Expatriates and statutory deductions
2 years ago
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.
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.
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!
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