LEGAL ALERT: KENYA TAX AMENDMENTS 2024 – IMPACT, IMPLICATIONS, AND EXPECTATIONS FOR 2025
Introduction
Kenya’s tax framework has undergone significant amendments with the enactment of the Tax Laws (Amendment) Act, 2024, the Tax Procedures (Amendment) Act, 2024, the Statutory Instruments (Amendment) Act, 2024, and the Kenya Revenue Authority (Amendment) Act, 2024. These changes impact key tax areas, including Income Tax, Value-Added Tax (VAT), and Excise Duty.
In this alert, our team at CR Advocates LLP break down the attendant changes and implications to your daily life, Business, and the various sectors of the economy.
Key Tax Law Amendments
1. Donations and Royalties
• Donations, including cash and in-kind contributions, are now deductible for income tax purposes.
• The definition of royalties has been expanded to include payments for software, licensing, development, training, and support fees, subjecting them to withholding tax.
2. Significant Economic Presence (SEP) Tax
• Replaces the Digital Service Tax.
• Applies to non-residents earning income in Kenya via digital platforms.
• Exemptions include businesses with a permanent establishment in Kenya and those with annual turnover below KES 5 million.
• SEP Tax rate: 10% of gross turnover, payable monthly.
3. Minimum Top-up Tax
• Introduced for multinational corporations with an effective tax rate below 15%.
• Aligns Kenya with OECD’s Global Anti-Base Erosion (Pillar Two) rules.
• Exemptions apply to public entities, pension funds, sovereign wealth funds, and certain real estate investment vehicles.
4. Withholding Taxes
• Digital Marketplace Owners: 20% for non-residents and 5% for residents.
• Sale of Scrap: 1.5% for residents and non-residents.
• Supply of Goods to Public Entities: 0.5% for residents and 5% for non-residents.
5. Capital Gains Tax (CGT)
• Preferential 5% CGT rate for Nairobi International Financial Centre (NIFC)-certified entities.
• Eligibility: Investment of at least KES 3 billion, held for at least five years.
6. Tax Exemptions
• Income from projects fully financed by development partners under agreements with the Kenyan government is now tax-exempt.
Key Amendments to Tax Procedures Act
1. Tax Amnesty Extension
• Extended to June 30, 2025.
• Applies to penalties and interest accrued up to December 31, 2023, provided principal tax is paid by the deadline.
2. Electronic Tax Invoices & Reverse Invoicing
• Electronic Tax Invoices (eTIMS) must now include specific details for compliance.
• Reverse invoicing was introduced for small businesses and farmers with turnover below KES 5 million.
3. Commissioner’s Power to Abandon Tax
• Reinstated authority for KRA to abandon tax liabilities in cases of doubt or difficulty in recovery.
Key VAT and Excise Duty Amendments
1. VAT Adjustments
• Businesses must assess VAT changes, including adjustments to the VAT apportionment formula for zero-rated supplies.
2. Excise Duty on Digital Services
• Now applicable to non-residents providing digital services in Kenya.
• Digital services are also subject to VAT at 16% and income tax at 3%.
3. Alcohol & Agricultural Products
• Excise duty remission extended to spirits made from locally grown agricultural products (excluding barley).
• Alcohol manufacturers now have until the 5th of the following month to remit excise duty.
Other Levies
• Railway Development Levy: Increased from 1.5% to 2%.
Compliance Considerations for 2025
• Conduct Tax Reviews: Assess how the new tax laws affect business operations.
• Upgrade Systems: Ensure compatibility with eTIMS and new reporting requirements.
• Employee Training: Equip staff with knowledge on compliance changes.
• Utilize Tax Amnesty: Take advantage of the amnesty period to settle outstanding tax liabilities.
What to Expect in 2025
• Impact of SEP Tax: Increased tax burden for non-resident digital service providers, potentially leading to higher consumer costs.
• Mandatory eTIMS Compliance: Businesses must fully integrate electronic tax invoicing.
• Stronger Tax Enforcement: Increased monitoring of digital transactions, e-commerce, and cryptocurrency activities.
• Potential New Taxes: The 2025 Budget Policy Statement may introduce additional tax measures, including increased excise duty and stricter VAT compliance.
Conclusion
These tax amendments significantly affect businesses and individuals. Proactive compliance and strategic planning will be crucial in adapting to the evolving tax landscape. Our team of taxation lawyers at CR Advocates LLP is available to guide businesses through these changes and ensure full compliance.