Income Tax Act

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

Section 2. Interpretation Section 2(1)(a) interest earned on an account held jointly by a husband and wife shall be deemed to be qualifying interest; and Section 2(1)(b) in the case of housing bonds, the aggregate amount of interest shall not exceed three hundred thousand shillings; Section 2(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. Section 2(2) Deleted by Act No. 9 of 2025, s. 2.

Section 3. Charge of tax Section 3(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. Section 3(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...

Section 4. Income from businesses Section 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 pa...

Section 5. Income from employment, etc. Section 5(1)(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 Section 5(1)(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, Section 5(2)(a) 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 Section 5(2)(a)(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 cea...

Section 6. Income from the use of property Section 6(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. Section 6(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.]

Section 7. Income from dividends Section 7(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. Section 7(2) Notwithstanding section 3(2)(b), a dividend received by a residen...

Section 8. Income from pensions, etc. Section 8(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 spouse 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. Section 8(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. Section 8(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– (...

Section 9. Income of certain non-resident persons deemed derived from Kenya Section 9(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. Section 9(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 met...

Section 10. Income from management or professional fees, royalties, interest and rents Section 10(1)(a) a management or professional fee or training fee; Section 10(1)(b) a royalty or natural resource income; Section 10(1)(c) interest and deemed interest; Section 10(1)(d) the use of property; Section 10(1)(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 Section 10(1)(f) an activity by way of supporting, assisting or arranging an appearance or performance referred to in paragraph (e) of this section; Section 10(1)(g) withdrawals; Section 10(1)(h) deleted by Act No. 16 of 2014, s. 6(b) ; Section 10(1)(i) deleted by Act No. 23 of 2019, s. 6(a) ; Section 10(1)(j) an insurance or reinsurance premium; Section 10(1)(k) sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services; Section 10(1)(l) supply of goods to a public entity; Section 10(1)(m) making or facilitating payment over a digital market place; Section 10(2) A net gain referred to in section 3(2)(g) is deemed to be i...

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

Section 12. Imposition of instalment tax Section 12(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 1 st 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. Section 12(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. Section 12(3) The amount of tax determined under either subsection (2)(a) or (b) shall be reduced by the aggregate of t...

Section 12A. Imposition of advance tax Section 12A(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. Section 12A(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.]

Section 12B. Imposition of fringe benefit Tax Section 12B(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 he is related: Provided that the fringe benefit tax shall not apply to loans advanced on or before 11th June, 1998. Section 12B(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 o...

Section 12C. Turnover and presumptive tax Section 12C(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 twenty-five million shillings during any year of income. Section 12C(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. Section 12C(3) Notwithstanding subsection (1), turnover tax shall not apply to– (a) rental income; (b) management or professional or training fees; or (c) Deleted by Act No. 2 of 2020, Sch ; (d) any income which is subject to a final withholding tax under this Act. Section 12C(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. Section 12C(5) Deleted by Act No. 2 of 2020, Sch. Section 12C(6) D...

Section 12D.[Repealed by Act No. 9 of 2025, s. 6]

Section 12E. Significant economic presence tax Section 12E(1) Notwithstanding any other provision of this Act, a tax known as significant economic presence 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. Section 12E(2) For purposes of this section, a non-resident person shall be considered to have significant economic presence where the user of the service is located in Kenya. Section 12E(3)(a) to a non-resident person who offers the services through a permanent establishment; Section 12E(3)(b) to an income chargeable under section 9(2) or section 10; or Section 12E(3)(c) to a non-resident person providing digital services to an airline in which the government of Kenya has at least forty-five per cent shareholding; Section 12E(3)(d) deleted by Act No. 9 of 2025, s. 7(b) . Section 12E(4) For the purposes of computing the tax under subsection (1), the taxable profit of a person liable to pay the tax shall be deemed to be ten per cent of the gross turnover. Section 12E(5) A person subject to tax...

Section 12F.[Repealed by Act No. 9 of 2025, s. 8]

Section 12G. Minimum top-up tax Section 12G(1) Notwithstanding any other provision of this Act, a tax known as minimum top-up tax shall be payable by a covered person where the combined effective tax rate in respect of that person for a year of income is less than fifteen per cent. Section 12G(2) The combined effective tax rate for a covered person shall be the sum of all the adjusted covered taxes, divided by the sum of all net income or loss for the year of income, multiplied by a hundred. Section 12G(3) The amount of tax payable shall be the difference between fifteen per cent of the net income or loss for the year of income of a covered person, and the combined effective tax rate for the year of income, multiplied by the excess profit of the covered persons. Section 12G(3A) Minimum top-up tax shall be payable by the end of the fourth month after the end of the year of income. Section 12G(4)(a) to a public entity that is not engaged in business; Section 12G(4)(b) to a person whose income is exempt from tax under paragraph 10 of the First Schedule; Section 12G(4)(c) to a pension fund and the assets of that pension fund; Section 12G(4)(d) to a real estate investment vehicle that i...

Section 4A. Income from businesses where foreign exchange loss or gain is realized Section 4A(1) A foreign exchange gain or loss realized on or after 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) and claimed over a period of not more than five years from the date the loss was realized by a person whose gross interest paid or payable to a non-resident person exceeds thirty per cent of the person’s earnings before interest, taxes, depreciation, and amortization in any year of income; Section 4A(1A) Deleted by Act No. 4 of 2023, s. 4(b). Section 4A(2) The amount of foreign exchange gain or loss shall be calculated in accordance with the difference between (a times r 1 ) and (a times...

Section 4B. Export processing zone enterprise Section 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.]

Section 6A. Imposition of residential rental Income Tax Section 6A(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 1 st 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. Section 6A(2) The Cabinet Secretary 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.]

Section 7A. Dividend distributed out of untaxed gains or profits Section 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.]

Section 7B. Repratiated income Section 7B(1) A non-resident person who carries on business in Kenya through a permanent establishment shall pay tax on repatriated income for the year of income. Section 7B(2) The repatriated income under subsection (1) shall be computed using the following formula– R=A1+ (P - T) – A2 Where– R is the repatriated profit; A1 is the net assets at the beginning of the year; P is the net profit for the year of income calculated in accordance with generally accepted accounting principles; T is the tax payable on the chargeable income; and A2 is the net assets at the end of the year. Section 7B(3) The tax imposed under this section shall be in addition to tax chargeable on the income of the permanent establishment under section 4. Section 7B(4) For the purposes this section, “net assets” means the total book value of assets less total liabilities for the year of income and shall not include revaluation of assets. [Act No. 4 of 2023, s. 6]

Section 13. Certain income exempt from tax, etc. Section 13(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. Section 13(2) The Cabinet Secretary 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. Section 13(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 National 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.]

Section 14. Interest on Government loans, etc., exempt from tax Section 14(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. Section 14(2) The Cabinet Secretary 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.]

Section 15. Deductions allowed Section 15(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. Section 15(2)(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; Section 15(2)(b) amounts to be deducted under the Second Schedule...

Section 16. Deductions not allowed Section 16(1)(a) any expenditure or loss which is not wholly and exclusively incurred by him in the production of the income; Section 16(1)(b) any capital expenditure, or any loss, diminution or exhaustion of capital; Section 16(1)(c) any expenditure or loss where the invoices of the transactions are not generated from an electronic tax invoice management system except where the transactions have been exempted in accordance with the Tax Procedures Act (Cap. 469B). Section 16(2)(a) entertainment expenses for personal purposes; or Section 16(2)(a)(i) entertainment expenses for personal purposes; or Section 16(2)(a)(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; Section 16(2)(a)(iii) vacation trip expenses except those customarily made on home leave as provided in the proviso to section 5(4)(a) and (aa); or Section 16(2)(a)(iv) educational fees of employee’s dependants or relatives; Section 16(2)(a)(v) deleted by Act No. 4 of 2023, s. 12 . Section 16(2)(...

Section 17. Ascertainment of income of farmer in relation to stock Section 17(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. Section 17(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. Section 17(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, b...

Section 18. Ascertainment of gains or profits of business in relation to certain non-resident persons Section 18(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, any product or produce, and sells outside, or for delivery outside Kenya, such product or produce, whether or not the contract of sale is made within or without Kenya, or 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 to 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. Section 18(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. Section 18(3) Where a non-resident person carries on business with...

Section 19. Ascertainment of income of insurance companies Section 19(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. Section 19(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. Section 19(3)(a) 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 Section 19(3)(a)(i) the amount of the gross premiums from such business (less such premiums returned to the insured and such premiums paid on rein...

Section 20. Collective investment schemes Section 20(1) Subject to such conditions as may be specified by the Cabinet Secretary under section 130– (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. Section 20(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.]

Section 21. Members’ clubs and trade associations Section 21(1) A body of persons which carries on the activities of a members’ club or trade association shall be deemed to be carrying on a business and the gross receipts on revenue account (excluding joining fees, welfare contributions and subscriptions) shall be deemed to be income from a business. Section 21(2) Deleted by Act No. 4 of 2023, s. 17. Section 21(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" deleted by Act No. 9 of 2025, s. 16.

Section 22. Purchased annuities other than retirement annuities, etc. Section 22(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. Section 22(2)(a) an annuity includes any amount payable on a periodic basis, whether payable at intervals longer or shorter than a year; Section 22(2)(b) to be made under the contract, in the case of a contract for a term of years certain; or Section 22(2)(b)(i) to be made under the contract, in the case of a contract for a term of years certain; or Section 22(2)(b)(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; Section 22(2)(c) 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 upo...

Section 23. Transactions designed to avoid liability to tax Section 23(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. Section 23(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. Section 23(3) Any direction of the Commissioner under this se...

Section 24. Avoidance of tax liability by non-distribution of dividends Section 24(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. Section 24(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 th...

Section 25. Income settled on children Section 25(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. Section 25(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...

Section 26. Income from certain settlements deemed to be income of settlor Section 26(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. Section 26(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. Section 26(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 in...

Section 27. Accounting periods not coinciding with year of income, etc. Section 27(1) Where any person usually makes up the accounts of his business for a period of twelve months ending on any day other than 31 st December, then, for the purpose of ascertaining his total income for any year of income, the income of any such accounting period ending on such other date shall, subject to such adjustment as the Commissioner may consider appropriate, be taken to be income of the year of income in which the accounting period ends– (a) in the case of a person other than an individual, as regards all income charged under section 3 of this Act; and (b) in the case of an individual, as regards all income charged under that section other than gains or profits from any employment or services rendered. Section 27(1A) A person carrying on an incorporated business may subject to the prior written approval of the Commissioner alter the date to which the accounts of the business are made up. Section 27(1B) A person seeking the approval of the Commissioner under subsection (1A) shall apply in writing to the Commissioner at least six months before the date to which the accounts are intended to be mad...

Section 28. Income and expenditure after cessation of business Section 28(1) Where a sum is received by any person after the cessation of his business which, if it had been received prior to such cessation, would have been included in the gains or profits from such business, then, to the extent to which such sum has not already been included in such gains or profits, such sum shall be income of such person for the year of income in which such sum is received. Section 28(2) Where any sum is paid by any person after the cessation of his business which, if it had been paid prior to such cessation, would have been deductible in computing his gains or profits from such business, then, to the extent to which such sum has not already been deducted in computing such gains or profits, it shall be deducted in ascertaining his total income for the year of income in which it is paid and to the extent that such sum or remainder of such sum, as the case may be, cannot be so deducted, it shall be deducted in ascertaining his total income for the year of income in which such business ceased. [Act No. 8 of 1997, s. 37.]

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

Section 18A. Ascertainment of gains and profits of business in a preferential tax regime Section 18A(1) Where– (a) a resident person carries on business with a related resident person operating in a preferential tax regime; or (b) a resident person carries on business with– (i) a non-resident person located in a preferential tax regime; or (ii) an associated enterprise of a non-resident person located in a preferential tax regime; or (iii) a permanent establishment of a non-resident person operating in Kenya where the non-resident person is located in a preferential tax regime, and the business produces no gains or produces less gains than those which would have been expected to accrue from that business if the business activity was not with a party in a preferential tax regime, the gains of that resident person from that business shall be deemed to be the amount which would have been expected to accrue if that business had been conducted by an independent person dealing at arm’s length, or if none of the parties were located in a preferential tax regime. Section 18A(2) For the purposes of this section, "preferential tax regime” means– (a) any Kenyan legislation, regulation or admi...

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

Section 18C. Notification to the Commissioner Section 18C(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. Section 18C(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.]

Section 18D. Filing of country-by-country report, master file and local file Section 18D(1) Each ultimate parent entity that is resident in Kenya shall file a country-by-country report with the Commissioner in accordance with subsection (3). Section 18D(1A)(a) the ultimate parent entity is not obligated to file a country-by-country report in its jurisdiction of tax residence; Section 18D(1A)(b) the jurisdiction in which the ultimate parent entity is resident has a current international tax agreement which Kenya is a party to but does not have a competent authority agreement with Kenya at the time of filing the country-by-country report for the reporting financial year; or Section 18D(1A)(c) there has been a systemic failure of the jurisdiction of tax residence of the ultimate parent entity that has been notified by the Commissioner to the constituent entity resident in Kenya. Section 18D(1B) The provisions of subsections (1) and (1A) shall apply to a multinational enterprise group whose total consolidated group turnover, including extraordinary or investment income, is at least ninety-five billion shillings during the financial year immediately preceding the reporting financial yea...

Section 18E. Offences and penalties Section 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 (Cap. 469B). [Act No. 22 of 2022, s. 12.]

Section 18F. Definitions Section 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 inc...

Section 19A. Co-operative societies Section 19A(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. Section 19A(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. Section 19A(3) In the case of every designated primary society, other than a designated primary society which is registered a...

Section 22A. Deductions in respect of contributions to registered pension or provident funds Section 22A(1)(a) the sum of the contributions made by the employee to registered funds in the year; or Section 22A(1)(b) thirty per cent of the employee’s pensionable income in the year; or Section 22A(1)(c) three hundred and sixty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, thirty thousand shillings per month of service). Section 22A(2)(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; Section 22A(2)(b) thirty per cent of the member’s pensionable income from the employer; or Section 22A(2)(c) three hundred and sixty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, thirty thousand shillings per month of service), Section 22A(3)(a) the sum of the contributions made by the e...

Section 22B. Deductions in respect of registered individual retirement funds Section 22B(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). Section 22B(2)(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 Section 22B(2)(b) thirty per cent of pensionable income of the individual in that year; or Section 22B(2)(c) three hundred and sixty 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, thirty 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. Section 22B(3) All funds maintained by an individual in a registered individual retirement fund shall be held in one account with a qualified institutio...