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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 over 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.

  4. Beatrice says:

    An employer suspends you then fires you out of an allegation that was not founded by a supervisor. Consequently you are only paid for the days worked in that month and told to wait for service pay(not sure whether you will receive because of the employer’s previous behaviour on such issues). What is the legal redress?

    1. Anne Babu says:

      See a labour officer or lawyer about a claim for unfair dismissal and payment of terminal dues.

  5. Jemimah Muchugia says:

    Hi Ann, first I would like to thank you for these informative articles. Secondly, I would like to request that you do an article on Statutory deductions and consequences to employers who fail on the same.
    Thank you

    1. Anne Babu says:

      Thank you for those kind words. Please take a minute to vote for the blog in the Best Topical Blog category – https://vote.bakeawards.co.ke/vote. Have you read through this article on statutory deductions? It deals with domestic workers but applies to all staff. https://kenyaemploymentlaw.com/2017/01/19/domestic-workers-statutory-obligations-n-s-s-f-n-h-i-f/.

  6. Doreen Odhiambo says:

    Informative articles simplified. Would like to subscribe to every update- all updates.

    1. Anne Babu says:

      Please go to the home page and indicate your email address in the subscribe box. Thank you.

  7. JEN says:

    What happens where an expatriate does not have the KRA PIN?

    1. Anne Babu says:

      That means they are not paying income tax which is an offence under the Income Tax Act.

  8. Vicky says:

    Hi Ann can you discuss the place of pension- is it a statutory requirment by law?
    If not how do you address and employee who declines to contribute to an existing pension fund?

    1. Anne Babu says:

      Pension is a benefit given in an employment contract. It is not a mandatory legal right. If the employee signed the contract that provides for contribution then they would be committing a breach of contract by declining to contribute, unless the company is willing to withdraw that benefit, in which case, the company will also cease its contributions.

  9. Bella says:

    Hi,kindly clarify where India falls as it appears under the Concluded DTA’s as well as DTA’s under negotiations. Thanks.

    1. Anne Babu says:

      I don’t have that information. Perhaps check the KRA website.

  10. mohamed noor says:

    Thank you for the enlightening articles..I am full of praises..please advise if non resident employee working from overseas …is he required to have a work permit..previously he was resident expatriate and his permit was declined..and continued to work from overseas with pay and paye deductions.I believe he is an illegal employee of the organization.

    By the way do you have an office in Mombasa

    1. Anne Babu says:

      Thank you for your compliments. We do not have an office in MBA yet. A work permit is only for those working in Kenya.

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