pm).

There are multiple statutory holiday schedules within Kenya. Below are the statutory national holidays in Kenya for 2024.

Any benefits that the company provides will be at the company’s discretion.

Expenses

Any general expenses can be either a reimbursement if employees use their own money or a deduction if they do not provide receipts for expenses.

Car mileage can be reimbursed in terms of a fuel allowance provided receipts are given and the company can decide on a limit.

Company cars are usually included as a car benefit. This amount is calculated at 2% of the value of the car and this value is then taxed at 30%.

In Kenya, several significant changes to personal income tax, social security, and employment law came into effect in 2024 as part of the Finance Act 2023. These changes include:

1. Introduction of Additional Tax Bands and Increase in Marginal Tax Rate for Individuals: Two new tax bands have been introduced above the current marginal tax rate of 30%. These are 32.5% applicable to individuals earning monthly incomes between Ksh.500,000 and Ksh.800,000, and 35% applicable to individuals earning monthly incomes of more than Ksh.800,000. These changes took effect from 1st July 2023.
2. Taxation of Employment Income: Certain amendments were made to the taxation of employment income. For example, travelling allowances based on standard mileage rates approved by the Automobile Association of Kenya are now excluded from taxation. Club entrance and subscription fees paid by the employer on behalf of the employee are treated as taxable benefits. Additionally, there is a provision for the deferment of taxation of benefits from shares allocated to an employee.
3. Taxation of Repatriated Income for Non-residents: This introduces the taxation of repatriated income for non-residents with a permanent establishment in Kenya at a rate of 15%, while reducing their Corporate Income Tax rate to 30% from 37.5%.
4. Exemptions from Tax: Certain items, such as royalties and interest paid to a non-resident person by a company manufacturing human vaccines, income from a post-retirement medical fund, and gains on transfer of property within a special economic zone, are now exempt from tax.
5. Housing Tax: A housing tax at 1.5% of the employee's gross salary, matched by another 1.5% by the employer, has been implemented towards the Housing Development Fund.

These changes reflect Kenya's efforts to adjust its tax system in response to evolving economic conditions and are aimed at expanding the tax base and aligning tax rates with international standards. Employers and employees are advised to update their payroll systems accordingly to comply with the new tax rates and regulations.

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.