Answer ... As stated above, taxable income in Kenya generally comprises gross income less deductions provided for in the Income Tax Act. The Income Tax Act does not presently provide specific or detailed rules in relation to the shipping, insurance or securitisation sectors, and the standard corporate tax rates will therefore apply.
Oil and gas: The Ninth Schedule to the Income Tax Act provides detailed rules on the deductibility of expenses incurred in the exploration, development and production phases. Over the years, specific exemptions have also been granted in relation to this sector, including exemptions from withholding tax on interest payments for foreign sourced loans and from stamp duty on instruments in relation to loans from foreign sources for investment in the energy sector.
Rental income: As a separate source of income, rental income is taxed separately from business income. Further, residential rental income is taxed differently from commercial rental income, at a rate of 10% on the gross rental income, where the rental income earned is less than KES 10 million per year. Where a company has constructed at least 100 residential units annually, the applicable corporate tax rate is 15%, subject to approval by the cabinet secretary responsible for housing.
Export Processing Zone (EPZ): The EPZ Authority offers a range of attractive fiscal, physical and procedural incentives to ensure low-cost operations, fast set-up and smooth operations for export-oriented businesses. EPZ enterprises are subject to 0% corporate tax for the first 10 years, commencing from the first year of production, sales or receipts. For the next 10 years, the tax rate increases to 25%.
Special economic zones (SEZs): An SEZ is a designated geographical area where business-enabling policies are implemented and sector-appropriate on-site and off-site infrastructure and utilities are provided by the Kenyan government. SEZs are considered to be outside the customs territory of Kenya and therefore operate in a jurisdictional bubble that shields them from taxes and other regulatory bureaucracy.
SEZs may be designated as single sector or multi-sector, which may include free trade zones, industrial parks, free ports, information, communication and technology parks, science and technology parks, agricultural zones, tourist and recreational zones, business service parks, livestock zones and convention and conference facilities. For SEZ enterprises (whether they sell their products to markets within or outside Kenya), a tax rate of 10% applies for the first 10 years of operation and a rate of 15% for the next 10 years thereafter. A number of additional tax incentives also apply to SEZs, including attractive capital allowances and reduced rates of withholding tax on payments made by the SEZ.
Motor vehicle assembly: For a company engaged in local assembly of motor vehicles, a 15% corporate income tax rate will apply for the first five years of operation. This 15% rate can be extended for another five years if the company achieves a local content equivalent of 50% of the motor vehicles’ ex-factory value.
Special operating framework: Where a company is engaged in business under a special operating framework arrangement with the Kenyan government, the tax rate specified under such arrangement will apply to such a company.
Intellectual property: While there is no patent box regime in Kenya, there is an important provision in the Income Tax Act which allows for expenditure of a capital or revenue nature incurred in scientific research for business purposes to be fully deducted in a year of income.