Point in Time
Act No: CAP. 470
Act Title: INCOME TAX
[ Date of commencement: 1st January, 1974. ]
[ Date of assent: 21st December, 1973. ]
Arrangement of Sections
PART I – PRELIMINARY
1.
Short title and commencement

This Act may be cited as the Income Tax Act, and shall, subject to the Sixth Schedule, come into operation on 1st January, 1974, and apply to assessments for the year of income 1974 and subsequent years of income.

2.
Interpretation
(1)

In this Act, unless the context otherwise requires—

"accounting period", in relation to a person, means the period for which that person makes up the accounts of his business;

"actuary" means—

(a)

a Fellow of the Institute of Actuaries in England; or of the Faculty of Actuaries in Scotland; or of the Society of Actuaries in the United States of America; or of the Canadian Institute of Actuaries; or

(b)

such other person having actuarial knowledge as the Commissioner of Insurance may approve;

"agency fees" means payments made to a person for acting on behalf of any other person or group of persons, or on behalf of the Government and excludes any payments made by an agent on behalf of a principal when such payments are recoverable;

"annuity contract" means a contract providing for the payment to an individual of a life annuity, and

"assessment" means an assessment, instalment assessment, self-assessment, or additional assessment made under this Act;

"authorized tax agent" means any person who prepares or advises for remuneration, or who employs one or more persons to prepare for remuneration, any return, statement or other document, with respect to a tax under this Act; and for the purposes of this Act, the preparation of a substantial portion of a return, statement or other document shall be deemed to be the preparation of the return, statement or other document;

"bank" means a bank or financial institution licensed under the Banking Act (Cap. 488);

"bearer" means the person in possession of a bearer instrument; and

"bearer instrument" includes a certificate of deposit, bond, note or any similar instrument payable to the bearer;

"building society" means a building society registered under the Building Societies Act (Cap. 489);

"business" includes any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade, but does not include employment;

"child relief" deleted by Act No. 12 of 1977, s. 5;

"collective investment scheme" has the meaning assigned to it in section 2 of the Capital Markets Act (Cap. 485A);

"commercial vehicle" means a road vehicle which the Commissioner is satisfied is—

(a)

manufactured for the carriage of goods and so used in connection with a trade or business; or

(b)

a motor omnibus within the meaning of that term in the Traffic Act (Cap. 403); or

(c)

used for the carriage of members of the public for hire or reward;

"Commissioner" means—

(a)

the Commissioner-General appointed under section 11(1) of the Kenya Revenue Authority Act (Cap. 469); or

(b)

with respect to powers or functions that have been delegated under section 11(4) of the Kenya Revenue Authority Act (Cap. 469) to another Commissioner, that other Commissioner;

"company" means a company incorporated or registered under any law in force in Kenya or elsewhere;

"compensating tax" means the addition to tax imposed under section 7A;

"consultancy fees" means payments made to any person for acting in an advisory capacity or providing services on a consultancy basis;

"contract of service" means an agreement, whether oral or in writing, whether expressed or implied, to employ or to serve as an employee for any period of time, and includes a contract of apprenticeship or indentured learnership, under which the employer has the power of selection and dismissal of the employee, pays his wages or salary and exercises general or specific control over the work done by him; and for the purpose of this definition an officer in the public service shall be deemed to be employed under a contract of service;

"contractual payments" deleted by Act No. 6 of 2001, s. 42;

"control", in relation to a person, means—

(a)

that the person, directly or indirectly, holds at least twenty per cent of the voting rights in a company;

(b)

a loan advanced by the person to another person constitutes at least seventy per cent of the book value of the total assets of the other person excluding a loan from a financial institution that is not associated with the person advancing the loan;

(c)

a guarantee by the person for any form of indebtedness of another person constitutes at least seventy per cent of the total indebtedness of the other person excluding a guarantee from a financial institution that is not associated with the guarantor;

(d)

the person appoints more than half of the board of directors of another person or at least one director or executive member of the governing board of that person;

(e)

the person is the owner of or has the exclusive rights over the know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of a similar nature, on which another person is wholly dependent for the manufacture or processing of goods or articles or business carried on by the other person;

(f)

the person or a person designated by that person—

(i)

supplies at least ninety per cent of the supply of the purchases of another person; and

(ii)

upon assessment, the Commissioner deems influence in the price or other conditions relating to the supply of the purchases of another person;

(g)

the person purchases or designates a person—

(i)

to purchase at least ninety per cent of the sales of another person; and

(ii)

upon assessment, the Commissioner deems influences in the price or any other conditions of the sales of another person;

(h)

the person has any other relationship, dealing or practice with another person which the Commissioner may deem to constitute control;

"corporation rate" means the corporation rate of tax specified in paragraph 2 of Head B of the Third Schedule;

"Court" means the High Court;

"current year of income", in relation to income charged to instalment tax, means the year of income for which the instalment tax is payable;

"debenture" includes any debenture stock, mortgage, mortgage stock, or any similar instrument acknowledging indebtedness, secured on the assets of the person issuing the debenture; and, for the purposes of paragraphs (d) and (e) of section 7(1) of this Act, includes any loan or loan stock, whether secured or unsecured;

"deemed interest" means an amount of interest equal to the average ninety-one day Treasury Bill rate, deemed to be payable by a resident person in respect of any outstanding loan provided or secured by the non-resident, where such loan is provided free of interest;

"defined benefit provision", in respect of a registered fund, means the terms of the fund under which benefits in respect of each member of the fund are determined in any way other than that described in the definition of a "defined contribution provision";

"defined benefit registered fund" means a registered fund that contains a defined benefit provision, whether or not it also contains a defined contribution provision;

"defined contribution provision", in respect of a registered fund, means terms of the fund—

(a)

which provide for a separate account to be maintained in respect of each member, to which are credited contributions made to the fund by, or in respect of, the member and any other amounts allocated to the member, and to which are charged payments in respect of the member; and

(b)

under which the only benefits in respect of a member are benefits determined solely with reference to, and provided by, the amount of the member’s account;

"defined contribution registered fund" means a registered fund under which the benefits of a member are determined by a defined contribution provision, and does not contain a defined benefit provision;

"demurrage charges" deleted by Act No. 23 of 2019, s. 2.;

"director" means—

(a)

in relation to a body corporate the affairs of which are managed by a board of directors or similar body, a member of that board or similar body;

(b)

in relation to a body corporate the affairs of which are managed by a single director or similar person, that director or person;

(c)

in relation to a body corporate the affairs of which are managed by the members themselves, a member of the body corporate,

and includes any person in accordance with whose directions and instructions such persons are accustomed to act;

"discount" means interest measured by the difference between the amount received on the sale, final satisfaction or redemption of any debt, bond, loan, claim, obligation or other evidence of indebtedness, and the price paid on purchase or original issuance of the bond or evidence of indebtedness or the sum originally loaned upon the creation of the loan, claim or other obligation;

"dividend" means any distribution (whether in cash or property, and whether made before or during a winding up) by a company to its shareholders with respect to their equity interest in the company, other than distributions made in complete liquidation of the company of capital which was originally paid directly into the company in connection with the issuance of equity interests;

"due date" means the date on or before which any tax is due and payable under this Act or pursuant to any notice issued under this Act;

"employer" includes any resident person responsible for the payment of, or on account of, any emoluments to any employee, and any agent, manager or other representative so responsible in Kenya on behalf of any non-resident employer;

"export processing zone enterprise" has the meaning assigned to it by the Export Processing Zones Act, (No. 12 of 1990);

“fair market value” means the comparable market price available in an open and unrestricted market between independent parties acting at arm's length and under no compulsion to transact, which is expressed in terms of money or money’s worth;

"family relief" deleted by Act No. 8 of 1996, s. 27;

"financial derivative” means a financial instrument the value of which is linked to the value of another instrument underlying the transaction which is to be settled at a future date;

"foreign tax", in relation to income charged to tax in Kenya, means any income tax or any tax of a similar nature charged under any law in force in any place with the Government of which a special arrangement has been made by the Government of Kenya and which is the subject of that arrangement;

"incapacitated person" means a minor, and any person adjudged under any law, whether in Kenya or elsewhere, to be in a state of unsoundness of mind (however described);

"individual" means a natural person;

"individual rates" means the individual rates of income tax specified in paragraph 1 of Head B of the Third Schedule;

"individual retirement fund" means a fund held in trust by a qualified institution for a resident individual for the purpose of receiving and investing funds in qualifying assets in order to provide pension benefits for such an individual or the surviving dependants of such an individual subject to the Income Tax (Retirement Benefit) Rules and "registered individual retirement fund" means an individual retirement fund where the trust deed for such a fund has been registered with the Commissioner;

"infrastructure bond" means a bond issued by the Government for the financing of a strategic public infrastructure facility including a road, hospital, port, sporting facility, water and sewerage system, a communication network or energy project;

"information technology" means any equipment or software for use in storing, retrieving, processing or dissemination information;

"insurance relief" deleted by Act No. 8 of 1996, s. 27;

"interstate tax" means any income tax or any tax of a similar nature changed under any law in force in Kenya;

"interest" (other than interest charged on tax) means interest payable in any manner in respect of a loan, deposit, debt, claim or other right or obligation, and includes any premium or discount by way of interest and any commitment or service fee paid in respect of any loan or credit or an Islamic finance return;

"investee company" has the meaning assigned to it under the Capital Markets Act (Cap. 485A) and the regulations made thereunder;

"Islamic finance arrangement" means all financial arrangements, including transactions, instruments, products or related activities that are structured in accordance with Islamic law;

"Islamic finance return" means any amount received or paid in relation to Sukuk or an Islamic finance arrangement;

"Kenya" includes the continental shelf and any installation thereon as defined in the Continental Shelf Act (Cap. 312);

"local committee" means a local committee established under section 82 of this Act;

"loss", in relation to gains or profits, means a loss computed in the same manner as gains or profits;

"Management Act" means the East African Income Tax Management Act (E.A. Cap. 24);

"management or professional fee" means any payment made to any person, other than a payment made to an employee by his employer, as consideration for any managerial, technical, agency, contractual, professional or consultancy services however calculated;

"married relief" deleted by Act No. 12 of 1977, s. 5;

"Minister" means the Cabinet Secretary for the time being responsible for matters relating to finance;

"National Social Security Fund" means the National Social Security Fund established under section 3 of the National Social Security Fund Act (Cap. 258);

"natural resource income" means—

(i)

an amount including a premium or such other like amount paid as consideration for the right to take minerals or a living or nonliving resource from land or sea; or

(ii)

an amount calculated in whole or in part by reference to the quantity or value of minerals or a living or non-living resource taken from land or sea;

"non-resident rate" means a non-resident tax rate specified in paragraph 3 of Head B of the Third Schedule;

"notice of objection" means a valid notice of objection to an assessment given under section 84(1);

"number of full-year members", in respect of a registered fund, means the sum of the periods of service in the year under the fund of all members of the fund, where the periods are expressed as fractions of a year;

"oil company", deleted by Act No. 16 of 2014, s. 2;

"officer" means the Commissioner and any other member of staff of the Kenya Revenue Authority appointed under section 13 of the Kenya Revenue Authority Act (Cap. 469);

"original issue discount" means the difference between the amount received on the final satisfaction or redemption of any debt, bond, loan, claim, obligation or other evidence of indebtedness, and the price paid on original issuance of the bond or evidence of indebtedness or the sum originally loaned upon creation of the obligation, loan, claim or other obligation;

"paid" includes distributed, credited, dealt with or deemed to have been paid in the interest or on behalf of a person and "pay", "payment" and "payable" have corresponding meanings;

"pension fund" means any fund for the payment of pensions or other similar benefits to employees on retirement, or to the dependants of employees on the death of such employees and "registered pension fund" means one which has been registered with the Commissioner in such manner as may be prescribed;

"pensionable income" means—

(a)

in relation to a member of a registered pension or provident fund or of an individual eligible to contribute to a registered individual retirement fund, the employment income specified in section 3(2)(a)(ii) subjected to deduction of tax under section 37;

(b)

in the case of an individual eligible to contribute to a registered individual retirement fund, the gains or profits from business subject to tax under section 3(2)(a)(i) earned as the sole proprietor or as a partner of the business:

Provided that where a loss from business is realized the loss shall be deemed to be zero;

"permanent establishment" includes—

(a)

a fixed place of business through which business is wholly or partly carried on and includes a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction or exploitation of natural resources, a warehouse in relation to a person whose business is providing storage facilities to others, a farm, plantation or other place where agricultural, forestry plantation or related activities are carried on and a sales outlet;

(b)

a building site, construction, assembly or installation project or any supervisory activity connected to the site or project, but only if it continues for a period of more than one hundred and eighty-three days:

Provided that for the purpose of determining whether the period specified in this paragraph has been exceeded—

(i) where a person carries on activities at a place that constitutes a building site or construction or installation project and these activities are carried on during one or more periods of time that, in the aggregate, exceed thirty days but do not exceed one hundred and eighty-three days; and
(ii) connected activities are carried on at the same building site or construction or installation project during different periods of time, each exceeding thirty days, by one or more enterprises closely related to the first-mentioned enterprise, the different periods of time shall be added to the aggregate period of time during which the first-mentioned enterprise has carried on activities at that building site or construction or installation project;
(c) the provision of services, including consultancy services, by a person through employees or other personnel engaged for that purpose, but only where the services or connected business in Kenya, continue for a period of, or periods exceeding in the aggregate, ninety-one days in any twelve-month period commencing or ending in the year of income concerned;
(d) an installation or structure used in the exploration for natural resources:

Provided that the exploration continues for a period of not less than ninety-one days;

(e)

a dependent agent of a person who acts on their behalf in respect of any activities which that person undertakes in Kenya including habitually concluding contracts, or playing the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the person, but excludes the following activities where the activities are of a preparatory or auxiliary character—

(i) the use of facilities solely for the purpose of storage, or display of goods or merchandise belonging to the enterprise;
(ii) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, or display;
(iii) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(iv) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;
(v) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity; and
(vi) the maintenance of a fixed place of business solely for any combination of activities mentioned in paragraphs (i) to (v).

"permanent home" means a place where an individual resides or which is available to that individual for residential purposes in Kenya, or where in the opinion of the Commissioner the individual’s personal or economic interests are closest;

"permanent or semi-permanent crops" means such crops which the Minister may, by notice in the Gazette, declare to be permanent or semi-permanent crops for the purposes of this Act;

"personal relief" means—

(a)

the personal relief provided for under Part V; and

(b)

the relief mentioned in section 30;

"preceding year assessment", in relation to instalment tax, means the tax assessed for the preceding year of income as of the date the instalment tax is due without regard to subsequent additions to, amendments of, or subtractions from the assessment and in the event that as of the date the instalment tax is due no assessment for the preceding year of tax has, as yet, been made, means the amount of tax estimated by the person as assessable for the preceding year of income;

"premises" means land, any improvement thereon, and any building or, where part of a building is occupied as a separate dwelling-house, that part;

"provident fund" includes any fund or scheme for the payment of lump sums and other similar benefits, to employees when they leave employment or to the dependants of employees on the death of those employees but does not include any national provident fund or national social security fund established by the Government and "registered provident fund" means one which has been registered with the Commissioner in such manner as may be prescribed;

"provisional return of income" deleted by Act No. 16 of 2014, s. 2;

"public pension scheme" means a pension scheme that pays pension or lump sums out of the Consolidated Fund;

"qualified institution" means a bank licensed under the Banking Act (Cap. 488), or an insurer registered under the Insurance Act (Cap. 487), or such other financial institution as may be approved under the Retirement Benefits Act, (No. 3 of 1997);

"qualifying assets", in respect of a registered individual retirement fund, means time deposits, treasury bills, treasury bonds, securities traded on any securities exchange approved under the Capital Markets Act (Cap. 485A) and such other categories of assets as may be prescribed in the investment guidelines issued under the Retirement Benefits Act, (No. 3 of 1997);

"qualifying dividend" means that part of the aggregate dividend that is chargeable to tax under section 3(2)(b) and which has not been otherwise exempted under any other provision of this Act, but shall not include a dividend paid by a designated cooperative society subject to tax under section 19A(2) or 19A(3);

"qualifying dividend rate of tax" means the resident withholding tax rate in respect of a qualifying dividend specified in the Third Schedule;

"qualifying interest" means the aggregate interest, discount or original issue discount receivable by a resident individual in any year of income:

Provided that—

(a)

interest earned on an account held jointly by a husband and wife shall be deemed to be qualifying interest; and

(b)

in the case of housing bonds, the aggregate amount of interest shall not exceed three hundred thousand shillings.

"qualifying interest rate of tax" means the resident withholding tax rate in respect of interest specified in paragraph 5 of the Third Schedule;

"real estate investment trust" shall have the meaning assigned to it in the Capital Markets Act (Cap. 485A);

"registered annuity contract" means one which has been registered with the Commissioner in such manner as may be prescribed;

"registered fund" means a registered pension fund or a registered provident fund;

"registered home ownership savings plan" means a savings plan established by an approved institution and registered with the Commissioner for receiving and holding funds in trust for depositors for the purpose of enabling individual depositors to purchase a permanent house;

"registered trust scheme" means a trust scheme for the provision of retirement annuities which has been registered with the Commissioner in such manner as may be prescribed;

"registered unit trust" means a unit trust registered by the Commissioner in such manner as may be prescribed;

"registered venture capital company" means a venture capital company registered by the Commissioner in such manner as may be prescribed;

"resident", when applied in relation—

(a)

to an individual, means—

(i)

that he has a permanent home in Kenya and was present in Kenya for any period in any particular year of income under consideration; or

(ii)

that he has no permanent home in Kenya but—

(A)

was present in Kenya for a period or periods amounting in the aggregate to 183 days or more in that year of income; or

(B)

was present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income;

(b)

to a body of persons, means—

(i)

that the body is a company incorporated under a law of Kenya; or

(ii)

that the management and control of the affairs of the body was exercised in Kenya in a particular year of income under consideration; or

(iii)

that the body has been declared by the Minister, by notice in the Gazette, to be resident in Kenya for any year of income;

"resident withholding rate" means a rate of resident withholding tax specified in paragraph 5 of Head B of the Third Schedule;

"retirement annuity" means a retirement annuity payable under a registered annuity contract;

"Retirement Benefits Authority" means the Authority by that name established under the Retirement Benefits Act, (No. 3 of 1997);

"return of income" means a return of income furnished by a person consequent upon a notice served by the Commissioner under section 52 of this Act including a return of income together with a self-assessment of tax furnished to the Commissioner in accordance with the provisions of section 52B, together with any documents required to be furnished therewith;

"royalty" means a payment made as a consideration for the use of or the right to use—

(a)

any copyright of a literary, artistic or scientific work; or

(b)

any cinematograph film, including film or tape for radio or television broadcasting; or

(c)

any patent, trade mark, design or model, plan, formula or process; or

(d)

any industrial, commercial or scientific equipment,

or for information concerning industrial, commercial or scientific equipment or experience, and any gains derived from the sale or exchange of any right or property giving rise to that royalty;

"securities exchange" has the meaning assigned to it in section 2 of the Capital Markets Authority Act (Cap. 485A);

"single relief" deleted by Act No. 8 of 1996, s. 27;

"special arrangement" means an arrangement for relief from double taxation having effect under section 41 of this Act or an agreement for the exchange of tax information under section 41A;

"special single relief" deleted by Act No. 8 of 1991, s. 52;

"specified mineral" deleted by Act No. 16 of 2014, s. 2;

"Sukuk" has the meaning assigned to it in the Public Finance Management Act, 2012 (No. 18 of 2012);

"tax" means the income tax charged under this Act;

"tax computerized system" means any software or hardware for use in storing, retrieving, processing or disseminating information relating to tax;

"telecommunication operator" means any person licensed as such under the Kenya Information and Communications Act, (No. 2 of 1998);

"total income" means, in relation to a person, the aggregate amount of his income, other than income exempt from tax under Part III, chargeable to tax under Part II, as ascertained under Part IV;

"trade association" means a body of persons which is an association of persons separately engaged in any business with the main object of safeguarding or promoting the business interests of those persons;

"training fee" means a payment made in respect of a business or user training services designed to improve the work practices and efficiency of an organization, and includes any payment in respect of incidental costs associated with the provision of such services;

Provided that training fee shall not include fees paid for educational services provided by—

(a)

a pre-primary, primary, or secondary school;

(b)

a technical college or university;

(c)

an institution established for the promotion of adult education, vocational training or technical education.

"Tribunal" means the tribunal established under section 83;

"unit holder", in relation to a unit trust, means the owner of an interest in the moneys, investments and other property which are for the time being subject to the trusts governing the unit trust, such interest being expressed in the number of units of which he is the owner;

"unit trust" has the meaning assigned to it in section 2 of the Capital Markets Act (Cap. 485A);

"venture company" means a company incorporated in Kenya in which a venture capital company has invested and which at the time of first investment by the venture capital company has assets with a market value or annual turnover of less than five hundred million Kenya shillings;

"whole time service director" means a director of a company who is required to devote substantially the whole of his time to the service of such company in a managerial or technical capacity and is not the beneficial owner of, or able, either directly or through the medium of other companies or by any other means, to control more than five per cent of the share capital or voting power of such company;

"wife’s employment income" means gains or profits from employment arising from a contract of service which is chargeable to tax under section 3(2)(a)(ii) and pensions, lump sums and withdrawals from a registered fund, public pension scheme or registered individual retirement fund which are chargeable to tax under section 3(2)(c), of a woman living with her husband, excepting income derived by her as a trustee or manager of a settlement created by her husband the income of which is deemed under section 25 or 26 to be the income of the settler or income derived by her as an employee of—

(a)

a partnership in which her husband is a partner;

(b)

her husband; or

(c)

a company, the voting power of which is held to the extent of twelve and one-half per cent or more at any time during the year of income by her or by her husband or by both jointly, either directly or through nominees;

"wife’s professional income" means the gains or profits of a married woman living with her husband derived from the exercise by her (but not as a partner of a partnership in which her husband is a partner) of one of the professions specified in the Fifth Schedule being also a person who has the qualifications specified in that Schedule relevant to that profession;

"wife’s professional income rate" means the wife’s professional income rate specified in paragraph 1A of Head B of the Third Schedule;

"wife’s self-employment income" means gains or profits arising from a business of a married woman living with her husband which are chargeable to tax under section 3(2)(a)(i) and any income chargeable under section 3(2)(a)(iii) or section 3(2)(b), but does not include any income derived from the provision of goods or services by her to a business, partnership or a company owned by or the voting power of which is held to the extent of twelve and one-half per cent, or more at any one time during the year of income by her or her husband either directly or through nominee;

"wife’s self-employment income rate" means the wife’s self-employment income rate specified in paragraph 1A of Head B of the Third Schedule;

"winnings" includes winnings of any kind and a reference to the amount or the payment of winnings shall be construed accordingly;

"year of income" means the period of twelve months commencing on 1st January in any year and ending on 31st December in that year.

(1A)

Where under the provisions of this Act, any accounts, books of accounts or other records are required to be kept, such accounts, books or other records may be kept in written form or on micro-film, magnetic tape or any other form of mechanical or electronic data retrieval mechanism.

(2)

In relation to any year of income in respect of which an order relating to tax or personal reliefs has been made under the Provisional Collection of Taxes and Duties Act (Cap. 415), reference in this Act to rates of tax and personal reliefs shall, so long as the order remains in force, be construed as references to the rates or reliefs specified in that order; and if, after the order has ceased to have effect, the rates of tax and of personal reliefs in relation to that year of income as specified in this Act as amended are different from those referred to in the order, and assessments have already been made having regard to those rates in the order, then all necessary adjustments shall be made to the assessments to give effect to the rates of tax and of personal reliefs for that year of income as specified in this Act as amended for that year of income.

[Act No. 7 of 1976, s. 2, Act No. 12 of 1977, s. 5, Act No. 8 of 1978, s. 9, Act No. 12 of 1980, s. 3, Act No. 14 of 1982, s. 16, Act No. 10 of 1987, s. 31, Act No. 10 of 1988, s. 28, Act No. 9 of 1989, 2nd Sch., Act No. 10 of 1990, s. 38, Act No. 8 of 1991, s. 52, Act No. 9 of 1992, s. 35, Act No. 6 of 1994, s. 33, Act No. 13 of 1995, s. 73, Act No. 8 of 1996, s. 27, Act No. 8 of 1997, s. 27, Act No. 4 of 1999, s. 32, Act No. 9 of 2000, s. 40, Act No. 6 of 2001, s. 42, Act No. 7 of 2002, s. 37, Act No. 15 of 2003, s. 29, Act No. 4 of 2004, s. 45, Act No. 6 of 2005, s. 20, Act No. 10 of 2006, s. 16, Act No. 8 of 2008, s. 23, Act No. 8 of 2009, s. 16, Act No. 4 of 2012, s. 9, Act No. 57 of 2012, s. 13, Act No. 38 of 2013, s. 9, Act No. 16 of 2014, s. 2, Act No. 14 of 2015, s. 7, Act No. 38 of 2016, s. 2, Act No. 15 of 2017, s. 11, Act No. 9 of 2018, Sch., Act No. 10 of 2018, s. 2, Act No. 23 of 2019, s. 2, Act No. 2 of 2020, Sch, Act No. 8 of 2021, s. 2, Act No. 22 of 2022, s. 2.]

PART II – IMPOSITION OF INCOME TAX
3.
Charge of tax
(1)

Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.

(2)

Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—

(a)

gains or profits from—

(i) any business, for whatever period of time carried on;
(ii) any employment or services rendered;
(iii) any right granted to any other person for use or occupation of property;
(b)

dividends or interest;

(c)

(i) a pension, charge or annuity; and

(ii) any withdrawals from, or payments out of, a registered pension fund or a registered provident fund or a registered individual retirement fund; and
(iii) any withdrawals from a registered home ownership savings plan;
(ca)

income accruing from a business carried out over the internet or an electronic network including through a digital marketplace;

(d)

deleted by Act No. 14 of 1982, s. 17;

(e)

an amount deemed to be the income of any person under this Act or by rules made under this Act;

(f)

gains accruing in the circumstances prescribed in, and computed in accordance with, the Eighth Schedule;

(g)

subject to section 15(5A), the net gain derived on the disposal of an interest in a person, if the interest derives twenty per cent or more of its value, directly or indirectly, from immovable property in Kenya; and

(h)

a natural resource income.

2A.

The Cabinet Secretary shall make regulations to provide for the mechanisms of implementing the provisions of subsection (2)(ca).

(3)

For the purposes of this section—

(a)

"person" does not include a partnership;

(b)

a bonus or interest paid by a designated cooperative society, as defined under section 19A, shall be deemed to be a dividend;

(ba)

"digital marketplace" means an online or electronic platform which enables users to sell or provide services, goods or other property to other users.

(c)

for the purposes of subsection (2)(g) and section 15(5A)

(i) "immovable property" means a mining right, an interest in a petroleum agreement, mining information or petroleum information;
(ii) "net gain" in relation to the disposal of an interest in a person, means the consideration for the disposal reduced by the cost of the interest; and
(iii) the terms "consideration", "cost", "disposal", "interest in a person", "mining information", "mining right", "person", "petroleum agreement", and "petroleum information" have the meaning assigned to them in the Ninth Schedule.

[Act No. 13 of 1975, s. 2, Act No. 8 of 1978, s. 9, Act No. 14 of 1982, s. 17, Act No. 10 of 1990, s. 39, Act No. 8 of 1991, s. 53, Act No. 9 of 1992, s. 36, Act No. 4 of 1993, s. 35, Act No. 13 of 1995, s. 74, Act No. 57 of 2012, s. 14, Act No. 16 of 2014, s. 3, Act No. 23 of 2019, s. 3, Act No. 8 of 2021, s. 3.]

4.
Income from businesses

For the purposes of section 3(2)(a)(i)

(a)

where a business is carried on or exercised partly within and partly outside Kenya by a resident person, the whole of the gains or profits from such business shall be deemed to have accrued in or to have been derived from Kenya;

(b)

the gains or profits of a partner from a partnership shall be the sum of—

(i) any remuneration payable to him by the partnership together with any interest on capital so payable, less any interest on capital payable by him to the partnership; and
(ii) his share of the total income of the partnership, calculated after deducting the total of any remuneration and interest on capital payable to any partner by the partnership and after adding any interest on capital payable by any partner to the partnership,

and where the partnership makes a loss, calculated in the manner set out in subparagraph (ii), his gains or profits shall be the excess, if any, of the amount set out in subparagraph (i) over his share of that loss;

Provided that in computing the total income of a partnership, there shall be deducted the cost of medical expenses or medical insurance cover paid by the partnership for the benefit of any partner, subject to a limit of one million shillings per year;

(c)

any sum received under any insurance against loss of profits, or received by way of damages or compensation for loss of profits, shall be deemed to be gains or profits of the year of income in which it is received;

(d)

where in computing gains or profits for any year of income any expenditure or loss has been deducted, or a deduction in respect of any reserve or provision to meet any liability has been made, and in a later year of income the whole or part of such expenditure or loss is recovered, or the whole or part of that liability is released, or the retention in whole or in part of such reserve or provision has become unnecessary, then any sum so recovered or released or no longer required as a reserve or provision shall be deemed to be gains or profits of the year of income in which it is recovered or released or no longer required:

Provided that if the person so chargeable with tax in respect of any such sum requests the Commissioner in writing to exercise his power under this proviso, the Commissioner may divide the sum into so many equal portions, not exceeding six, as he may consider fit, and one such portion shall be taken into account in computing the gains or profits of such person for the year of income in respect of which such sum is so deemed to be gains or profits and for each of the previous years of income corresponding to the number of portions;

(e)

where under the Second Schedule it is provided that a balancing charge shall be made, or a sum shall be treated as a trading receipt, for any year of income, the amount thereof shall be deemed to be gains or profits of that year of income;

(f)

in computing the gains or profits of a "licensee" "contractor" or "subcontractor" as defined in the Ninth Schedule, the provisions of that Schedule shall apply.

[Act No. 18 of 1984, s. 2, Act No. 8 of 2009, s. 17, Act No. 4 of 2012, s. 10, Act No. 16 of 2016, s. 4.]

4A.
Income from businesses where foreign exchange loss or gain is realized
(1)

A foreign exchange gain or loss realized on or after the 1st January, 1989 in a business carried on in Kenya shall be taken into account as a trading receipt or deductible expenses in computing the gains and profits of that business for the year of income in which that gain or loss was realized:

Provided that—

(i) no foreign exchange gain or loss shall be taken into account to the extent that taking that foreign exchange gain or loss into account would duplicate the amounts of gain or loss accrued in any prior year of income; and
(ii) the foreign exchange loss shall be deferred (and not taken into account)—
(a) where a foreign exchange loss is realized by a company whose gross interest paid or payable to related persons and third parties exceeds thirty per cent of the company’s earnings before interest, taxes, depreciation and amortization in any financial year;
(b) to the extent of any foreign exchange gain that would be realized if all foreign currency assets and liabilities of the business were disposed of or satisfied on the last day of the year of income and any foreign exchange loss so deferred shall be deemed realized in the next succeeding year of income.
(1A)

For the avoidance of doubt accumulated losses shall be taken into account in computing the amount of revenue reserves.

(2)

The amount of foreign exchange gain or loss shall be calculated in accordance with the difference between (a times r1) and (a times r2) where—

a is the amount of foreign currency received, paid or otherwise computed with respect to a foreign currency asset or liability in the transaction in which the foreign exchange gain or loss is realized;

r1 is the applicable rate of exchange for that foreign currency ("a") at the date of the transaction in which the foreign exchange gain or loss is realized;

r2 is the applicable rate of exchange for that foreign currency ("a") at the date on which the foreign currency asset or liability was obtained or established or on the 30th December, 1988, whichever date is the later.

(3)

For the purposes of this section, no foreign exchange loss shall be deemed to be realized where a foreign currency asset or liability is disposed of or satisfied and within a period of sixty days a substantially similar foreign currency asset or liability is obtained or established.

(4)

For the purposes of this section—

"control" deleted by Act No. 8 of 2021, s. 4.;

"company" does not include a bank or a financial institution licensed under the Banking Act (Cap. 488), or non-deposit taking microfinance businesses under the Microfinance Act, 2006, entities licensed under the Hire Purchase Act and persons exempt under section 16(2)(j)(iii);

"all loans" shall have the meaning assigned in section 16(3);

"foreign currency asset or liability" means an asset or liability denominated in, or the amount of which is otherwise determined by reference to, a currency other than the Kenya Shilling.

[Act No. 10 of 1988, s. 29, Act No. 4 of 1993, s. 36, Act No. 8 of 2008, s. 24, Act No. 8 of 2009, s. 18, Act No. 8 of 2021, s. 4, Act No. 22 of 2022, s. 4.]

4B.
Export processing zone enterprise

Where a business is carried on by an export processing zone enterprise, the provisions of the Eleventh Schedule shall apply.

[Act No. 10 of 1990, s. 40.]

5.
Income from employment, etc.
(1)

For the purposes of section 3(2)(a)(ii) of this Act, an amount paid to—

(a)

a person who is, or was at the time of the employment or when the services were rendered, a resident person in respect of any employment or services rendered by him in Kenya or outside Kenya; or

(b)

a non-resident person in respect of any employment with or services rendered to an employer who is resident in Kenya or the permanent establishment in Kenya of an employer who is not so resident,

shall be deemed to have accrued in or to have been derived from Kenya.

(2)

For the purposes of section 3(2)(a)(ii) "gains or profits" includes—

(a)

any wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered, and any amount so received in respect of employment or services rendered in a year of income other than the year of income in which it is received shall be deemed to be income in respect of that other year of income:

Provided that—

(i) where any such amount is received in respect of a year of income which expired earlier than four years prior to the year of income in which it was received, or prior to the year of income in which the employment or services ceased, if earlier, it shall be deemed to be income of the year of income which expired five years prior to the year of income in which it was received, or prior to the year of income in which the employment or services ceased as the case may be; and
(ii) where the Commissioner is satisfied that subsistence, travelling, entertainment or other allowance represents solely the reimbursement to the recipient of an amount expended by him wholly and exclusively in the production of his income from the employment or services rendered then the calculation of the gains or profits of the recipient shall exclude that allowance or expenditure; and
(iii) notwithstanding the provisions of subparagraph (ii), where such amount is received by an employee as payment of subsistence, travelling, entertainment or other allowance, in respect of a period spent outside his usual place of work while on official duties, the first two thousand shillings per day expended by him for the duration of that period shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of his gains or profits;
(b) save as otherwise expressly provided in this section, the value of a benefit, advantage, or facility of whatsoever nature the aggregate value whereof is not less than thirty six thousand shillings granted in respect of employment or services rendered;
(c) an amount paid by the employer as a contribution to a pension fund, or a registered provident fund or scheme:

Provided that—

(i) where the contract is for a specified term, any amount received as compensation on the termination of the contract shall be deemed to have accrued evenly over the unexpired period of the contract;
(ii) where the contract is for an unspecified term and provides for compensation on the termination thereof, the compensation shall be deemed to have accrued in the period immediately following the termination at a rate equal to the rate per annum of the gains or profits from the contract received immediately prior to termination;
(iii) where the contract is for an unspecified term and does not provide for compensation on the termination thereof, any compensation paid on the termination of the contract shall be deemed to have accrued evenly in the three years immediately following such termination;
(d) any balancing charge under Part II of the Second Schedule;
(e) the value of premises provided by an employer for occupation by his employee for residential purposes;
(f) an amount paid by an employer as a premium for an insurance on the life of his employee and for the benefit of that employee or any of his dependants:

Provided that this paragraph shall not apply where such an amount is paid—

(i) to a registered or unregistered pension scheme, pension fund, or individual retirement fund; or
(ii) for group life policy cover, unless such a cover confers a benefit to the employee or any of his dependants.
(g) deleted by Act No. 6 of 1994, s. 34.
(2A) (a) Where an individual is a director or an employee or is a relative of a director or an employee and has received a loan including a loan from an unregistered pension or provident fund by virtue of his position as a director or his employment, or the person to whom he is related, he shall be deemed to have received a benefit in that year of income equal to the greater of—

Provided that where the term of the loan extends for a period beyond the date of termination of employment, the provisions of this subsection shall continue to apply for as long as the loan remains unpaid.

(b)

For the purposes of this subsection—

"market lending rates" means the average 91-day treasury bill rate of interest for the previous quarter;

"prescribed rate of interest" means the following:

(i) in the year of income commencing on the 1st January, 1990, 6 per cent;
(ii) in the year of income commencing on the 1st January, 1991, 8 per cent;
(iii) in the year of income commencing on the 1st January, 1992, 10 per cent;
(iv) in the year of income commencing on the 1st January, 1993, 12 per cent;
(v) in the year of income commencing on the 1st January, 1994, 15 per cent; and
(vi) in the year of income commencing on or after the 1st January, 1995, 15% or such interest rate based on the market lending rates as the Commissioner may from time to time prescribe, to cover a period of not less than six months but not more than one year,

whichever is the lower.

(2B)

Where an employee is provided with a motor vehicle by his employer, he shall be deemed to have received a benefit in that year of income equal to the higher of—

(a)

such value as the Commissioner may, from time to time, determine; and

(b)

the prescribed rate of benefit:

Provided that—

(i) where such vehicle is hired or leased from a third party, the employee shall be deemed to have received a benefit in that year of income equal to the cost of hiring or leasing; or
(ii) where an employee has restricted use of such motor vehicle, the Commissioner shall, if satisfied of that fact upon proof by the employee, determine a lower rate of benefit depending on the usage of the motor vehicle.
(2C)

For the purposes of subsection (2B)—

"prescribed rate of benefit" means the following rates in respect of each month—

(a)

in the 1996 year of income, 1% of the initial capital expenditure on the vehicle by the employer;

(b)

in the 1997 year of income, 1.5% of the initial capital expenditure on the vehicle by the employer; and

(c)

in 1998 and subsequent years of income, 2% of the initial expenditure on the vehicle by the employer.

(3)

For the purposes of subsection (2)(e), the value of premises, excluding the value of any furniture or other contents so provided, shall be deemed to be—

(a)

in the case of a director of a company, other than a whole time service director, an amount equal to the higher of fifteen per centum of his total income excluding the value of those premises and income which is chargeable under section 3(2)(f), the market rental value and the rent paid by the employer;

(b)

in the case of a whole time service director, an amount equal to the higher of fifteen per centum of the gains or profits from his employment, excluding the value of those premises, and income which is chargeable under section 3(2)(f), the market rental value and the rent paid by the employer;

(c)

in the case of an agricultural employee required by the terms of employment to reside on a plantation or farm, an amount equal to ten per centum of the gains or profits from his employment:

Provided that for the purposes of this paragraph—

(i) "plantation" shall not include a forest or timber plantation; and
(ii) "agricultural employee" shall not include a director other than a whole time service director;
(d) in the case of any other employee, an amount equal to fifteen per centum of the gains or profits from his employment, excluding the value of those premises or the rent paid by the employer if paid under an agreement made at arm’s length with a third party, whichever is the higher:

Provided that—

(i) where the premises are provided under an agreement with a third party which is not at arm’s length, the value of the premises determined under this subsection shall be the fair market rental value of the premises in that year, or the rent paid by the employer, whichever is the higher; or
(ii) where the premises are owned by the employer, the fair market rental value of the premises in that year.
(4)

Notwithstanding anything to the contrary in subsection (2) "gains or profits" do not include—

(a)

the expenditure on passages between Kenya and any place outside Kenya borne by employer:

Provided that this paragraph shall not apply to expenditure other than expenditure on the provision of passages for the benefit of an employee recruited or engaged outside Kenya and who is in Kenya solely for the purpose of serving the employer and is not a citizen of Kenya;

(aa)

expenditure on vacation trips to destinations in Kenya paid by the employer on behalf of an employee:

Provided that—

(i) this paragraph shall cease to apply on the 1st July, 2015;
(ii) the period of vacation shall not exceed seven days; and
(iii) the term "employee" shall include the immediate family members of the employee;
(b) in the case of a full-time employee or his beneficiaries (which expression includes a whole time service director, or a director who controls more than five per cent of the share capital or voting power of a company) the value of any medical services provided by the employer or medical insurance provided by an insurance provider approved by the Commissioner of Insurance and paid for by the employer on behalf of a full-time employee or his beneficiaries:

Provided that in the case of a director other than a whole time service director, the value of the services shall be subject to such limit as the Minister may, from time to time, prescribe;

(c)

an amount paid by the employer as a contribution to a registered or unregistered pension fund, provident fund, individual retirement fund or scheme:

Provided that this paragraph shall not apply to any contributions paid by an employer who is not a person chargeable to tax—

(i) to an unregistered pension scheme, unregistered provident fund or unregistered individual retirement fund; or
(ii) to a registered pension scheme, a registered provident fund or a registered individual retirement fund in excess of the amount specified in section 22A or 22B;
(d) educational fees of employee’s dependants or relatives disallowed under section 16(2(a)(iv) which have been taxed in the hands of the employer;
(e) fringe benefits subject to tax under section 12B;
(f) the value of meals served to employees in a canteen or cafeteria operated or established by the employer or provided by a third party who is a registered taxpayer (whether the meals are supplied in the premises of the employer or the premises of the third party) where the value of the meal does not exceed the sum of forty-eight thousand shillings per year per employee subject to such conditions as the Commissioner may specify;
(g) an amount paid by an employer as a gratuity or similar payment in respect of employment or services rendered, which is paid into a registered pension scheme:

Provided that—

(a)

this paragraph shall only apply in respect of amounts not exceeding two hundred and forty thousand shillings for each year of service;

(b)

this paragraph shall not apply to any person who is eligible for deductions under section 22A.

(h)

For the purposes of this subsection—

(i) "beneficiaries" means the full time employee’s spouse and not more than four children whose age shall not exceed twenty-one years; and
(ii) "low income employee"deleted by Act No. 16 of 2014, s. 5(c).
(5)

Notwithstanding any other provision of this Act, the value of the benefit (excluding the value of premises as determined under subsection (3) and the value of benefit determined under subsection (2B) for the purposes of this section, shall be the higher of the cost to the employer or the fair market value of the benefit:

Provided that—

(a)

in the case of an employee share ownership plan, the value of the benefit shall be the difference between the offer price, per share, at the date the option is granted by the employer, and the market value, per share on the date when the employee exercises the option;

(b)

the Commissioner may, from time to time, prescribe the value where the cost or the fair market value of a benefit cannot be determined.

(6)

For the purposes of paragraph (a) of the proviso to subsection (5)—

(a)

the benefits chargeable shall be deemed to have accrued on the date the employee exercises the option;

(b)

"offer price" means the price at which an employer’s shares are initially offered to an employee under an employee share ownership plan;

(c)

"market value", in relation to a share means—

(i) where the shares are fully listed on any securities exchange operating in Kenya, the mid-market value on the date the shares were granted by the employer; or
(ii) where the shares are not fully listed, the price which the shares might reasonably be expected to fetch on sale in the open market, which shall be agreed upon with the Commissioner before the grant of the options;
(d)

"share option" means the offer made by an employer to an employee to purchase a fixed number of shares at a fixed price, which may be paid for at the end of the vesting period;

(e)

"vesting period" means a fixed period of time between the date of offer by the employer and the date after which the option to purchase can be exercised by the employee.

[Act No. 8 of 1978, s. 9, Act No. 13 of 1979, s. 5, Act No. 10 of 1987, s. 32, Act No. 8 of 1989, s. 17, Act No. 10 of 1990, s. 41, Act No. 8 of 1991, s. 54, Act No. 9 of 1992, s. 37, Act No. 4 of 1993, s. 37, Act No. 6 of 1994, s. 34, Act No. 13 of 1995, s. 75, Act No. 8 of 1996, s. 28, Act No. 8 of 1997, s. 28, Act No. 5 of 1998, s. 30, Act No. 6 of 2001, s. 43, Act No. 7 of 2002, s. 38, Act No. 15 of 2003, s. 30, Act No. 4 of 2004, s. 46, Act No. 6 of 2005, s. 21, Act No. 10 of 2006, s. 17, Act No. 9 of 2007, s. 18, Act No. 8 of 2008, s. 25, Act No. 10 of 2010, s. 21, Act No. 4 of 2012, s. 11, Act No. 38 of 2013, s. 10, Act No. 16 of 2014, s. 5, Act No. 22 of 2022, s. 5.]

6.
Income from the use of property
(1)

For the purpose of section 3(2)(a)(iii) of this Act, "gains or profits" shall include any royalty, rent, premium or similar consideration received for the use or occupation of property.

(2)

In the case of a lease or similar transaction, the income of a lessor shall be determined in accordance with such rules as may be prescribed under this Act.

[Act No. 8 of 1997, s. 29.]

6A.
Imposition of residential rental Income Tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as residential rental income tax shall be payable with effect from the 1st January, 2016 by any resident person from income which is accrued in or derived from Kenya for the use or occupation of residential property, and which is in excess of two hundred and eighty-eight thousand shillings but does not exceed fifteen million shillings during any year of income.

Provided that this section shall not apply where a person who would otherwise pay tax under this section, by notice in writing addressed to the Commissioner, elects not to be subject to residential rental income tax, in which case the other provisions of this Act shall apply to such a person.

(2)

The Minister may, by notice in the Gazette, prescribe regulations for the better carrying out the provisions of this section.

[Act No. 14 of 2015, s. 8, Act No. 38 of 2016, s. 3, Act No. 8 of 2020, s. 2.]

7.
Income from dividends
(1)

For the purposes of section 3(2)(b)

(a)

a dividend paid by a resident company shall be deemed to be income of the year of income in which it was payable;

(b)

an amount shall be deemed to be a dividend distributed by a company to a shareholder where —

(i) any cash or asset is distributed or transferred by that company to or for the benefit of that shareholder or any person related to that shareholder;
(ii) the shareholder or any person related to that shareholder is discharged from any obligation measurable in money which is owed to that company by that shareholder or related person;
(iii) the amount is used by that company in any other manner for the benefit of the shareholder or any person related to that shareholder;
(iv) any debt owed by the shareholder or any person related to that shareholder to any third party is paid or settled by that company;
(v) the amount represents additional taxable income or reduced assessed loss of that company by virtue of any transaction with the shareholder or related person to such shareholder, resulting from an adjustment.
(c)

when, in relation to a company that is being wound up voluntarily, profits (including profits realised on the disposition of assets of the company) whether earned before or during the winding up are distributed (whether in cash or otherwise), the distribution shall be deemed to be payment of a dividend;

(d)

where any company issues debentures or redeemable preference shares to any of its shareholders and receives therefor no payment, the issue of such debentures or redeemable preference shares shall be deemed to be a payment of a dividend on the shares held by the shareholders of an amount equal to the nominal value or redeemable value, whichever is the greater, of such debentures or redeemable preference shares;

(e)

where any company issues debentures or redeemable preference shares to any of its shareholders for a sum less than their nominal value or redeemable value, whichever is the greater, the issue of such debentures or redeemable preference shares shall be deemed to include a payment of a dividend on the shares held by the shareholders of an amount equal to the excess:

Provided that this paragraph shall not apply if the sum paid for the debentures or redeemable preference shares is ninety-five per cent or more of their nominal value or redeemable value, whichever is the greater;

(f)

where a company issues ordinary or any other shares or rights to acquire shares to any of its shareholders in respect of their existing shares in a ratio not proportionate to their holding of the existing equity, such distribution shall be treated as a dividend to the recipient shareholders to the extent of the value of the proportionate increase in their ownership of the company.

(2)

Notwithstanding section 3(2)(b), a dividend received by a resident company, other than a dividend received by a company which controls directly or indirectly less than twelve and one-half per cent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax.

(3)

A dividend received by the financial institutions specified in the Fourth Schedule shall be deemed to be income chargeable to tax in accordance with this section.

[Act No. 2 of 1975, s. 5, Act No. 8 of 1978, s. 9, Act No. 9 of 1992, s. 38, Act No. 4 of 1993, s. 38, Act No. 6 of 1994, s. 35, Act No. 8 of 2008, s. 26, Act No. 10 of 2018, s. 3.]

7A.
Dividend distributed out of untaxed gains or profits

Where a dividend is distributed out of gains or profits on which no tax is paid, the company distributing the dividend shall be charged to tax in the year of income in which the dividends are distributed at the resident corporate rate of tax on the gains or profits from which such dividends are distributed:

Provided that this section shall not apply to income which is exempt under this Act.

[Act No. 10 of 2018, s. 4, Act No. 23 of 2019, s. 4.]

8.
Income from pensions, etc.
(1)

For the purposes of section 3(2)(c) of this Act, any pension received by a resident individual from a pension fund or pension scheme established outside Kenya shall be deemed to have accrued in or to have been derived from Kenya to the extent to which it relates to employment or services rendered by the individual, or the husband or parent of the individual, in Kenya and the amount so derived shall be the proportion of the total pension which the length of the employment or services in Kenya, including periods of leave earned thereby, bears to the total length of employment or services in respect of which the pension is paid.

(2)

For the purposes of this Act any pension or retirement annuity received by a non-resident individual from a pension fund or pension scheme established in Kenya or under an annuity contract made in Kenya shall be deemed to have accrued in or to have been derived from Kenya.

(3)

For the purposes of this Act, any pension received in respect of employment by or services rendered to the Community or one of its corporations shall be deemed to have accrued in or to have been derived from Kenya—

(a)

if received by a resident individual; or

(b)

if received by a non-resident individual if the person making payment of the pension was resident in Kenya.

(4)

Notwithstanding section 3(2)(c), the first three hundred thousand shillings of the total pensions and retirement annuities received by a resident individual from a registered fund or the National Social Security Fund in a year of income shall be deemed to be income not charged to tax.

(5)

Notwithstanding section 3(2)(c), the following sums shall, subject to such rules as the Commissioner may prescribe, be deemed to be income not chargeable to tax—

(a)

in the case of a lump sum commuted from a registered pension or individual retirement fund, the first six hundred thousand shillings; or

(b)

in the case of a withdrawal from a registered pension or individual retirement fund upon termination of employment, the lesser of—

(i) the first sixty thousand shillings per full year of pensionable service with that employer starting on the later of the date the pensionable service began, or, where the employee had previously received a lump sum payment from that same employer, the date the employee’s pensionable service recommenced after receipt of that lump sum; or
(ii) the first six hundred thousand shillings; or
(c)

in the case of a lump sum paid out of a registered provident fund (or a defined contribution registered fund deemed by the Commissioner to be a provident fund for the purposes of assessing under this paragraph accumulations for the payment of lump sums other than out of a pension) the total of—

(i) the lesser of the first six hundred thousand shillings or the first sixty thousand shillings per full year of pensionable service with that employer starting on the later of the date the pensionable service began or, where the employee had previously received a lump sum payment from that same employer, the date the employee’s pensionable service recommenced after receipt of that lump sum; and
(ii) where the registered fund receives no further contributions after 1990 year of income, or where the accumulated funds based on contributions prior to the 1st January, 1991 and contributions after the 31st December, 1990 are segregated, all lump sum payments based on the contributions made prior to 1st January, 1991, or, in any other case, all benefits based on amounts accumulated in the fund on the 31st December, 1990:

Provided that the trustees or provident fund managers shall have informed the Commissioner in writing by 31st December, 1991 of the accumulated balances and the members of the provident funds as of 31st December, 1990, the names of the registered funds, the names and addresses of their employer, and whether the registered provident fund has ceased receiving contributions as of 1st January, 1991 or whether the registered provident fund has segregated its funds;

(d)

in the case of a benefit paid out of the National Social Security Fund, the first six hundred thousand shillings; and

(e)

in the case of a lump sum paid out of a registered home ownership savings plan, the amount used for the purchase of an interest in or for the construction of a permanent house for occupation by the depositor within twelve months immediately following the year of withdrawal;

(f)

the total pensions and retirement annuities received by a resident individual from an unregistered pension or individual retirement fund or scheme—

(i) the contributions to which have not been allowed as a deduction under any other provisions of this Act; and
(ii) the income thereof has been taxed.
(5A)

For the purposes of subsection 5(c)(ii), accumulated funds are segregated where—

(a)

the accumulated funds based on contributions prior to the 1st January 1991 are accounted for separately from contributions after 31st December, 1990; and

(b)

the net accumulated funds on each account earn the average rate of return on all the assets in the fund at the accounting date for a year of income; and

(c)

the net accumulated funds based on contributions prior to 1st January, 1991, are made up of the accumulated balances as at 31st December, 1990, less any withdrawals from the fund plus any investment income earned on the fund up to the accounting date for a year of income.

(6)

Upon the death of an employee who is a member or beneficiary of a registered fund—

(a)

the widow, widower or dependants shall qualify as a group for the same tax exempt amounts out of pension income and lump sums as are available under subsections (4) and (5) respectively as if such amounts had been received by the employee; and

(b)

where the registered fund provides for no payment of retirement benefits other than the payment of a lump sum to an estate, the first one million four hundred thousand shillings of such a lump sum payment shall be deemed to be income not chargeable to tax as income of the estate or its direct beneficiaries.

(7)

Upon the death of the beneficiary of a registered individual retirement fund or registered home ownership savings plan the balance of funds shall be deemed to have been withdrawn immediately preceding the time of his death and shall be included in his income for that year, except—

(a)

where such funds have been bequeathed to the spouse, the ownership of the fund may be transferred to the spouse; or

(b)

where funds are bequeathed to his children under the age of eighteen years at the time of his death, such funds shall be included in the income of such children;

(c)

where the funds of a depositor under a registered home ownership savings plan are bequeathed to another depositor, the funds may be transferred to that depositor.

(8)

Upon dissolution of the marriage of the beneficiary of a registered individual retirement fund, or registered home ownership savings plan, as part of a written agreement, all or part of the balance of funds of that beneficiary may be transferred to a registered individual retirement fund or registered house ownership savings plan, in the name of the former spouse of that beneficiary.

(9)

Where the Commissioner determines that an individual retirement fund no longer complies with the registration rules, the fund shall be deemed to be no longer an individual retirement fund and the balance of the fund shall be included in the income of the beneficiary in the year of income in which the fund ceased to comply with the rules.

(9A)

Where the Commissioner withdraws the registration of a home ownership savings plan, then the balance of the funds held in each depositor’s account shall be included in that depositor’s income with effect from the beginning of the year of income in which the grounds for the withdrawal arose, except where such funds are transferred to a similar plan in an approved institution within twelve months of the withdrawal of the registration with the prior written approval of the Commissioner in which case such funds shall not be included in the depositor’s income.

(10)

For the purposes of this subsection—

(a)

pension and lumpsums paid from a public pension scheme, shall be deemed to be received from a registered pension fund or a registered provident fund, as the case may be;

(b)

any surplus funds in respect of a registered pension fund or a registered provident fund withdrawn by or refunded to an employer shall be deemed to be the income of that employer.

(11)

In subsection (10), the expression "surplus funds" means surplus funds identified through an actuarial valuation carried out in accordance with this Act or any rules made thereunder.

[Act No. 2 of 1975, s. 5, Act No. 8 of 1985, s. 11, Act No. 10 of 1990, s. 42, Act No. 8 of 1991, s. 55, Act No. 9 of 1992, s. 40, Act No. 4 of 1993, s. 40, Act No. 6 of 1994, s. 36, Act No. 13 of 1995, s. 76, Act No. 8 of 1996, s. 29, Act No. 6 of 2001, s. 44, Act No. 7 of 2002, s. 39, Act No. 15 of 2003, s. 31, Act No. 4 of 2004, s. 47, Act No. 6 of 2005, s. 22, Act No. 8 of 2009, s. 20.]

9.
Income of certain non-resident persons deemed derived from Kenya
(1)

Where a non-resident person carries on the business of shipowner, charterer or air transport operator and any ship or aircraft owned or chartered by him calls at any port or airport in Kenya, the gains or profits from such business from the carriage of passengers who embark, or cargo or mail which is embarked, in Kenya shall be the gross amount received on account of the carriage and those gains or profits shall be deemed to be income derived from Kenya; but this subsection shall not apply to gains or profits from the carriage of passengers who embark, or cargo or mail which is embarked, in Kenya solely as a result of transhipment.

Provided that all income of a non-resident shipping line including income from delay in taking delivery of goods or returning any of the equipment used for transportation of goods shall be deemed to be income derived from Kenya.

(2)

Where a non-resident person carries on, in Kenya, the business of transmitting messages by cable, radio, optical fibre, television broadcasting, Very Small Aperture Terminal (VSAT), internet, satellite or by any other similar method of communication, then the gains or profits from the business shall be the gross amount received for the transmission of messages which are transmitted by the apparatus established in or outside Kenya, whether or not those messages originate from Kenya, and such gains and profits shall be deemed to be income derived from Kenya.

[No. Act 10 of 2006, s. 18, Act No. 9 of 2007, s. 19, Act No. 23 of 2019, s. 5.]

10.
Income from management or professional fees, royalties, interest and rents
(1)

For the purposes of this Act, where a resident person or a person having a permanent establishment in Kenya makes a payment to any other person in respect of—

(a)

a management or professional fee or training fee;

(b)

a royalty or natural resource income;

(c)

interest and deemed interest;

(d)

the use of property;

(e)

an appearance at, or performance in, any place (whether public or private) for the purpose of entertaining, instructing, taking part in any sporting event or otherwise diverting an audience; or

(f)

an activity by way of supporting, assisting or arranging an appearance or performance referred to in paragraph (e) of this section;

(g)

winnings;

(h)

deleted by Act No. 16 of 2014, s. 6(b);

(i)

deleted by Act No. 23 of 2019, s. 6(a);

(j)

an insurance or reinsurance premium.

(k)

sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services;

the amount thereof shall be deemed to be income which accrued in or was derived from Kenya:

Provided that—

(i) this subsection shall not apply unless the payment is incurred in the production of income accrued in or derived from Kenya or in connexion with a business carried on or to be carried on, in whole or in part, in Kenya;
(ii) this subsection shall not apply to any such payment made, or purported to be made, by the permanent establishment in Kenya of a non-resident person to that non-resident person except for deductions provided for by agreements under section 41;
(iii) for the avoidance of doubt, the expression "non-resident person" shall include both head office and other offices of the non-resident person.
(2)

A net gain referred to in section 3(2) (g) is deemed to be income that accrued in or was derived from Kenya.

[Act No. 13 of 1975, s. 2, Act No. 8 of 2008, s. 28, Act No. 8 of 2009, s. 21, Act No. 4 of 2012, s. 12, Act No. 57 of 2012, s. 15, Act No. 38 of 2013, s. 11, Act No. 16 of 2014, s. 6, Act No. 14 of 2015, s. 9, Act No. 38 of 2016, s. 4, Act No. 9 of 2018, Sch., Act No. 10 of 2018, s. 5, Act No. 23 of 2019, s. 6, Act No. 2 of 2020, Sch.]

11.
Trust income, etc., deemed income of trustee, beneficiary, etc.
(1)

Any income chargeable to tax under this Act and received by any person in his capacity as a trustee, executor or administrator, shall be deemed to be income of that trustee, executor or administrator as the case may be.

(2)

Where an amount included in the income of the trustee, executor or administrator under subsection (1) consists of qualifying dividends or qualifying interest, that amount shall be deemed to be an amount chargeable to tax under section 3(2)(b) and not section 3(2)(e).

(3)

Any amount, received as income in a year of income by any person beneficially entitled thereto from any trustee in his capacity as such, or paid out of income by the trustee on behalf of such person, shall, subject to this Act, be deemed to be income of such, and to the extent that any such amount is received or so paid out of income chargeable to tax under this Act on that trustee it shall be deemed to be income—

(a)

in any case other than that of an annuity directed to be paid free of tax—

(i) of such gross amount as would, after deduction of tax at the rate paid or payable on such income by such trustee, be equal to the amount received or so paid; and
(ii) that has borne tax at such rate;
(b)

in the case of an annuity directed to be paid free of tax, of such gross amount as is equal to the amount of such annuity together with the amount of the sums paid by the trustee to the annuitant to meet the liability of the annuitant to tax on such annuity.

(3A)

In the case of a registered trust, sub-section (3) shall only apply to—

(a)

any amount that is paid out of the trust income on behalf of any beneficiary and is used exclusively for the purpose of education, medical treatment or early adulthood housing;

(b)

income paid to any beneficiary which is collectively below ten million shillings in the year of income;

(c)

such other amount as the Commissioner may prescribe from time to time and at such rate as prescribed in paragraph 5 of the Third Schedule.

(4)

The trustee, executor or administrator may designate a part or all of the amounts paid by him to a person that is chargeable to tax under subsection (2) to be qualifying dividends or qualifying interest and, in that case, such designated amount shall be deemed to have been already tax paid.

(5)

The cumulative totals, at any time, of the amounts designated up to that time by a trustee under subsection (4) as qualifying dividends or qualifying interest shall not exceed the cumulative totals of qualifying dividends or qualifying interest respectively, received by the trustee, in his capacity as a trustee, after the 31st December, 1990 and up to that time.

[Act No. 8 of 1991, s. 56, Act No. 8 of 2021, s. 5.]

12.
Imposition of instalment tax
(1)

Notwithstanding any other provisions of this Act, a tax to be known as instalment tax shall be payable for the year of income commencing on or after the 1st January, 1990 by every person chargeable to tax or any person who has paid provisional tax in any year of income in accordance with the provisions of this section, but a taxpayer shall not be required to pay the instalment tax—

(a)

if the minimum tax payable under section 12D is higher than the instalment tax under this section; and

(b)

if he has reasonable ground to believe that the whole of the tax payable by him in respect of those emoluments will be recovered under section 37.

(2)

The amount of instalment tax payable by any person for any current year of income shall be the lesser of —

(a)

the amount equal to the tax that would be payable by that person if his total income for the current year was an amount equal to his instalment income; or

(b)

the amount specified in the preceding year assessment multiplied by one hundred and ten per cent.

(3)

The amount of tax determined under either subsection (2)(a) or (b) shall be reduced by the aggregate of the tax that has been or will be paid in the current year by way of deduction under section 12A, 17A, 35 or 37, except that the deductions under section 17A shall not apply to individuals.

(4)

The amount of instalment tax required to be paid for any year of income shall be the annual amount calculated in accordance with subsections (2) and (3) but subject to the proportions as specified in the Twelfth Schedule.

(5)

No instalment tax shall be payable by an individual in any year of income where the total tax payable for that year of income is an amount not exceeding forty thousand shillings.

[Act No. 14 of 1982, s. 18, Act No. 10 of 1988, s. 30, Act No. 10 of 1990, s. 43, Act No. 8 of 1991, s. 57, Act No. 13 of 1995, s. 77, Act No. 8 of 1997, s. 31, Act No. 8 of 2020, s. 3.]

12A.
Imposition of advance tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as advance tax shall be payable commencing on the 1st January, 1996 in respect of every commercial vehicle at the rates specified in the Third Schedule.

(2)

The Commissioner may prescribe the conditions and procedures governing the payment of advance tax.

[Act No. 13 of 1995, s. 78, Act No. 8 of 1996, s. 30, Act No. 4 of 1999, s. 33, Act No. 10 of 2006, s. 19, Act No. 10 of 2010, s. 22.]

12B.
Imposition of fringe benefit Tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as fringe benefit tax shall be payable commencing on the 12th June, 1998 by every employer in respect of a loan provided at an interest rate lower than the market interest rate,

to an individual who is a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom is related:

Provided that the fringe benefit tax shall not apply to loans advanced on or before 11th June, 1998.

(2)

For the purpose of this section, the taxable value of a fringe benefit shall be—

in the case of a loan provided after 11th June, 1998, or a loan provided on or before 11th June, 1998 the terms or conditions of which are varied after 11th June, 1998, the greater of—

(i) the difference between the interest that would have been payable on the loan if calculated at the market interest rate and the actual interest paid on the loan; and
(ii) zero:

Provided that where the term of the loan extends for a period beyond the date of termination of employment, the provisions of this section shall continue to apply for as long as the loan remains unpaid.

(3)

Fringe benefit tax shall be charged on the total taxable value of a fringe benefit provided by an employer in a month and shall be due and payable on or before the tenth day of the following month:

Provided that the fringe benefit tax charged prior to 1st January, 1999 shall be due and payable on or before 10th January, 1999.

(4)

The Commissioner may prescribe the form and manner in which the fringe benefit tax shall be payable and any other period for which the market rate of interest may be applicable.

(5)

The provisions of this Act in respect to fines, penalties, interest charges objections and appeals shall apply mutatis mutandis to the fringe benefit tax imposed under this section.

(6)

For the purpose of this section—

"employee" and "relative of a director or employee" shall have the meaning assigned thereto under section 5(2A) of this Act;

"loan" includes a loan from an unregistered pension or provident fund;

"market interest rate" means the average 91-day treasury bill rate of interest for the previous quarter.

[Act No. 5 of 1998, s. 31, Act No. 6 of 2001, s. 45.]

12C.
Turnover and presumptive tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as turnover tax shall be payable by any resident person whose turnover from business is more than one million shillings but does not exceed or is not expected to exceed fifty million shillings during any year of income.

(2)

Despite subsection (1), a person who would otherwise be liable to pay turnover tax under this section may, by notice in writing addressed to the Commissioner, elect not to be subject to the provisions of this section, in which case the other provisions of this Act shall apply to such person.

(3)

Notwithstanding subsection (1), turnover tax shall not apply to —

(a)

rental income;

(b)

management or professional or training fees;

(c)

Deleted by Act No. 2 of 2020, Sch.

(d)

any income which is subject to a final withholding tax under this Act.

(4)

A person subject to turnover tax under this section shall submit a return and pay the tax due to the Commissioner on or before the twentieth day of the month following the end of the tax period.

(5)

Deleted by Act No. 2 of 2020, Sch.

(6)

Deleted by Act No. 2 of 2020, Sch.

(7)

A person subject to turnover tax under this section shall be required to keep records necessary for the determination and ascertainment of the tax in accordance with the Tax Procedures Act, 2015.

(8)

For purposes of this section "tax period" means a calendar month.

[Act No. 10 of 2006, s. 20, Act No. 8 of 2008, s. 29, Act No. 10 of 2018, s. 6, Act No. 23 of 2019, s. 7, Act No. 2 of 2020, Sch.]

12D.
Minimum tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as minimum tax shall be payable by a person if —

(a)

that person's income is not exempt under this Act;

(b)

that person's income is not chargeable to tax under sections 5, 6A, 12C, the Eighth or the Ninth Schedules; or

(c)

the instalment tax payable by that person under section 12 is lower than the minimum tax.

(d)

Deleted by Act No. 8 of 2021, s. 6(a).

(e)

Deleted by Act No. 8 of 2021, s. 6(a).

(1A)

Notwithstanding the provisions of subsection (1), a person shall not pay minimum tax if that person—

(a)

is engaged in business whose retail price is controlled by the Government;

(b)

is engaged in insurance business;

(c)

is engaged in manufacturing and that person's cumulative investment in the preceding four years from assent is at least ten billion shillings;

(d)

is licensed under the Special Economic Zones (No. 16 of 2015); and

(e)

is engaged in distribution business whose income is wholly based on a commission.

(2)

The tax payable under this section shall be paid in instalments which shall be due on the twentieth day of each period ending on the fourth, sixth, ninth and twelfth month of the year of income.

[Act No. 8 of 2020, s. 4, Act No. 22 of 2020, Sch., Act No. 8 of 2021, s. 6.]

12E.
Digital service tax
(1)

Notwithstanding any other provision of this Act, a tax to be known as digital service tax shall be payable by a non-resident person whose income from the provision of services is derived from or accrues in Kenya through a business carried out over the internet or an electronic network including through a digital marketplace:

Provided that this section shall not apply to a non-resident person with a permanent establishment in Kenya.

(2)

A person subject to digital service tax shall submit a return and pay the tax due to the Commissioner on or before the twentieth day of the month following the end of the month in which the digital service was offered.

(3)

Despite subsection (1), digital service tax shall not apply to income chargeable under section 9(2) or section 35.

[Act No. 8 of 2020, s. 4, Act No. 8 of 2021, s. 7, Act No. 22 of 2022, s. 7.]

PART III – EXEMPTION FROM TAX
13.
Certain income exempt from tax, etc.
(1)

Notwithstanding anything in Part II, the income specified in Part I of the First Schedule which accrued in or was derived from Kenya shall be exempt from tax to the extent so specified.

(2)

The Minister may, by notice in the Gazette, provide—

(a)

that any income or class of income which accrued in or was derived from Kenya shall be exempt from tax to the extent specified in such notice;

(b)

that any exemption under subsection (1) of this section shall cease to have effect either generally or to the extent specified in the notice.

(3)

A notice under subsection (2) of this section shall be laid before the National Assembly without unreasonable delay, and if a resolution is passed by the Assembly within twenty days on which it next sits after the notice is so laid that the notice be annulled, it shall thenceforth be void, but without prejudice to the validity of anything previously done thereunder, or to the issuing of a new notice.

[Act No. 13 of 1978, Sch.]

14.
Interest on Government loans, etc., exempt from tax
(1)

Notwithstanding anything in Part II, interest payable on the securities specified in Part II of the First Schedule shall be exempt from tax to the extent so specified.

(2)

The Minister may, by notice in the Gazette, provide that the interest payable on any loan charged on the Consolidated Fund or on the revenues of any local authority, shall, insofar as such interest is income which accrued in or was derived from Kenya, be exempt from tax, either generally or only in respect of interest payable to persons who are not resident.

[Act No. 8 of 1978, s. 9.]

PART IV – ASCERTAINMENT OF TOTAL INCOME
15.
Deductions allowed
(1)

For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.

(2)

Without prejudice to sub-section (1) of this section, in computing for a year of income the gains or profits chargeable to tax under section 3(2)(a) of this Act, the following amounts shall be deducted:

(a)

bad debts incurred in the production of such gains or profits which the Commissioner considers to have become bad, and doubtful debts so incurred to the extent that they are estimated to the satisfaction of the Commissioner to have become bad, during such year of income and the Commissioner may prescribe such guidelines as may be appropriate for the purposes of determining bad debts under this subparagraph;

(b)

amounts to be deducted under the Second Schedule in respect of that year of income;

(bb)

amounts to be deducted under the Ninth Schedule in respect of that year of income;

(c)

any expenditure of a capital nature incurred during that year of income by the owner or occupier of farm land for the prevention of soil erosion;

(d)

any expenditure of a capital nature incurred in that year of income by any person on legal costs and stamp duties in connexion with the acquisition of a lease, for a period not in excess of, or expressly capable of extension beyond, ninety-nine years, of premises used or to be used by him for the purposes of his business;

(e)

any expenditure, other than expenditure referred to in paragraph (f) of this section, incurred in connection with any business before the date of commencement of that business where such expenditure would have been deductible under this section if incurred after such date, so, however, that the expenditure shall be deemed to have been incurred on the date on which such business commenced;

(f)

in the case of the owner of premises, any sums expended by him during such year of income for structural alterations to the premises where such expenditure is necessary to maintain the existing rent:

Provided that no deduction shall be made for the cost of an extension to, or replacement of, such premises;

(g)

the amount considered by the Commissioner to be just and reasonable as representing the diminution in value of any implement, utensil or similar article, not being machinery or plant in respect of which a deduction may be made under the Second Schedule, employed in the production of gains or profits;

(h)

Deleted by Act No. 8 of 2020, s. 5;

(i)

in the case of gains or profits of the owner of any land from the sale of, or the grant of the right to fell, standing timber which was growing on such land at the time such owner acquired such land—

(i) where such land was acquired for valuable consideration, so much of the consideration as the Commissioner may determine to be just and reasonable as representing the cost of such standing timber; or
(ii) where no valuable consideration was given for the land, so much of such amount as the Commissioner may determine to be just and reasonable as representing the value of such standing timber at the time the owner acquired such land, as is attributable to such timber sold during such year of income;
(j)

in the case of gains or profits from the sale of standing timber by a person who has purchased the right to fell such timber, so much of the price paid for such right as the Commissioner may determine to be just and reasonable as attributable to the timber sold during such year of income;

(k)

Deleted by Act No. 8 of 1997, s. 32;

(l)

any expenditure of a capital nature incurred in such year of income by the owner or tenant of any agricultural land, on clearing such land, or on clearing and planting thereon permanent or semi-permanent crops;

(m)

Deleted by Act No. 16 of 2014, s. 7(a);

(n)

any expenditure incurred by any person for the purposes of a business carried on by him being—

(i) expenditure of a capital nature on scientific research; or
(ii) expenditure not of a capital nature on scientific research; or
(iii) a sum paid to a scientific research association approved for the purposes of this paragraph by the Commissioner as being an association which has as its object the undertaking of scientific research related to the class of business to which such business belongs; or
(iv) a sum paid to any university, college, research institute or other similar institution approved for the purposes of this paragraph by such Commissioner for the scientific as is research mentioned in subparagraph (iii) of this paragraph;
(o)

any sum contributed in such year of income by an employer to a national provident fund or other retirement benefits scheme established for employees throughout Kenya by the provisions of any written law;

(p)

any expenditure on advertising in connexion with any business to the extent that the Commissioner considers just and reasonable; and for this purpose "expenditure on advertising" includes any expenditure intended to advertise or promote, whether directly or indirectly, the sale of the goods or services provided by that business;

(q)

Deleted by Act No. 13 of 1984, s. 19;

(r)

an amount equal to one-third of the total gains and profits from employment of an individual who is not a citizen of Kenya and—

(i) whose employer is a non-resident company or partnership trading for profit;
(ii) who is in Kenya solely for the performance of his duties in relation to his employer’s regional office, which office has been approved for the purposes of this paragraph by the Commissioner;
(iii) who is absent from Kenya for the performance of those duties for a period or periods amounting in the aggregate to one hundred and twenty days or more in that year of income; and
(iv) whose gains and profits from that employment are not deductible in ascertaining the total income chargeable to tax under this Act of his employer or of any company or partnership which controls, or is controlled by, that employer;
(s)

Deleted by Act No. 8 of 2020, s. 5;

(ss)

Deleted by Act No. 8 of 2020, s. 5;

(t)

expenditure incurred by the lessee in the case of a lease or similar transaction as determined in accordance with such rules as may be prescribed under this Act;

(u)

Deleted by Act No. 8 of 2020, s. 5.

(v)

Deleted by Act No. 8 of 2020, s. 5.

(w)

any donation in that year of income to a charitable organization whose income is exempt from tax under paragraph 10 of the First Schedule to this Act, or to any project approved by the Cabinet Secretary responsible for matters relating to finance;

(x)

expenditure of a capital nature incurred in that year of income, with the prior approval of the Minister, by a person on the construction of a public school, hospital, road or any similar kind of social infrastructure;

(y)

Deleted by Act No. 22 of 2022, s. 8.

(z)

expenditure incurred in that year of income by a person sponsoring sports, with the prior approval of the Cabinet Secretary responsible for sports;

(aa)

expenditure incurred in that year of income on donations to the Kenya Red Cross, county governments or any other institution responsible for the management of national disasters to alleviate the effects of a national disaster declared by the President.

(ab)

Deleted by Act No. 2 of 2020, Sch.

(3)

Without prejudice to subsection (1), in ascertaining the total income of a person for a year of income the following amounts shall be deducted:

(a)

the amount of interest paid in respect of that year of income by the person upon money borrowed by him and where the Commissioner is satisfied that the money so borrowed has been wholly and exclusively employed by him in the production of investment income which is chargeable to tax under this Act:

Provided that—

(i) the amount of interest which may be deducted under this paragraph shall not exceed the investment income chargeable to tax for that year of income, and where the amount of that interest paid in that year exceeds the investment income of that year, the excess shall be carried forward to the next succeeding year and deducted only from investment income and, in so far as the interest has not already been so deducted, from investment income of the subsequent years of income; and
(ii) for the purposes of this paragraph, "investment income" means dividends and interest but excludes qualifying dividends and qualifying interest;
(b) the amount of interest not exceeding three hundred thousand shillings paid by him in respect of that year of income upon money borrowed by him from one of the first four financial institutions specified in the Fourth Schedule and applied to the purchase or improvement of premises occupied by him during that year of income for residential purposes:

Provided that—

(i) if any person occupies any premises for residential purposes for part only of a year of income the deduction under this paragraph shall be reduced accordingly; and
(ii) no person may claim a deduction under this paragraph in respect of more than one residence;
(c) deleted by Act No. 14 of 1982, s. 19;
(d) in the case of a partner, the amount of the excess, if any, of his share of any loss incurred by the partnership, calculated after deducting the total of any remuneration and interest on capital payable to any partner by the partnership and after adding any interest on capital payable by any partner to the partnership, over the sum of any remuneration and such interest so payable to him less any such interest so payable by him;
(e) deleted by Act No. 8 of 1978, s. 9;
(f) the amount of any loss realized in computing, in accordance with paragraph 5(2), of the Eighth Schedule, gains chargeable to tax under section 3(2)(f); but the amount of any such loss incurred in a year of income shall be deducted only from gains under section 3(2)(f) in that year of income and, in so far as it has not already been deducted, from gains in subsequent years of income;
(g) in the case of a business which is a sole proprietorship, the cost of medical expenses or medical insurance cover incurred for the benefit of the proprietor, subject to a limit of one million shillings per year.
(4)

Where the ascertainment of the total income of a person results in a deficit for a year of income, the amount of that deficit shall be an allowable deduction in ascertaining the total income of such person for that year and the succeeding years of income.

(5)

Notwithstanding subsection (4), the Minister may, on the recommendation of the Commissioner, extend the period of deduction beyond ten years where a person applies through the Commissioner for such extension, giving evidence of inability to extinguish the deficit within that period.

(5)
(a)

A person to whom this subsection applies who has succeeded to any business, or to a share therein, either as a beneficiary under the will or on the intestacy of a deceased person who carried on, solely or in partnership, that business shall be entitled to a deduction in the year of income in which he so succeeds in respect of such part of any deficit in the total income of the deceased for his last year of income as is attributable to any losses incurred by the deceased in the business in that year of income or in earlier years of income.

(b)

This subsection applies to a person who is the widow, widower or child, of the deceased person and to a person who was an employee or partner of the deceased person in that business; and, where there are two or more such persons, each such person shall be entitled to a deduction of so much of the whole amount deductible as his share in the business under the will or on the intestacy bears to the sum of the shares of all such persons.

(5A)

For the purpose of section 3(2)(g), the amount of the net gain to be included in income chargeable to tax is —

(a)

deleted by Act No. 14 of 2015, s. 10(c)(i);

(b)

the amount computed according to the following formula —

A X B/C

Where—

A is the amount of the net gain;

B is the value of the interest derived, directly or indirectly, from immovable property in Kenya; and

C is the total value of the interest.

(6)

For the purposes of this section—

(a)

"scientific research" means any activities in the fields of natural or applied science for the extension of human knowledge, and when applied to any particular business includes—

(i) any scientific research which may lead to, or facilitate, an extension of that business or of businesses in that class;
(ii) any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business, or in businesses of that class;
(b)

expenditure of a capital nature on scientific research does not include any expenditure incurred in the acquisition of rights in, or arising out of scientific research but, subject thereto, does include all expenditure incurred for the prosecution of, or the provision of facilities for the prosecution of, scientific research.

(7)

Notwithstanding anything contained in this Act—

(a)

the gains or profits of a person derived from any one of the seven sources of income respectively specified in paragraph (e) of this subsection (and in this subsection called "specified sources") shall be computed separately from the gains or profits of that person derived from any other of the specified sources and separately from any other income of that person;

(b)

where the computation of gains or profits of a person in a year of income derived from a specified source results in a loss, that loss may only be deducted from gains or profits of that person derived from the same specified source in the following year and, in so far as the loss has not already been so deducted, in subsequent years of income;

(c)

the subparagraphs of paragraph (e) of this section shall be construed so as to be mutually exclusive;

(d)

gains chargeable to tax under section 3(2)(f) of this Act and losses referred to in subsection (3)(f) of this section shall not be deemed income or losses derived or resulting from specified sources for the purposes of this subsection;

(e)

the specified sources of income are—

(i) rights granted to other persons for the use or occupation of immovable property;
(ii) employment (including former employment) of personal services for wages, salary, commissions or similar rewards (not under an independent contract of service), and a self-employed professional vocation;
(iii) employment the gains or profits from which is wife’s employment income, profession the gains or profits from which is wife’s professional income and wife’s self-employment the gains or profits from which is wife’s self-employment income;
(iv) agricultural, pastoral, horticultural, forestry or similar activities, not falling within subparagraphs (i) and (ii) of this paragraph;
(ivA) surplus funds withdrawn by or refunded to an employer in respect of registered pension or registered provident funds which are deemed to be the income of the employer under section 8(10);
(ivB) income of a licensee from one licence area or a contractor from one contract area as determined in accordance with the Ninth Schedule; and
(v) other sources of income chargeable to tax under section 3(2)(a), not falling within subparagraph (i), (ii), (iii) or (iv) of this paragraph.
(8)

Deleted by Act No. 10 of 2006, s. 21.

[Act No. 2 of 1975, s. 5, Act No. 13 of 1975, s. 2, Act No. 7 of 1976, s. 2, Act No. 16 of 1977, Sch., Act No. 8 of 1978, s. 9, Act No. 6 of 1981, s. 5, Act No. 1 of 1982, s. 3, Act No. 14 of 1982, s. 19, Act No. 8 of 1983, s. 14, Act No. 13 of 1984, s. 19, Act No. 18 of 1984, s. 3, Act No. 8 of 1985, s. 12, Act No. 10 of 1986, s. 29, Act No. 10 of 1988, s. 31, Act No. 8 of 1989, s. 18, Act No. 10 of 1990, s. 44, Act No. 8 of 1991, s. 58, Act No. 9 of 1992, s. 41, Act No. 4 of 1993, s. 41, Act No. 13 of 1995, s. 79, Act No. 8 of 1996, s. 31, Act No. 8 of 1997, s. 32, Act No. 9 of 2000, s. 42, Act No. 6 of 2001, s. 46, Act No. 15 of 2003, s. 32, Act No. 4 of 2004, s. 48, Act No. 6 of 2005, s. 23, Act No. 10 of 2006, s. 21, Act No. 9 of 2007, s. 20, Act No. 8 of 2008, s. 30, Act No. 8 of 2009, s. 22, Act No. 16 of 2014, s. 7. Act No. 14 of 2015, s. 10, Act No. 38 of 2016, s. 6, Act No. 15 of 2017, s. 12, Act No. 10 of 2018, s. 7, Act No. 2 of 2020, Sch, Act No. 8 of 2020, s. 5, Act No. 8 of 2021, s. 8, Act No. 22 of 2022, s. 8.]

16.
Deductions not allowed
(1)

Save as otherwise expressly provided, for the purposes of ascertaining the total income of a person for any year of income, no deduction shall be allowed in respect of—

(a)

any expenditure or loss which is not wholly and exclusively incurred by him in the production of the income;

(b)

any capital expenditure, or any loss, diminution or exhaustion of capital.

(2)

Notwithstanding any other provision of this Act, no deduction shall be allowed in respect of—

(a)

expenditure incurred by a person in the maintenance of himself, his family or establishment or for any other personal or domestic purpose including the following—

(i) entertainment expenses for personal purposes; or
(ii) hotel, restaurant or catering expenses other than for meals or accommodation expenses incurred on business trips or during training courses or work related conventions or conferences, or meals provided to employees on the employer’s premises;
(iii) vacation trip expenses except those customarily made on home leave as provided in the proviso to section 5(4)(a) and (aa);
(iv) educational fees of employee’s dependants or relatives; or
(v) club fees including entrance and subscription fees, except as provided in section 15(2)(v);
(b)

any expenditure or loss which is recoverable under any insurance, contract, or indemnity;

(c)

any income tax or tax of a similar nature paid on income:

Provided that, save in the case of foreign tax in respect of which a claim is made under section 41, a deduction shall be allowed in respect of income tax or tax of a similar nature, including compensation tax paid on income which is charged to tax in a country outside Kenya to the extent to which that tax is payable in respect of and is paid out of income deemed to have accrued in or to have been derived from Kenya;

(d)

any sums contributed to a registered or unregistered pension, saving, or provident scheme or fund, except as provided in section 15(2)(o), or any sum paid to another person as a pension;

(e)

a premium paid under an annuity contract;

(f)

any expenditure incurred in the production of income deemed under section 10 of this Act to have accrued in or to have been derived from Kenya where such expenditure was incurred by a non-resident person not having a permanent establishment within Kenya;

(fa)

any expenditure incurred in the production of dividend income deemed under paragraph (a) of subsection (1), of section 7 to have been derived from Kenya where such expenditure was incurred by a non-resident person not having a permanent establishment within Kenya;

(g)

deleted by Act No. 8 of 1978, s. 9;

(h)

any loss incurred in any business which, having regard to the nature of the business, to the principal occupation of the owner, partners, shareholders or other persons having a beneficial interest therein, to the relationship between any such persons or to any other relevant factor, the Commissioner considers it reasonable to regard as not being carried on mainly with a view to the realization of profits; and, without prejudice to the generality of the foregoing, a business shall be deemed not to be carried on for any year of income with a view to the realization of profits where more than one quarter of the amount of the revenue expenditure incurred in such business in such year relates to goods, services, amenities or benefits, or to the production of goods, services, amenities or benefits, which are of a personal of domestic nature enjoyed by the owner, partners, shareholders or other persons having a beneficial interest in the business or a member of the family or the domestic establishment of any such person;

(i)

deleted by Act No. 10 of 2006, s. 22;

(j)

gross interest paid or payable to related persons and third parties in excess of thirty per cent of earnings before interest, taxes, depreciation and amortization of the borrower in any financial year:

Provided that-

(i) any income which is exempt from tax shall be excluded from the calculation of earnings before interest, taxes, depreciation and amortization; and
(ii) this paragraph shall apply to-
(iii) this paragraph shall not apply to-

Provided that the investment shall have been made outside Nairobi City County and Mombasa County; and

(I)

holding companies that are regulated under the Capital Markets Act (Cap. 485A).

(ja)

an amount of deemed interest where the person is controlled by a non-resident person alone or together with not more than four other persons and where the company is not a bank or a financial institution licensed under the Banking Act (Cap. 488).

(k)

deleted by Act No. 8 of 1997, s. 33;

(l)

deleted by Act No. 8 of 2009, s. 23.

(3)

For the purposes of subsection (2), the expressions—

"all loans" means loans, overdrafts, ordinary trade debts, overdrawn current accounts or any other form of indebtedness for which the company is paying a financial charge, interest, discount or premium;

"deemed interest" deleted by Act No. 38 of 2016, s. 7.

(4)

For the avoidance of doubt, the expression "revenue reserves" under subsection (2) includes accumulated losses.

(5)

The Commissioner shall prescribe the form and manner in which the deemed interest shall be computed and the period for which it shall be applicable.

[Act No. 7 of 1976, s. 2, Act No. 11 of 1976, s. 7, Act No. 8 of 1978, s. 9, Act No. 14 of 1982, s. 20, Act No. 10 of 1988, s. 32, Act No. 10 of 1990, s. 45, Act No. 9 of 1992, s. 42, Act No. 6 of 1994, s. 37, Act No. 8 of 1997, s. 33, Act No. 6 of 2001, s. 47, Act No. 7 of 2002, s. 40, Act No. 15 of 2003, s. 33, Act No. 6 of 2005, s. 24, Act No. 10 of 2006, s. 22, Act No. 8 of 2008, s. 31, Act No. 8 of 2009, s. 23, Act No. 10 of 2010, s. 23, Act No. 4 of 2012, s. 13, Act No. 16 of 2014, s. 8, Act No. 38 of 2016, s. 7, Act No. 23 of 2019, s. 8, Act No. 8 of 2021, s. 9, Act No. 22 of 2022, s. 9.]

17.
Ascertainment of income of farmer in relation to stock
(1)

The stock owned by a farmer at the beginning and end of each period for which he makes up the accounts of his farming business shall, in computing the gains or profits from such business, be taken into account at such value as the Commissioner may determine to be just and reasonable.

(2)

An election duly made by a farmer under section 16 of the Management Act shall be binding upon him for all subsequent years of income in which he carries on the business of farming:

Provided that on application in writing by the farmer, the Commissioner may, subject to such adjustment that he may consider appropriate, permit any farmer who has elected not to take into account the value of stock to revoke his election with effect from the year of income prior to that in which the application is made.

(3)

Subject to subsection (4) of this section, every farmer who has elected not to take into account the value of stock shall be charged for each year of income on all amounts received for stock disposed of by him in any circumstances and whether or not the proceeds thereof would, but for this section, be regarded as a capital receipt; and, if a part of the stock is disposed of otherwise than in the open market, he shall be charged on the cost or open market value of such stock, whichever is the lesser, so, however, that in no case shall he be charged on less than the amount received for such stock:

Provided that if the sale of any stock has been undertaken as part of the operations involved in changing from one type of farming to another and the whole or part of the amounts received therefrom has been expended in purchasing stock of a different kind, or on purposes essential to such change where no deduction is allowable under the Second Schedule in respect of such expenditure, the amounts so received, to the extent to which they are so expended, and the amount so expended, shall be disregarded for the purposes of ascertaining his total income for a year of income.

(4)

Where a farmer who has elected not to take into account the value of stock ceases to carry on the business of farming, the Commissioner in ascertaining the farmer’s total income for the year of income in which cessation takes place, may make such adjustment as he may determine to be just and reasonable in respect of the value of any stock held by that farmer on 1st January, 1936, or on the date on which he commenced the business whichever date is the later.

(5)

Every farmer who has elected not to take into account the value of stock shall furnish, when the Commissioner so requires, a statement setting out to the best of his knowledge and belief the value of the stock held by him at any date relevant for the purposes of this section.

(6)

Subject to any such adjustment referred to in subsection (4) of this section and to such adjustments as the Commissioner would have considered appropriate had an application been received under the proviso to subsection (2) of this section, the executors or administrators of a farmer who has elected not to take into account the value of stock and who dies while carrying on a business of farming shall be charged in respect of stock belonging to the deceased farmer at the time of his death—

(a)

if sold in the open market, on the realized price;

(b)

if transferred without payment to a beneficiary under the will or on the intestacy of the deceased farmer, on the open market value:

Provided that where such beneficiary succeeds to such business of farming and elects, by notice in writing to the Commissioner within one year after the end of the year of income in which the farmer dies, not to take into account the value of stock, the following provisions shall have effect in relation to any stock which was so transferred to him—

(i) no amount shall be charged on the executors or administrators in respect of such stock transferred to him; and
(ii) this section shall be applied to such beneficiary as if he had carried on the business of farming throughout the whole period from the date on which the deceased farmer commenced that business and had made the election which the deceased farmer made;
(c) in any other case, on the open market value, as if such price or value had been income of such farmer for the year of income in which he died.
(7)

In this section "stock" means all livestock and produce, and crops which have been harvested.

17A.
Repealed by Act No. 9 of 2000, s. 43

Repealed by Act No. 9 of 2000, s. 43.

18.
Ascertainment of gains or profits of business in relation to certain non-resident persons
(1)

Where a non-resident person carries on any business in Kenya which consists of manufacturing, growing, mining, or producing, or harvesting, whether from the land or from the water, a product or produce, or whether or not the contract of sale is made within or without Kenya, and sells outside, or for delivery outside, Kenya such product or produce, utilizes that product or produce in any business carried on by him outside Kenya, then the gains or profit from such business carried on in Kenya shall be deemed be income derived from Kenya and to be gains or profits such amount as would have accrued if such product or produce had been sold wholesale to the best advantage.

(2)

Where a bank which is a permanent establishment of a non-resident person holds outside Kenya any deposits, assets or property acquired from its operations in Kenya, the gains or profits accruing from such deposits, assets or other property held outside Kenya shall be deemed to be income accrued in or derived from Kenya.

(3)

Where a non-resident person carries on business with a related resident person and the course of such business is such that it produces to the resident person or through its permanent establishment either no profits or less than the ordinary profits which might be expected to accrue from that business if there had been no such relationship, then the gains or profits of such resident person or through its permanent establishment from such business shall be deemed to be of such an amount as might have been expected to accrue if the course of that business had been conducted by independent persons dealing at arm’s length.

(4)

For the purpose of ascertaining the gains or profits of any business carried on in Kenya no deductions shall be allowed in respect of any expenditure incurred outside Kenya by a non-resident person other than expenditure in respect of which the Commissioner determines that adequate consideration has been given; and, in particular, no deduction shall be allowed in respect of expenditure—

(a)

on remuneration for services rendered by the non-resident directors (other than whole-time service directors) of a non-resident company the directors whereof have a controlling interest therein, in excess of five per cent of the total income of such company, calculated before the deduction of such expenditure, or of twenty-five thousand shillings, whichever is the greater, so, however, that in no case shall a deduction in excess of one hundred and fifty thousand shillings shall be allowed;

(b)

on executive and general administrative expenses expect to the extent that the Commissioner may determine that expenditure to be just and reasonable.

(5)

When a non-resident person carries on a business in Kenya through a permanent establishment in Kenya the gains or profits of the permanent establishment shall be ascertained without any deduction in respect of interest, royalties or management or professional fees paid or purported to be paid by the permanent establishment to the non-resident person and by disregarding any foreign exchange loss or gain with respect to net assets or liabilities purportedly established between the permanent establishment in Kenya and the non-resident person.

Provided that for the avoidance of doubt, the expression "non-resident person" shall include both the head office and other offices of the non-resident person.

(6)

For the purposes of subsection (3), a person is related to another if—

(a)

either person participates directly or indirectly in the management, control or capital of the business of the other;

(b)

a third person participates directly or indirectly in the management, control or capital of the business of both; or

(c)

an individual, who participates in the management, control or capital of the business of one, is associated by marriage, consanguinity or affinity to an individual who participates in the management, control or capital of the business of the other.

(7)

Deleted by Act No. 16 of 2014, s. 9(d).

(8)

The Minister may, by rules published in the Gazette

(a)

issue guidelines for the determination of the arm’s length value of a transaction for purposes of this section; or

(b)

specify such requirements as he may consider necessary for the better carrying out of the provisions of this section.

[Act No. 8 of 1978, s. 9, Act No. 18 of 1984, s. 4, Act No. 8 of 1989, s. 20, Act No. 13 of 1995, s. 81, Act No. 4 of 2004, s. 49, Act No. 10 of 2006, s. 23, Act No. 10 of 2010, s. 24, Act No. 16 of 2014, s. 9.]

18A.
Ascertainment of gains or profits of business in a non-preferential tax regime
(1)

Where a resident entity operating in a preferential tax regime carries on business—

(a)

with a related resident person not operating in a preferential tax regime; and

(b)

the business produces to the resident person not operating in a preferential tax regime either no profits or less than the ordinary profits which would have been expected to accrue from that business if there had been no such relationship, then, the gains or profits of that resident person from that business shall be deemed to be the amount that might have been expected to accrue if the course of that business had been conducted by independent persons dealing at arm's length.

(2)

For the purposes of this section, the expression "preferential tax regime", with respect to an item of income or profit, means any legislation, regulation or administrative practice which provides a preferential rate of taxation to such income or profit, including reductions in the tax rate or the tax base.

[Act No. 15 of 2017, s. 13.]

18B.
Application of sections 18C, 18D, 18E and 18F

The provisions of sections, 18C, 18D, 18E, and 18F shall apply to returns for the year of income 2022 and subsequent years of income.

[Act No. 22 of 2022, s. 11.]

18C.
Notification to the Commissioner
(1)

A multinational enterprise group or a constituent entity, other than an excluded multinational enterprise group, that is resident in Kenya, shall notify the Commissioner, not later than the last day of the reporting financial year of that group -

(a)

whether or not it is the ultimate parent entity of the group;

(b)

in case it is not the ultimate parent entity of the group, whether or not it is a surrogate parent entity; or

(c)

in case paragraphs (a) and (b) do not apply, the identity of the constituent entity which is the ultimate parent entity or surrogate parent entity and the tax residence of that constituent entity.

(2)

The notification referred to in subsection (1) shall be made to the Commissioner in such form as the Commissioner may specify.

[Act No. 22 of 2022, s. 12.]

18D.
Filing of country-by-country report, master file and local file
(1)

An ultimate parent entity or a constituent entity of a multinational enterprise group with a gross turnover of ninety-five billion shillings (including extraordinary or investment income) that is resident in Kenya shall file a country-by-country report with the Commissioner of its financial activities in Kenya and for all other jurisdiction where the group has taxable presence.

(2)

An ultimate parent entity shall file the country-by-country report referred to under subsection (1) not later than twelve months after the last day of the reporting financial year of the group.

(3)

In addition to the provisions in subsection (1), an ultimate parent entity or a constituent entity of a multinational enterprise group shall file a master file and a local file to the Commissioner in such manner as the Commissioner may specify.

(4)

The master file and the local file shall be filed not later than six months after the last day of the reporting financial year of the multinational enterprise group.

(5)

A country-by-country report filed under subsection (1) shall consist of —

(a)

the information relating to the identity of each constituent entity, its jurisdiction of tax residence, if different, jurisdiction where such entity is organized, and the nature of the main business activity or activities of such entity;

(b)

the group's aggregate information including information relating to the amount of revenue, profit or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees and tangible assets other than cash or cash equivalents with regard to each jurisdiction where the group has taxable presence; and

(c)

any other information as may be required by the Commissioner.

(6)

A master file under subsection (3) shall contain —

(a)

a detailed overview of the group;

(b)

the group’s growth engines;

(c)

a description of the supply chain of the key products and services;

(d)

the group’s research and development policy;

(e)

a description of each constituent entity’s contribution to value creation;

(f)

information about intangible assets and the group intercompany agreements associated with them;

(g)

information on any transfer of intangible assets within the group during the tax period, including the identity of the constituent entities involved, the countries in which those intangible assets are registered and the consideration paid as part of the transfer;

(h)

information about financing activities of the group;

(i)

the consolidated financial statements of the group;

(j)

tax rulings, if any, made in respect of the group; and

(k)

any other information that the Commissioner may require.

(7)

A local file under subsection (3) shall contain —

(a)

details and information on the resident constituent entity’s activities within the multinational enterprise group;

(b)

management structure of the resident constituent entity;

(c)

business strategies including structuring, description of the material-controlled transactions, the resident constituent entity’s business and competitive environment;

(d)

the international transactions and amounts paid to the resident constituent entity or received by the entity; and

(e)

any other information that the Commissioner may require.

(8)

Where there are more than one constituent entities of the same multinational enterprise group that are resident in Kenya, the multinational enterprise group may designate one of such constituent entities as a surrogate parent entity.

(9)

A resident surrogate parent entity of a multinational enterprise group shall not be required to file a country-by-country report with the Commissioner with respect to the reporting financial year of the group, if —

(a)

the ultimate parent entity is obligated to file a country-by-country report in its jurisdiction of tax residence;

(b)

the jurisdiction in which the ultimate parent entity is resident for tax purposes has an international agreement and a competent authority agreement in force; and

(c)

the Commissioner has not notified the resident constituent entity in Kenya of a systemic failure, if any.

(10)

A resident constituent entity of a multinational enterprise group shall not be required to file a country-by-country report with the Commissioner with respect to the reporting financial year of the group, if —

(a)

a non-resident surrogate parent entity files the country-by-country report on the group with the competent authority of the tax jurisdiction of the entity;

(b)

the jurisdiction in which the non-resident surrogate parent entity is resident requires the filing of country-by-country reports;

(c)

the competent authority of the jurisdiction in which the non-resident surrogate parent entity is resident and Kenya have a competent authority agreement for the exchange of information;

(d)

the competent authority in the jurisdiction where the non-resident surrogate parent is resident has not notified Kenya of a systemic failure; or

(e)

the non-resident parent entity has notified the competent authority in the jurisdiction of its tax residence that the entity is the designated surrogate parent entity of the group.

(11)

The Commissioner shall maintain the confidentiality of the information contained in a return submitted in accordance with section 6(1) and section 6A(2) of the Tax Procedures Act, 2015 (No. 29 of 2015).

[Act No. 22 of 2022, s. 12.]

18E.
Offences and penalties

A person who fails to comply with the provisions of sections 18C and 18D commits an offence and shall be subject to the penalties prescribed under the Tax Procedures Act, 2015 (No. 29 of 2015).

[Act No. 22 of 2022, s. 12.]

18F.
Definitions

For the purposes of sections 18C, 18D and 18E -

"competent authority agreement" means an agreement between authorized representatives of jurisdictions which are parties to an international agreement that requires the exchange of country-by-country reports;

"consolidated financial statements" means financial statements of a multinational enterprise group in which the assets, liabilities, income, expenses and cash flows of the ultimate parent entity and the constituent entities are presented as those of a single enterprise;

"constituent entity” means—

(a)

any separate business unit of a multinational enterprise group that is included in the consolidated financial statements of the multinational enterprise group for financial reporting purposes, or which would be so included if equity interests in such business unit of a multinational enterprise group were traded on a public securities exchange;

(b)

any such business unit that is excluded from the multinational enterprise group’s consolidated financial statements solely on size or materiality grounds;

(c)

any permanent establishment of any separate business unit of the multinational enterprise group included in paragraphs (a) or (b) provided that the business unit prepares a separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting, or internal management control purposes;

“a country-by-country report” means a report filed under section 18D(1) describing the financial activities of each constituent entity in all the jurisdictions where the group has taxable presence;

"excluded multinational enterprise group” means, with respect to any financial year of the group, a group having total consolidated group revenue of less than the amount specified in section 18D(1);

“group” means a collection of enterprises related through ownership or control such that it is either required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public securities exchange and includes a single enterprise with one or more foreign permanent establishments;

“international agreement” means a bilateral or multilateral tax agreement to which Kenya is a party which provides for the exchange of tax information between Kenya and other jurisdictions;

“local file” means a file under section 18D(7) containing material transactions of the local taxpayer;

“master file” means a file under section 18D(6) containing standardized information relevant for all multinational enterprise group members;

"multinational enterprise group” means a group that includes two or more enterprises which are resident in different jurisdictions including an enterprise that carries on business through a permanent establishment or through any other entity in another jurisdiction;

“reporting financial year” means an annual accounting period with respect to which the ultimate parent entity of the multinational enterprise group prepares its financial statements;

"surrogate parent entity” means one constituent entity of the multinational enterprise group appointed by such group to file the country-by-country report in that constituent entity’s jurisdiction of tax residence, on behalf of the group;

“systemic failure” means failure to comply with the competent authority agreement for reasons other than those provided in the agreement;

“ultimate parent entity” means an entity that —

(a)

is resident in Kenya for tax purposes;

(b)

is not controlled by another entity; and

(c)

owns or controls a multinational enterprise group.

[Act No. 22 of 2022, s. 12.]

19.
Ascertainment of income of insurance companies
(1)

Notwithstanding anything in this Act, this section shall apply for the purpose of computing the gains or profits of insurance companies from insurance business which is chargeable to tax; and for the purposes of this Act a mutual insurance company shall be deemed to carry on an insurance business the surplus from which shall be ascertained in the manner provided for in this section for ascertaining gains or profits and which shall be deemed to be gains or profits which are charged to tax under this Act.

(2)

Where an insurance company carries on life insurance business in conjunction with insurance business of any other class, the life insurance business of the company shall be treated as a separate business from any other class of insurance business carried on by the company.

(3)

The gains or profits for any year of income from the insurance business, other than life insurance business, of a resident insurance company, whether mutual or proprietary, shall be the amount arrived at after—

(a)

taking, for such year of income, the sum of—

(i) the amount of the gross premiums from such business (less such premiums returned to the insured and such premiums paid on reinsurance as relate to such business); and
(ii) the amount of other income from such business, including any commission or expense allowance received or receivable from re-insurers and any income derived from investments held in connexion with that business; and
(b)

deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks referable to that business at the percentage adopted by the company at the end of that year of income and adding thereto the reserve deducted for unexpired risks at the end of the previous year of income:

Provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and

(c)

deducting from the figure arrived at under paragraphs (a) and (b) of this subsection—

(i) the amount of the claims admitted in such year of income in connexion with such business (provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and
(ii) the amount of agency expenses incurred in such year of income in connection with such business; and
(iii) the amount of any other expenses allowable as a deduction (excluding costs and expenses attributable to earning exempt income) as determined by the ratio of exempt investment income to the sum of investment and exempt investment income in that year of income in computing the gains or profits of that business under this Act.
(4)

The gains or profits for any year of income from the insurance business, other than life insurance business, of a non-resident insurance company, whether mutual or proprietary, shall be the amount arrived at after—

(a)

taking, for such year of income, the sum of—

(i) the amount received or receivable in Kenya of the gross premiums from such business (less such premiums returned to the insured and such premiums paid on reinsurance, other than to the head office of such company, as relates to such business); and
(ii) the amount of other income from such business, not being income from investments, received or receivable in Kenya including any commission or expense allowance received or receivable from reinsurance, other than from the head office of such company, of risks accepted in Kenya; and
(iii) such amount of income from investments as the Commissioner may determine to be just and reasonable as representing income from investment of the reserves referable to such business done in Kenya; and
(b)

deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks outstanding at the end of that year of income in respect of policies for which the premiums are received or receivable in Kenya at the percentage adopted by the company in relation to its insurance business as a whole, other than life insurance, but adding to that sum the reserve deducted for similar unexpired risks at the end of the previous year of income:

Provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and

(c)

deducting from the figure arrived at under paragraphs (a) and (b)—

(i) the amount of the claims admitted in that year of income in connection with that business (Provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and
(ii) the amount of agency expenses incurred in such year of income in connexion with such business; and
(iii) an amount being such proportion as the Commissioner may determine to be just and reasonable of those expenses of the head office of that company as would have been allowable as a deduction in that year of income in computing its gains or profits if the company had been a resident company in so far as those amounts relate to policies the premiums in respect of which are received or receivable in Kenya.
(5)

The gains or profits for a year of income from the long term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following—

(a)

the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders;

(b)

any other amounts transferred from the life fund for the benefit of shareholders; and

(c)

thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act (Cap. 487).

(5A)

Where the actuarial valuation of the life fund results in a deficit for a year of income and the shareholders are required to inject money into the life fund, the amount of money so transferred shall be treated as a negative transfer for the purposes of subsection (5)(a):

Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of shareholders in previous years of income.

(6)

The gains or profits for a year of income from the long term insurance business of a non-resident insurance company, whether mutual or proprietory, shall be the sum of the following—

(a)

the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and

(b)

the same proportion of any other amounts transferred from the life fund for the benefit of shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and

(c)

the same proportion of thirty per cent of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurances Act (Cap. 487) as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business.

(6A)

Where the actuarial valuation of the life fund results in a deficit for a year of income and the shareholders are required to inject money into the life fund, the proportionate amount of the money so transferred shall be treated as a negative transfer for the purposes of subsection (6)(a):

Provided that the amount of negative transfers shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of the shareholders in the previous years on income.

(6B)

For the avoidance of doubt, the gains arising from the transfer of property by an insurance company other than property connected to life insurance business shall be taxed in accordance with the provisions of the Eighth Schedule.

(7)

In this section—

"annuity fund" means, where an annuity fund is not kept separately from the life insurance fund of the company such part of the life insurance fund as represents the liability of the company under its annuity contracts;

"company" includes a body of persons;

"exempt investment income" means dividends chargeable to tax under section 3(2)(a)(i) plus income from disposal of investment shares traded in any securities exchange operating in Kenya;

"investment income" does not include—

(a)

dividends chargeable to tax under section 3(2)(a)(i); and

(b)

income from the disposal of investment shares traded in any securities exchange operating in Kenya;

"life insurance fund" does not include the annuity fund, if any, nor such part of the life insurance fund as represents the liability of the company under any registered annuity contract, registered trust scheme, registered pension scheme or registered pension fund;

"life insurance premiums" means premiums referable to the life insurance business other than annuity business;

"life insurance expenses" means expenses referable to the life insurance business other than annuity business.

(8)

The amount of the gains or profits from insurance business, both from life insurance and from other classes of insurance business, arrived at under this section shall be taken into account together with any other income of the company charged to tax in ascertaining the total income of that company.

(9)

Deleted by Act No. 8 of 2008, s. 32(c).

[Act No. 8 of 1991, s. 59, Act No. 9 of 1992, s. 43, Act No. 4 of 1993, s. 42, Act No. 6 of 1994, s. 38, Act No. 8 of 1997, s. 34, Act No. 5 of 1998, s. 32, Act No. 8 of 2008, s. 32, Act No. 8 of 2009, s. 24, Act No. 10 of 2018, s. 8.]

19A.
Co-operative societies
(1)

This section shall apply to designated co-operative societies other than—

(a)

a society which has been exempted from all the provisions of the Co-operative Societies Act (Cap. 490) under section 92 of that Act; or

(b)

a society in respect of which the Commissioner is of the opinion, having regard to the number of members composing it, the nature of its business, the manner in which its business is conducted, the extent of its transactions with non-members or any other relevant factors, is a body corporate carrying on business for its own profit.

(2)

In the case of every designated co-operative society, other than a designated primary society, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money; but the deduction shall in no case exceed the total income of the society for that year of income.

(3)

In the case of every designated primary society, other than a designated primary society which is registered and carries on business as a credit and savings co-operative society to which the provisions of subsection (4) apply, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money.

(4)

In the case of a designated primary society which is registered and carries on business as a credit and savings co-operative society its total income for any year of income shall, notwithstanding any other provisions of this Act, be deemed to be the aggregate of—

(a)

fifty per centum of its gross income from interest (other than interest from its members);

(b)

its gross income from any right granted for the use or occupation of any property, not being a royalty, ascertained in accordance with the provisions of this Act;

(c)

gains chargeable to tax under section 3(2)(f);

(d)

any other income (excluding royalties) chargeable to tax under this Act not falling within paragraph (a), (b) or (c) ascertained in accordance with the provisions of this Act.

(5)

Any loss incurred in respect of any year of income prior to the year of income prior to the year of income 1985 shall not be deductible.

(6)

Where the written down value of any asset or class of assets cannot be readily ascertained, the Commissioner may, for the purpose of granting any wear and tear allowance in respect of the year of income 1985, determine the amount of the written down value of any asset or class of assets.

(7)

In this section—

"bonus" and "dividend" shall, for the purposes of subsections (2) and (3), have the same meaning as in the Co-operative Societies Act;

"designated co-operative society" means a co-operative society registered under the Co-operative Societies Act;

"primary society" means a co-operative society registered under the Co-operative Societies Act the membership of which is restricted to individual persons.

[Act No. 13 of 1984, s. 20, Act No. 8 of 1985, s. 13, Act No. 6 of 2001, s. 48, Act No. 15 of 2003, s. 34, Act No. 38 of 2013, s. 12.]

20.
Collective investment schemes
(1)

Subject to such conditions as may be specified by the Minister under section 1

(a)

a unit trust;

(b)

a collective investment scheme set up by an employer for purposes of receiving monthly contributions from taxed emoluments of his employees and investing them primarily in shares traded on any securities exchange operating in Kenya;

(c)

a real estate investment trust; or

(d)

an investee company of a real estate investment trust, registered by the Commissioner, shall be exempt from income tax except for the payment of withholding tax on interest income and dividends as a resident person as specified in the Third Schedule to the extent that its unit holders or shareholders are not exempt persons under the First Schedule.

(2)

All distributions of income, and all payments for redemption of units of sale of shares received by unit holders or shareholders shall be deemed to have been already tax paid.

[Act No. 10 of 1990, s. 47, Act No. 7 of 2002, s. 41, Act No. 4 of 2012, s. 14, Act No. 23 of 2019, s. 9.]

21.
Members’ clubs and trade associations
(1)

A body of persons which carries on a members’ club shall be deemed to be carrying on a business and the gross receipts on revenue account (including entrance fees and subscriptions) shall be deemed to be income from a business:

Provided that where not less than three-quarters of such gross receipts, other than gross investment receipts, are received from the members of such club, such body of persons shall not be deemed to be carrying on a business and no part of such gross receipts, other than gross investment receipts, shall be income.

(2)

A trade association may elect, by notice in writing to the Commissioner, in respect of any year of income to be deemed to carry on a business charged to tax, whereupon its gross receipts on revenue account from transactions with its members (including entrance fees and annual subscriptions) and with other persons shall be deemed to be income from business for that and succeeding years of income.

(3)

In this section—

"member" means—

(a)

in relation to a members’ club, a person who, while he is a member, is entitled to an interest in all the assets of such club in the event of its liquidation;

(b)

in relation to a trade association, a person who is entitled to vote at a general meeting of such trade association;

"members’ club" means a club or similar institution all the assets of which are owned by or held in trust for the members thereof;

"gross investment receipts" means gross receipts in respect of interest, dividends, royalties, rents, other payments for rights granted for use or occupation of property, or gains of a kind referred to in paragraph (f) of subsection (2) of section 3.

[Act No. 1 of 1982, s. 3.]

22.
Purchased annuities other than retirement annuities, etc.
(1)

Notwithstanding section 3(2)(c) of this Act, where any payment of an annuity to which this section applies is made, that portion of the payment which as represents the capital element thereof, as ascertained under subsection (2) of this section, shall not be deemed to be income.

(2)

For the purpose of this section—

(a)

an annuity includes any amount payable on a periodic basis, whether payable at intervals longer or shorter than a year;

(b)

the portion of each payment of an annuity to which this section applies which represents the capital element thereof shall be that proportion of each such payment which the consideration or purchase price for the contract bears to the total payments—

(i) to be made under the contract, in the case of a contract for a term of years certain; or
(ii) expected at the date of the contract to be made under the contract, in the case of a contract under which the continuation of such payments depends in whole or in part upon the survival of an individual;
(c)

where the continuation of such payments depends in whole or in part upon the survival of an individual—

(i) if any table of mortality has been used as the basis for determining the consideration or purchase price for the contract, that table shall be used in computing the payments expected to be made under the contract, calculations being based upon complete expectation of life;
(ii) if no table of mortality has been used as the basis for determining the consideration or purchase price for the contract, such table of mortality as the Commissioner considers appropriate to the case shall be used in computing the payments expected to be made under the contract, calculations being based on complete expectation of life;
(iii) the age of that individual at the date of the contract shall be determined by subtracting the calendar year of his birth from the calendar year in which that date falls;
(d)

where the continuation of payments depends upon the survival of an individual and where, in the event of the death of such individual before such payments aggregate a stated sum, the contract provides that the unpaid balance of the stated sum shall be paid either in a lump sum or by instalments, then the contract shall be deemed for the purpose of determining the expected term thereof to provide for the continuance of such payments thereunder for a minimum term certain equal to the nearest complete number of years required to complete the payment of the stated sum;

(e)

where such payments commence on the expiry of a term of years or on the death of any individual, then the consideration or purchase price for the contract shall be taken to be—

(i) the lump sum, if any, which the individual entitled to those payments is entitled to receive in lieu thereof; or
(ii) if there is no lump sum, the sum ascertainable from the contract as the present value of the annuity at the date those payments commence; or
(iii) if there is no such sum, the present value of those payments computed as at the date the payments commence on the basis of a rate of interest of four per cent per annum and, where the payments depend upon the survival of an individual, the probabilities of survival of that individual shall be computed according to the table of mortality referred to in paragraph (c).
(3)

This section shall apply to annuities, whenever purchased or commencing, payable under a contract but shall not apply—

(a)

to any annuity payable under a registered annuity contract or a registered trust scheme; or

(b)

to any annuity purchased under any direction in a will, or purchased to provide for an annuity payable under a will or settlement out of income of property disposed of by such will or settlement; or

(c)

to any annuity purchased under any pension scheme or pension fund; or

(d)

to any annuity purchased by any person in recognition of the services or past services of another person.

22A.
Deductions in respect of contributions to registered pension or provident funds
(1)

Notwithstanding section 16 (2) (d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of—

(a)

the sum of the contributions made by the employee to registered funds in the year; or

(b)

thirty per cent of the employee’s pensionable income in the year; or

(c)

two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand five hundred shillings per month of service).

(2)

Notwithstanding section 16 (2) (d) and (e), the deduction in respect of the contributions made by an employer in a year under defined contribution provisions of registered funds shall be limited to the sum of the deductible contributions of the employer in the year under defined contribution provisions of registered funds on behalf of members of the funds:

Provided that, in respect of each member, the sum of the deductible contributions of an employer in a year under the defined contribution provisions of registered funds on behalf of a member of a registered fund means the amount by which the lesser of—

(a)

the sum of the contributions in the year made by the employer on behalf of the member under defined contribution provisions of registered funds including contributions made out of surplus funds as required under section 22 (6); and by the member to registered funds of the employer;

(b)

thirty per cent of the member’s pensionable income from the employer; or

(c)

two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand five hundred shillings per month of service), exceeds the deductible contributions made by the member in the year to registered funds of the employer under subsection (1).

(3)

Notwithstanding section 16 (2) (d) and (e) the deduction in respect of the contributions made by an employer in a year under defined benefit provisions of registered funds shall be limited to the amount by which the lesser of—

(a)

the sum of the contributions made by the employer and by the employees in the year to registered funds in respect of members of the defined benefit registered funds of the employer; or

(b)

thirty per cent of the sum of the pensionable incomes from the employer in the year of members of defined benefit registered funds of the employer; or

(c)

two hundred and forty thousand shillings times the number of full-year members of defined benefit registered funds of the employer, exceeds the sum of—

(i) the deductible contributions made in the year to registered funds of the employer by members of registered funds of the employer under subsection (1); and
(ii) the amounts deducted by the employer for the year for contributions made under defined contribution provisions of registered funds under subsection (2) in respect of the members of the defined benefit registered funds.
(4)

In determining the deductible amounts that can be made to registered funds by employees and by employers, subsection (1) shall be applied before subsection (2) and subsection (2) shall be applied before subsection (3).

(5)

Pension funds in respect of an employee may be transferred to another registered fund or registered individual retirement fund and not be treated as a withdrawal under section 3(2)(c)

(a)

where an employee retires or terminates his employment with an employer and joins the services of another employer and requests funds to be transferred from the former employer’s registered fund to the new employer’s registered fund; or

(b)

where an employer establishes a new registered fund and transfers the existing pension rights of an employee to that new registered fund; or

(c)

where an employee terminates his employment with an employer and requests funds, which would otherwise be withdrawn or commuted as a lump sum, to be transferred to a registered individual retirement fund; or

(d)

where an employee and the employer agree mutually to transfer the funds relating to the existing retirement benefit rights of the employee from one registered fund of the employer to another registered fund of that employer provided that the trust deeds of both registered funds allow such a transfer; or

(e)

where an individual beneficiary directs that all funds in a registered individual retirement fund be transferred directly to another such fund:

Provided that, in all cases, the Commissioner is notified in such form as he may from time to time direct.

(6)

Where a defined contribution registered fund is determined by an audit to have surplus funds, such funds shall be allocated to the accounts of members in lieu of contributions by an employer in each subsequent year until the surplus is exhausted.

(7)

Where a registered fund is wound up, any surplus funds therein shall be deemed to be the funds of the employer and shall be immediately withdrawn by the employer unless the trust deed in respect of such registered fund specifies the contrary.

(8)

For the purposes of this section, contributions made to the National Social Security Fund shall be deemed to be contributions made to a defined contribution registered fund.

[Act No. 10 of 1990, s. 48, Act No. 8 of 1991, s. 60, Act No. 9 of 1992, s. 44, Act No. 4 of 1993, s. 43, Act No. 6 of 1994, s. 39, Act No. 13 of 1995, s. 82, Act No. 8 of 1996, s. 32, Act No. 8 of 1997, s. 35, Act No. 5 of 1998, s. 33, Act No. 4 of 1999, s. 34, Act No. 9 of 2000, s. 44, Act No. 6 of 2005, s. 25.]

22B.
Deductions in respect of registered individual retirement funds
(1)

An individual who is not a member of a registered fund or a public pension scheme at any time in a year of income commencing on or after the 1st January, 1994 shall be eligible to contribute to a registered individual retirement fund up to the amount deductible under subsection (2).

(2)

Notwithstanding the provisions of section 16 (2) (d) and (e), the deduction in respect of contributions of an individual to a registered individual retirement fund in a year shall be limited to the lesser of—

(a)

the sum of the contributions made by the individual or by the employer of the individual on his behalf on or before the 31st of December of the year; or

(b)

thirty per cent of pensionable income of the individual in that year; or

(c)

two hundred and forty thousand shillings (or, where the contributions are made on behalf of the individual by his employer in respect of a part year of service of the individual, twenty thousand shillings per month of service) reduced by the amount of the contributions made by the individual or by an employer on behalf of the individual to the National Social Security Fund in that year.

(3)

All funds maintained by an individual in a registered individual retirement fund shall be held in one account with a qualified institution.

[Act No. 9 of 1992, s. 45, Act No. 6 of 1994, s. 40, Act No. 13 of 1995, s. 83, Act No. 8 of 1996, s. 33, Act No. 8 of 1997, s. 36, Act No. 5 of 1998, s. 34, Act No. 4 of 1999, s. 35, Act No. 9 of 2000, s. 45, Act No. 4 of 2004, s. 50, Act No. 6 of 2005, s. 26.]

22C.
Repealed

Repealed by Act No. 8 of 2020, s. 6.

23.
Transactions designed to avoid liability to tax
(1)

Where the Commissioner is of the opinion that the main purpose or one of the main purposes for which a transaction was effected (whether before or after the passing of this Act) was the avoidance or reduction of liability to tax for any year of income, or that the main benefit which might have been expected to accrue from the transaction in the three years immediately following the completion thereof was the avoidance or reduction of liability to tax, he may, if he determines it to be just and reasonable, direct that such adjustments shall be made as respects liability to tax as he considers appropriate to counteract the avoidance or reduction of liability to tax which could otherwise be effected by the transaction.

(2)

Without prejudice to the generality of the powers conferred by subsection (1) of this section, those powers shall extend—

(a)

to the charging to tax of persons who, but for the adjustments, would not be charged to the same extent;

(b)

to the charging of a greater amount of tax than would be charged but for the adjustments.

(3)

Any direction of the Commissioner under this section shall specify the transaction or transactions giving rise to the direction and the adjustments as respects liability to tax which the Commissioner considers appropriate.

24.
Avoidance of tax liability by non-distribution of dividends
(1)

Where the Commissioner is of the opinion that a private company has not distributed to its shareholders as dividends within a reasonable period, not exceeding twelve months, after the end of its accounting period such part of its income for that period which could be so distributed without prejudice to the requirements of the company’s business, he may direct that that part of the income of the company shall be treated for the purposes of this Act as having been distributed as a dividend to the shareholders in accordance with their respective interests and shall be deemed to have been paid on a date twelve months after the end of that accounting period.

(2)

The Commissioner may direct that a charge be made upon a company in respect of adjustments to the liability of a shareholder as a result of a direction under subsection (1):

Provided that—

(i) if such a charge is made, such company shall be entitled to recover from the shareholder the amount of tax attributable to the adjustment made in respect of such shareholder; and
(ii) where an adjustment is made under this section relating to the distributable profits of a company and such profits are subsequently distributed, the proportionate share therein of a shareholder shall be excluded in computing the total income of that shareholder.
(3)

Deleted by Act No. 8 of 1978, s. 9(i)(ii).

(4)

A private company may at any time before making a distribution of a dividend to its shareholders inquire of the Commissioner whether the distribution would be regarded by him as sufficient for the purpose of subsection (1) of this section, and the Commissioner, after calling on the company for such information that he may reasonably require, shall advise the company whether or not he proposes to take action under this section.

(5)

Where under this section part of the income of a company is treated as having been distributed and divided to its shareholders and in consequence thereof, another company is treated as having received a dividend, then for the purpose of applying the provisions of subsection (1) of this section to the other company, the dividend which it is treated as having received shall be deemed to be part of such income of the other company available for distribution by such other company to its shareholders as dividends.

25.
Income settled on children
(1)

Where, under any settlement, income is paid during the life of the settlor to or for the benefit of a child of the settlor in a year of income, such income shall be deemed to be income of the settlor for such year of income and not income of any other person:

Provided that this subsection shall not apply to any year of income in which—

(i) the income so paid does not exceed one hundred shillings; or
(ii) the child attains the age of eighteen years.
(2)

For the purposes of, but subject to, this section—

(a)

income which is dealt with under a settlement so that it, or assets representing it, will or may become payable or applicable to or for the benefit of a child of the settlor in the future (whether on the fulfilment of a condition, or the happening of a contingency, or as the result of the exercise of a power of discretion, or otherwise) shall be deemed to be paid to or for the benefit of that child;

(b)

any income so dealt with which is not required by the settlement to be allocated at the time when it is so dealt with, to any particular child or children of the settlor shall be deemed to be paid in equal shares to or for the benefit of each of the children to or for the benefit of whom or any of whom the income or assets representing it will or may become payable or applicable;

(c)

in relation to any settlor, only income originating from that settlor shall be taken into account as income paid under the settlement to or for the benefit of a child of the settlor.

(3)

Where under subsection (1) of this section tax is charged on and is paid by the person by whom the settlement was made, that person shall be entitled to recover from any trustee or other person to whom the income is payable under the settlement the amount of the tax so paid, and for that purpose to require the Commissioner to furnish to him a certificate specifying the amount of the tax so paid, and a certificate so furnished shall be conclusive evidence of the facts appearing therein.

(4)

Where the amount of the tax chargeable upon any person for any year of income is, by reason of subsection (1) of this section, affected by tax deducted from the income under Head B of Part VI, the amount by which the tax is affected shall, if the amount of tax is thereby reduced, be paid by him to the trustee or other person to whom the income is payable under the settlement or, where there are two or more such persons, shall be apportioned among those persons as the case may require; and if any question arises as to the amount of a payment or as to any apportionment to be made under this subsection, that question shall be decided by the Commissioner whose decision thereon shall be final.

(5)

Any income which is deemed under this section to be the income of a person shall be deemed to be the highest part of his income.

(6)

This section shall apply to every settlement, wheresoever it was made or entered into and whether it was made or entered into before or after the commencement of this Act, except a settlement made or entered into before 1st January, 1939, which immediately before that date was irrevocable, and shall (where there is more than one settlor or more than one person who made the settlement) have effect in relation to each settlor as if he were the only settlor.

(7)

In this section—

(a)

"child" means a child under the age of eighteen years and includes a step-child, an adopted child and an illegitimate child;

(b)

"settlement" includes any disposition, trust, covenant, agreement, arrangement, or transfer of assets, but does not include any disposition, trust, covenant, agreement, arrangement, or transfer of assets through a registered family trust or resulting from an order of a court unless that order is made in contemplation of this provision;

(c)

"settlor", in relation to a settlement, includes any person by whom the settlement was made or entered into directly or indirectly, and any person who has provided or undertaken to provide funds directly or indirectly for the purpose of the settlement, or has made with any other person a reciprocal arrangement for that other person to make or enter into the settlement;

(d)

reference to income originating from a settlor are references to—

(i) income from property originating from that settlor; and
(ii) income provided directly or indirectly by that settlor;
(e)

references to property originating from a settlor are references to—

(i) property which that settlor has provided directly or indirectly for the purposes of the settlement; and
(ii) property representing that property; and
(iii) so much of any property which represents both property so provided and other property as, on such apportionment as the Commissioner may determine to be just and reasonable, represents the property so provided;
(f)

references to—

(i) property or income which a settlor has provided directly or indirectly include references to property or income which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor but do not include references to property or income which that settlor has provided directly or indirectly in pursuance of reciprocal arrangements with another person;
(ii) property which represents other property include references to property which represents accumulated income from that other property.
(8)

Where, under this section, income is deemed to be income of the settlor, it shall be deemed to be income received by him as a person beneficially entitled thereto under the settlement.

[Act No. 38 of 2013, s. 13, Act No. 8 of 2021, s. 11.]

26.
Income from certain settlements deemed to be income of settlor
(1)

All income which in a year of income accrued to or was received by any person under a settlement from assets remaining the property of the settlor shall, unless such income is deemed under section 25 of this Act to be income of the settlor for an earlier year of income, be deemed to be income of the settlor for the year of income in which it so accrued to or was received by that person and not income of any other person whether or not such settlement is revocable and whether it was made or entered into before or after the commencement of this Act.

(2)

All income which in any year of income accrued to or was received by a person under a revocable settlement shall be deemed to be income of the settlor for such year of income and not income of any other person.

(3)

Where in any year of income the settlor, or a relative of the settlor, or any other person, under the direct or indirect control of the settlor or any of his relatives or the settlor and any of his relatives, by agreement with the trustees of a settlement in any way, whether by borrowing or otherwise, makes use of income arising, or of accumulated income which has arisen, under the settlement to which he is not entitled thereunder, then the amount of such income or accumulated income so made use of shall be deemed to be income of such settlor for such year of income and not income of any other person.

(4)

For the purposes of this section, a settlement shall be deemed to be revocable if under its terms the settlor—

(a)

has a right to reassume control, directly or indirectly, over the whole or any part of the income arising under the settlement or of the assets comprised therein; or

(b)

is able to have access, by borrowing or otherwise, to the whole or any part of the income arising under the settlement or of the assets comprised therein; or

(c)

has power, whether immediately or in the future and whether with or without the consent of any other person, to revoke or otherwise determine the settlement and in the event of the exercise of such power, the settlor or the wife or husband of the settlor will or may become beneficially entitled to the whole or any part of the property comprised in the settlement or to the income from the whole or any part of such property:

Provided that a settlement shall not be deemed to be revocable by reason only that under its terms the settlor has a right to reassume control, directly or indirectly, over income or assets relating to the interest of any beneficiary under the settlement in the event that the beneficiary should predecease him.

(5)

In this section—

"relative" of a person means—

(a)

his spouse;

(b)

any ancestor, lineal descendant, brother, sister, uncle, aunt, nephew, niece, step-father, step-mother, step-child, adopted child, and, in the case of an adopted child, his adopter or adopters;

(c)

the spouse of any such relative referred to in paragraph (b);