Navigating Kenyan Taxation: A Guide for Diaspora Individuals

Taxation can be a complex web to untangle, especially when you’re a Kenyan living abroad.

Whether you’re a seasoned investor or a business owner, understanding the key principles of Kenyan taxation is crucial. In this guide, we break down the essentials for Kenyans in the diaspora.

1. Differentiating Direct and Indirect Taxes

Kenya’s taxation system is categorized into direct and indirect taxes. Direct taxes primarily focus on income and affect both residents and non-residents, including those in the diaspora. On the other hand, indirect taxes are centred around goods, encompassing VAT and excise duty for imports and local purchases.

2. Accrual or Derivation Principle

Kenyan taxation operates based on the Accrual or Derivation principle, necessitating non-residents who earn income from the country to fulfil their tax obligations. This applies to various sources of income, demanding a comprehensive understanding of the tax landscape.

3. Withholding Tax System

For individuals in the diaspora with investments in Kenya, such as bonds or shares, the country implements a withholding tax system. The tax rates are dynamic and contingent upon the nature of the income, with regular updates accessible on the Taxman’s official platform.

4. Taxpayer Identification Number (TIN)

To comply with Kenyan tax regulations, individuals in the diaspora are required to obtain a Taxpayer Identification Number (TIN). This unique identifier allows for efficient identification and tracking of tax obligations, ensuring compliance with the tax laws of Kenya.

To meet the strict registration requirements, individuals in the diaspora must complete certain tasks, such as obtaining a Kenyan PIN and fulfilling various tax obligations as outlined by the law. To be considered a tax resident in Kenya, individuals must either have a home in the country or spend a specific amount of time in Kenya each year. Tax residents are responsible for reporting and paying taxes on their employment income from all sources.

Diaspora individuals who have businesses that operate partially in Kenya are subject to tax obligations on the income generated within the country. This includes personal income tax, corporate income tax, and capital gains tax. Those engaged in trading through digital platforms are required to pay Digital Services tax. Corporate income tax has different categories, including turnover tax, which is designed for businesses with smaller turnovers.

Individuals who earn rental income can take advantage of a simplified system that allows for monthly payments at a reduced rate, particularly beneficial for those with turnovers below 15 million. It is crucial for Kenyans in the diaspora to understand these important principles. By familiarizing themselves with withholding taxes and business obligations, they can effectively navigate the complex world of Kenyan taxation.