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Many expatriates live and work in Kenya; are they exempt from tax and other mandatory deductions such as NHIF and NSSF? This article seeks to answer these questions.

Income tax

When it comes to income tax, the principal law is the Income Tax Act, which is Chapter 470 of the Laws of Kenya.

According to Section 3(2) of the Act, a salary, or other remuneration that arises from employment, is considered income and is liable to income tax.

According to Section 3(1) of the Act, the income of both residents and nonresidents is subject to income tax as long as the income accrued in or was derived from Kenya.

According to Section 5(1) of the Act, the following income is deemed to have accrued in or to have been derived from Kenya: –

An amount paid to –
(a) a resident; or
(b) a nonresident who is or was employed by a resident or by the permanent establishment in Kenya of a nonresident.

Tax is always a bit of a mouthful so I will summarise the position as follows: –

1. An expatriate, who is resident in Kenya is liable to pay income tax; Secondly,

2. An expatriate, who is not resident in Kenya, but who is employed by a person who is resident in Kenya or by a permanent establishment of a nonresident,

is liable to income tax.

The next question must be, who is a resident and what is a permanent establishment?

I will spare you the tax-jargon in the definitions of “resident” and “permanent establishment” and simply conclude that: –

1. An expatriate, who has a permanent home in Kenya or who is resident in Kenya for at least 6 months in a year, is liable to pay income tax; Secondly,

2. An expatriate, who is not resident in Kenya but who is employed by an entity that is incorporated or controlled or managed or that has an office in Kenya,

is liable to pay income tax.

relief-ahead-sign

 

Double taxation relief

You may be able to see the problem here — an expatriate may be faced with a situation where they are liable to pay income tax in Kenya and also in the other country where they are also considered residents.

To avoid such a situation, Section 41 of the Act gives the Minister of Finance the power to enter into arrangements with the governments of other countries with a view to affording relief from double taxation in relation to income tax and other taxes of a similar character imposed by the laws of the country. Such arrangements are called Double Taxation Agreements (DTAs).

The Government has concluded Double Taxation Agreements with a number of countries. DTAs have been concluded with, for example, Zambia, Norway, Denmark, Sweden, U.K, Germany, Canada and India.

DTAs with Italy, Tanzania and Uganda have been concluded but are not yet in force.

DTAs with France, Thailand, Seychelles, Nigeria, South Africa, Mauritius, Finland, Russia, UAE, Iran and India are still under negotiation.

NSSF and NHIF

Well, the legal position regarding these two is simple…expatriates are liable to pay!

***THE END***

Thank you for reading and please suggest topics that you would like us to write on in the comments section.

About Anne Babu

Anne is an Advocate of the High Court of Kenya and the Founding Partner of Anne Babu & Co. Advocates. She has practiced employment law for 10 years. She is a repository junkie and a lover of editing.

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Comments

  1. Edna Busiega says:

    Thank you Ann for shading light on the expatriate and tax issue. I really can get confusing. I would appreciate if you could also briefly highlight on what the law says on employees who are hired whilst expectant and have to go on maternity leave midway their probation.

    1. Anne Babu says:

      There is no express legal position on that, the general legal principles apply. Maternity leave is a statutory right and, therefore, the employee is entitled to not only take the leave but also to be paid for it. If she is on a probationary contract – a contract for the period of probation only – the contract will end on the expiry of the term of the probationary contract unless the employer opts to extend it. If she is on a normal contract which has a period of probation at the start, it only makes sense for the probation period to be extended for 3 months.

  2. Peter says:

    Hi, i was deducted my hourly rate that i was usual been paid with.without notification is my employer within the law. Please i will like to know be for i confronted him.

    1. Anne Babu says:

      What was the deduction in respect of?

  3. Joyce W. K. says:

    Thanks alot Anne, this articles are really helpful in understanding the law jargon.
    I would like to know about working hours, well, I dont know if it falls under law all human resources…. an employee is supposed to work for 8hrs a day and hence 48hrs a week with one day rest in a week, what if an employee is on 2 days leave in that particular week, what should be the target hours to be worked for this week for this particular employee?

    1. Anne Babu says:

      I’m afraid your question is not clear.