Taxation of Kenyans living abroad

Taxation of Kenyan expatriates

Taxation of kenyan expatriates
Expatriates

Last updated October 17, 2022


Kenyans leaving Kenya or working outside Kenya often draw the attention of KRA.

If you're planning on moving abroad, or have already done so, you have more to think about than adjusting to a new culture. It may be tempting, but you must not fail to pay your taxes in Kenya.

No matter where they reside, all Kenyan citizens are required to file tax returns with KRA. You could ask why. Get a glass of water.


Taxation of Kenyan residents?

Like in many countries, taxation in Kenya is based on residency. In other words, where you resided in a particular year. While it is easy to say that you live where you live, KRA may be saying you lived in Kenya. I can explain.

The income tax Act defines a resident of Kenya as follows:
"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;
Effective 1 July 2022, the Finance Act, 2022 defined the phrase 'permanent home' to mean a place where an individual resides or that is available to that individual for residential purposes in Kenya, or where, in the opinion of the Commissioner (KRA), the individual’s personal or economic interests are closest.

What that means is, 
  • If you own a home or a house in Kenya, or 
  • You have rented a residential house for your family, or 
  • You have rented a house for you to stay in whenever you visit Kenya, 
Then you have a permanent home in Kenya.

If you then visit Kenya for even a single day, you have taxes to sort with KRA in that year.

But I have already paid taxes in my host country

Trust me I get that. The logic here is, public services were available to you when you visited Kenya. You must therefore contribute to its funding. You may argue that you are being double taxed. But here's what happens.

Double Taxation agreements (DTAs)

Countries do enter into agreements to prevent their nationals from paying taxes twice. The agreement specifies how income or profits from cross border transactions are to be treated by the two countries. Here is a DTA agreement in action.

Let's say you live and work in Canada and earned Ksh.1M in 2022. Let's also say the tax rate there is 20%. And let's assume you have already paid your taxes there of Ksh.200,000 (1m * 20%).

Again, let's assume that you have a permanent home in Kenya and that you visited Kenya for Chrismas. You now have to declare and pay taxes on that 1m to KRA. Take the tax rate in Kenya to be 30%. How much will you pay KRA?

In Kenya, the tax on that 1m would be Ksh.300,000 (1m * 30%).
Since Kenya allows deduction of paid foreign taxes, you will only pay Ksh.100,000 (300,000 - 200,000).
This is called differential tax. This is the only way to avoid double taxation.

What if my host country has no DTA with Kenya?

Well, according to the Income Tax Act, Kenyan citizens are allowed to offset the tax suffered abroad against their tax liability in Kenya, provided that certain conditions are met.

What about the exchange rates

It should be noted that the native currency for paying taxes in Kenya is the Shilling. As such, the exchange rates in effect at the time the income was earned will be taken into account. And these rates must be the ones provided by the CBK.

Taxation of non residents

If you have established that you are not a Kenyan resident and have not earned any income from Kenya, such as employment income, rental income, etc., file a nil return.

However, if you earn an income from Kenya, lets say from a rental property or any other business, you must pay taxes on that income. The rate of tax will depend on the type of income.

What if I do not comply?

Non-compliance with tax laws has dire consequences in Kenya. The tax laws impose late payment penalties,
interest, fines and criminal or civil charges.

Furthermore, the government has the powers to freeze your assets or auction them. KRA can also reach out to the revenue authority and the government of your host country to recover their taxes.

Voluntary Tax disclosure program

When Kenyans living abroad who evaded taxes in the past wish to make amends, there is an opportunity to do so. The current ongoing Voluntary Tax Disclosure Program offers an opportunity for a taxpayer to get a partial forgiveness of penalties and interest subject to attainment of various conditions. Expatriates who have not complied in the past should take advantage of this.

I know how stressful and confusing taxation of expatriates is. 

If you need the services of a tax advisor, reach out to us.

Written by Joseph Wachira
The author is a tax consultant at ClearTax Consultancy and can be reached via wachira@cleartax.co.ke

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