KENYA Law and Practice Contributed by: Ombo Malumbe, Jack Ong’anya and Faith Ngarama O’Bang Law (Ong’anya Ombo Advocates LLP)
• special economic zones (SEZ) – 10% for the first ten years, then 15% for the next ten; • export processing zones (EPZ) – 0% (tax holiday) for the first ten years, then 25%. • human vaccine manufacture – a preferential rate of 10%; and • motor vehicle assembly – reduced rates (typically 15%) based on local content requirements. Rules to Prevent “Income Shifting” To prevent individual professionals from simply “earn - ing” their salary through a company to pay 30% instead of 35%, the KRA uses the following rules in 2026: • Personal Service Income Rules: If a company’s income is derived primarily from the personal ser - vices of an individual (like a consultant or doctor), the KRA can “look through” the corporate structure and tax that income at the higher individual rates. • eTIMS Validation: Effective 1 January 2026, the KRA validates all corporate expenses against eTIMS data. If a professional uses a company to pay for “personal expenses” to lower their corpo - rate profit, those expenses are now automatically disallowed and taxed. • Dividend Tax: Under the Income Tax Act (Cap. 470) and the applicable WHT schedules, the WHT on dividends paid to a resident individual is 5%. However, there is a 15% rate, applicable only to non-resident recipients. Other Options While lawyers and certain other professionals are legally restricted to sole proprietorships or LLPs due to professional ethics and public interest, many other service providers (architects, engineers, consultants) adopt Limited (LTD) structures for liability protection, even though the tax benefits are increasingly moni - tored by the KRA. 3.3 Restrictions on Retention of Earnings by Closely Held Corporations There are no regulatory measures that limit a close - ly held corporation in the accumulation of funds for investment purposes. However, where an amount that would have been distributed as dividends, upon other deductions (such as investments) being made, has not
been distributed within 12 months of the accounting period, the Commissioner will deem the amount as having been paid, thereby resulting in the applicable tax being applied, which is a 30% tax on those gains at the corporate level, in addition to the WHT due on the dividend. 3.4 Taxation of Individuals on Shares in Closely Held Corporations Withholding tax (WHT) is the tax applicable to divi - dends, while CGT is the tax applicable to the gain on the sale of shares. The CGT rate is 15% on the net gain, and the WHT rate on dividends for resident individuals is 5%. There are exemptions depending on whether there is a gain or a loss, or if the shares are listed on the Nairobi Securities Exchange (NSE), which could result in the CGT not being applied to a particular transaction. 3.5 Taxation of Individuals on Shares in Public Corporations The dividends from traded shares are subject to WHT that is applied and remitted by the company declaring the dividend (the issuer). The WHT must be remitted to the KRA on or before the 20th day of the following month. The WHT rate applicable to a resident person is 5% (this rate also applies to citizens of East Afri - can Community partner states). For a non-resident person, the WHT rate is 15%, unless a lower rate is applicable under a double taxation agreement (DTA). Notably, gains on the sale of shares listed on the Nai - robi Securities Exchange (NSE) are exempt from CGT to encourage capital market growth. 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes In Kenya, WHT rates are primarily determined by the nature of the transaction and the residency status of the recipient. For 2026, resident individuals and enti - ties are subject to a 5% WHT on dividends and roy - alties, while interest is generally taxed at 15%. For non-resident investors, these rates increase signifi - cantly to 15% for dividends and interest, and 20% for royalties. Notably, the SEP tax, which replaced the previous digital service tax, now imposes a 3% levy on the gross turnover of non-resident digital service
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