KENYA Law and Practice Contributed by: Ombo Malumbe, Jack Ong’anya and Faith Ngarama O’Bang Law (Ong’anya Ombo Advocates LLP)
National Industrial Training Authority Levy This levy remains at KES50 per employee monthly. It is a mandatory contribution by the employer and must not be deducted from the staff payroll. The collection of this levy is now centralised through the KRA’s uni - fied payroll system to simplify compliance. Turnover Tax Turnover tax is applicable to resident entities with annual revenues ranging between KES1 million and KES25 million. The current rate is 3% of gross receipts, as per the Finance Act 2023 (which remains the standard in 2026). TOT is a final tax, meaning enti - ties under this regime do not file annual income tax returns for that business. However, it does not apply to rental income, management fees, professional fees, or any income subject to a final withholding tax. 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses It is common practice for founders, the majority of whom operate small and medium-sized enterprises, to prefer to start their businesses in the form of a sole proprietorship because of its low costs and simple structures, and later to convert, mostly to an LTD or LLP after significant growth in the business. However, some founders who prefer the benefits associated with corporate structures opt for them from the outset. 3.2 Individual and Corporate Rates Individual Tax Rates The current individual income tax rate operates on a progressive scale from 10% to 35%. As of 2026, the top rate of 35% applies to annual income exceeding KES9.6 million. These rates apply to individuals, sole proprietorships, and partners in an LP or LLP. Because the top individual rate (35%) is higher than the stand - ard corporate rate (30%), there is a natural incentive for high-earning professionals to incorporate. Corporate Tax Rates The standard corporate tax rate is 30% for resident companies. However, specific sectors enjoy prefer - ential rates:
A significant development in the current tax landscape is the relief introduced by the Finance Act 2025, which amended Section 117 of the Stamp Duty Act (Cap. 480) to exempt from stamp duty the transfer of prop - erty by a company to its shareholders as part of an internal group reorganisation, provided the transfer is proportional to each shareholder’s existing owner - ship. Where the property being transferred consists of shares, those shares must be shares in a subsidiary of the transferring company. This provision does not independently exempt transfers to subsidiaries as a distinct category. 2.9 Other Notable Taxes There are several tax classifications that apply to vari - ous businesses based on the sector that a particular business ventures into during that tax period. Some of the notable taxes, other than VAT and WHT, among others, are as follows. Affordable Housing Levy The Affordable Housing Act, 2024, remains the gov - erning law in 2026. The levy is applicable at a rate of 1.5% of the gross salary of an employee, with a matching 1.5% contribution from the employer. For businesses and individuals not in formal employment, the levy is also payable at a rate of 1.5% of their gross income, remitted by the 9th working day of the fol - lowing month. Tax on Untaxed Distributions (formerly Compensating Tax) Compensating tax was repealed and replaced by divi - dend distributed out of untaxed gains or profit. Where a company distributes a dividend out of gains or prof - its that have not been subjected to tax (eg, due to spe - cific tax incentives or exemptions), that distribution is charged to tax at the standard resident corporate rate of 30%. Significant Economic Presence (SEP) Tax As of 2025/2026, the 1.5% digital service tax (DST) has been repealed and replaced by the significant economic presence (SEP) tax. This tax applies to non- resident entities earning income from digital services provided to users in Kenya. The effective rate is 3% of gross turnover, and it applies regardless of whether the entity has a physical presence (PE) in Kenya.
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