Kenya payroll and tax overview.

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, with a 2019 GDP of around $99.25 billion and a growth rate of 5.6%. 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. In 2019, the World Bank ranked Kenya 56 on its Ease of Doing Business Survey.

Why Invest in Kenya?

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.

Foreign Direct Investment in Kenya

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.

Company Registrations and Establishing an Entity in Kenya

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

Business Banking in Kenya

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.

What Are the Working Days and Working Hours in Kenya?

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).

Basic Facts about Kenya

General Information

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.

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

Main Exports: Tea, coffee, spices, vegetables, clothing, fruit, gems and pharmaceuticals

Internet Domain: .ke

International Dialling Code: +254

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 fillings on behalf of their clients in Kenya.

All tax returns should be completed by 30th June.

Income Tax in Kenya

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.

Social Security in Kenya

The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employee’s contribute 5% (up to KSH 200) per month.

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.

Kenya is a member of the International Social Security Association.

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

Reporting Tax in Kenya

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

The client verifies and stamps them with their company stamp before submitting to the KRA (Kenya Revenue Authority).

New Employees in Kenya

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

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

Leavers in Kenya

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.

Employers in Kenya must withhold income tax and social security contributions from their employees’ salaries as part of the payroll process. Income tax and social security contributions are collected via the PAYE system, and then submitted to the KRA on a monthly basis.

Income tax rates in Kenya vary by residency status: non-residents pay tax only on income earned within Kenya, while residents pay on income earned worldwide. Kenya’s income tax rate levels are as follows:

KES 0 – 13,4160 10%

KES 13,4160 to 26,0568 15%

KES 22,60568 to 38,6976 20%

KES 38,6976 to 51,3372 25%

KES 51,3372 upwards 30%

Employers may provide online payslips to their employees, and must keep payroll reports for 7 – 10 years (depending on type).