Understanding tax legislation is critical if you are a non-resident individual or a foreign firm doing business or making revenue in Kenya. In this article, we’ll look at the essential components of non-resident taxation in Kenya, to assist you negotiate the complexities and stay in compliance with the law.
Determining Residency Status.
It is critical to verify your residency status before digging into non-resident taxes. Individuals in Kenya are classified as residents or non-residents depending on specific criteria. A person is considered a tax resident if they:
- Reside in Kenya for at least 183 days in a tax year, or
- Have a permanent address in Kenya and have spent at least 122 days there in the current and preceding two tax years.
Non-residents, on the other hand, are people who do not meet the requirements for tax residency in the country that they are residing as foreigners.
Taxation of Non-Resident Individuals.
As a non-resident making income in Kenya or even having a running business in the country, you will be subject to different tax rules than the residents of that particular country you are residing in. Non-residents are generally taxed on Kenyan income, thus any income they earn from their home country is not taxed hence doing away with double taxation. Some of the earnings that the non-residents are taxed are including but not limited to:
- Earnings from Kenyan employers or services rendered in Kenya.
- Profits from Kenyan-based enterprises or services rendered in the country.
- Rental income from Kenyan real estate.
- Capital gains on the sale of Kenyan assets.
Tax Rates for Non-Resident Individuals.
Non-resident tax rates are often greater than those for residents of the host country. The following are the tax rates for non-residents:
- Employment income is taxed at a flat 25% rate.
- Corporate income is taxed at a fixed rate of 37.5%.
- Rental income is taxed at a fixed 30% rate.
- Capital gains: Gains obtained from the sale of Kenyan property are taxed at a rate of 5%.
Please keep in mind that tax rates are subject to change, therefore you should double-check the current rates with the Kenya Revenue Authority (KRA) or a tax specialist such as Frimor Safe Way Solutions.
Withholding Taxes on Non-Resident Payments.
Kenyan law mandates that certain payments made to non-resident people or foreign corporations be taxed. The withholding tax rates vary according on the type of payment:
- Dividends are often subject to a 10% withholding tax.
- Interest is subject to a 15% withholding tax.
- Royalties are subject to a 20% withholding tax.
- Management or professional expenses are subject to a 20% withholding tax.
Avoiding Double Taxation.
Kenya has signed Double Taxation Avoidance Agreements (DTAAs) with numerous nations to avoid double taxation. These agreements seek to eliminate or lessen the tax burden on individuals or businesses that may be taxed in Kenya and their home country on the same income, thus preventing double taxation.
Conclusion.
Non-resident taxes in Kenya might be complicated, but grasping the fundamentals is very critical to ensuring compliance and avoiding legal difficulties that may arise. If you are a non-resident taxpayer in Kenya, get advice from a tax professional such as Frimor Safe Way Solutions or the Kenya Revenue Authority (KRA) to keep up with the newest tax legislation and duties.
Remember that tax regulations are constantly changing, so keep educated and sensitized by tax professionals to help you manage your financial activity properly. By meeting your tax obligations, you can contribute to Kenya’s growth and development while still protecting your financial interests in the country.