PART 3
I. TAX AND FINANCING
Tax Liability of Corporate Entities
a. Income Tax:
i. Corporate Income Tax: This is the tax on the income of a resident company or permanent establishment.
- Taxable income: The gains or profits
of a trade or business carried out within the Kenya are included
within the taxable income. Business is defined as any trade,
profession or vocation, and every manufacture, adventure and
concern in the nature of trade, excluding employment. For a
resident company (that is, a company incorporated under the
laws of Kenya or declared to be a resident company by the Cabinet
Secretary in a Gazette or whose management and control was
exercised in Kenya in a particular year of income under
consideration), whether or not the business is carried on or
exercised partly within and partly outside Kenya, the whole of the
gains or profits from such business shall be deemed to have accrued
in or to have been derived from Kenya. For a non-resident company
on the other hand, it is only the profit attributable to the
business of the permanent establishment through which it operates
that is taxable in Kenya.
Other incomes that would be taxable are incomes from any royalty, rent, premium or similar consideration received for the use or occupation of property. With respect to a resident company, it also includes dividends paid to shareholders but excludes dividends received by a resident company from another company provided that it does not control more than 121/2 of the voting powers of the company paying the dividend, whether directly or indirectly. However, where the dividend is received by certain financial institutions (including banks or financial institution or mortgage finance company licensed and the Banking Act; an insurance company licensed under the Insurance Act; a building society registered under the Building Societies Act; a co-operative society registered under the Co-operative Societies Act; a person licensed under Part VII of the Hire-purchase Act; Mortgage refinance companies licensed under the Central Bank of Kenya Act), it would form part of the income that is chargeable to tax.
A permanent establishment exists in the following instances:
a. Where there is fixed place of business through which business is carried on whether fully or partly, and includes to a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction or exploitation of natural resources, a warehouse in relation to a person whose business is providing storage facilities to others, a farm, plantation or other place where agricultural, forestry plantation or related activities are carried on and a sales outlet.
b. Where there are construction or installation activities in relation to a project and where same continues for an aggregate period of more that 183 days, a foreign company involved in or supervising such project would be said to have a permanent establishment.
c. Where services including consultancy services are being provided through employees or other personnel engaged for that purpose for an aggregate period of more than 91 days in a 12-month period.
d. Where there is an installation of a structure used for exploration of natural resources and the exploration activities continue for a period of not less than 91 days;
e. Where operations are habitually carried out through a dependent agent acting on behalf of a non resident in respect of activities carried out in Kenya such as concluding contracts or playing principal roles in the concluding of contracts.
- Rate of tax: The applicable rate to both a resident company and a non-resident company with a permanent establishment is 30% of the taxable profit.
ii. Tax on repatriated income: This is applicable to a non-resident company and it is in addition to the tax imposed on the chargeable income of the permanent establishment.
- Taxable income: The repatriated income shall be calculated using a prescribed Formula - R = A1 + (P - T) – A2. Where –
R is the repatriated profit;
A1 is the net assets at the beginning of the year;
P is the net profit for the year of income calculated in accordance with generally accepted accounting principles;
T is the tax payable on the chargeable income; and
A2 is the net assets at the end of the year.
- Rate: A tax of 15% shall be payable on the repatriated income for the year of income.
iii. Turnover Tax: Where the income of a company is between 1 million and 50 million Kenyan Shillings (KES), it is exempt from paying tax on its business profits but would be required to pay a minimum tax on its turnover.
- Taxable income: The turnover of the company will be taxed but in calculating the turnover, rental income, income from management or professional or training fees and any income subject to final withholding tax under the Act are not included.
- Rate: A tax of 1.5% of the gross turnover.
iv. Minimum Tax: This is a tax on an entity that is exempt from tax under
v. Significant Economic Presence Tax: Non-residents whose income from the provision of services is derived from or accrues in Kenya through a business carried out over a digital marketplace are required to pay a Significant Economic Presence (SEP) Tax. A non-resident is considered to have significant economic presence where the user of the service is located in Kenya. This tax does not apply if the non-resident offers the service through a permanent establishment; or where the same relates to income from management, professional fees, royalties, interest and rents; or to a non-resident company providing digital services to an airline in which the government of Kenya has at least forty-five per cent shareholding; or to a non-resident company with an annual turnover of less than five million shillings; or to a company involved in message transmission via communication mediums. This tax is payable monthly by the 20th of the subsequent month.
- Taxable income: The taxable profit of such non-resident shall be deemed to be 10% of the gross turnover.
- Rate: 30% of the deemed taxable. A non-resident is considered to have significant economic presence where the user of the service is located in Kenya. This tax does not apply if the non-resident offers the service through a permanent establishment or where the same relates to income from management, professional fees, royalties, interest and rents.
vi Minimum top-up tax: This is a tax paid by a covered person, where the combined effective tax rate of that person is less than 15%. A covered person is defined as 'a resident person or a person with a permanent establishment in Kenya who is a member of a multinational group and the group has a consolidated annual turnover of seven hundred and fifty million Euros or more in the consolidated financial statements of the ultimate parent entity in at least two of the four years of income immediately preceding the tested year of income.'
- Taxable income: The government is allowed to impose an additional amount of tax on the profits of such entities
- Rate: ensuring that the effective tax rate on those profits is 15%
vii. Digital Asset Tax: It is payable by a person on income derived from the transfer or exchange of digital assets and the owner of the platform on which digital assets are exchanged or the company that facilitates the exchange is to is expected to deduct the tax from source and remit same. Digital asset includes – (i)anything of value that is not tangible and cryptocurrencies, token code, number held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically; and(ii)a non-fungible token or any other token of similar nature, by whatever name called.
- Taxable income: The income income derived from transfer or exchange of a digital asset, that is, the gross fair market value consideration received or receivable at the point of exchange or transfer of a digital asset is to be taxed
- Rate: 3% of the transfer or exchange value of the digital asset.
viii. Withholding tax: Any company, whether resident or non-resident who receives payment in respect of certain services shall be entitled to pay an advance tax in respect of those services. Income from these set of services are deemed to be income which accrued in or was derived from Kenya except the payment is incurred in the production of income accrued in or derived from Kenya or in connection with a business carried on or to be carried on, in whole or in part, in Kenya. The tax is to be deducted at source by the resident company or permanent establishment making the payment before paying over the rest to the recipient. It is a tax of the person receiving the payment which may be used to reduce future income tax liability or which may be a final tax in respect of payments made to a non-resident company. It should be noted however, that where the payment of interest, royalties, management, professional fees and training fees is being made by a permanent establishment of a non-resident entity to that non-resident entity, withholding tax will not be deducted. This is because it is expected that the permanent establishment would have included these incomes within its chargeable income and paid the taxes on the profits arising therefrom.
- Taxable Income: The income which are subject to this tax are (a) a management or professional fee or training fee; (b)a royalty or natural resource income; (c)interest and deemed interest; (d)the use of property; (e)an appearance at, or performance in, any place (whether public or private) for the purpose of entertaining, instructing, taking part in any sporting event or otherwise diverting an audience; or (f)an activity by way of supporting, assisting or arranging an appearance or performance referred to in item (e); (g) winnings; (h) an insurance or reinsurance premium; (j) sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services), (i) income from the ownership/operation of a digital market place (that is, a platform or website that facilitates the exchange of a short-term engagement, freelance or provision of a service, between a service provider, who is an independent contractor or freelancer, and a client or customer).'
- Rate: The rate is specified in the law and the rate of a resident differs from the rate to be applied in respect of payment to a non-resident. Kenya however has a number of double taxation agreements with other countries and same may provide for reduced WHT rates.
Product Taxes
i. Value Added Tax: These are levied on taxable goods and services either made, distributed, or imported into Kenya, except those that are otherwise exempted. There is a requirement for VAT registration by persons making or expecting to make taxable supplies of above five million Kenyan shillings in a 12-month period. Such a person is liable to register with the Commissioner within 30 days of becoming liable.
It is however important to note that the VAT registration threshold of 5 million KES is not applicable to non-resident companies who supply services to Kenyans via an electronic network, the Internet, or a digital marketplace. Non-resident suppliers are required to comply with the VAT (Electronic, Internet and Digital Market Place Supply) Regulations, 2023. A digital market place is defined as an online platform that enables users to sell goods or provide services to other users. Suppliers are required to register for VAT if the supplies are made to recipients in Kenya in both business-to-consumer (B2C) transactions and business-to-business (B2B) transactions and charge VAT at the standard rate of 16%. The supplier either has to register or appoint a tax representative.
Taxable goods and services: Goods and services either made, distributed, or imported into Kenya, except those that are otherwise exempted. In respect of services via an electronic network or digital market place, it includes downloadable digital content, e-books, subscription-based media, software programmes, cloud storage, distance teaching, etc.
VAT Rates: 16% for all taxable supplies other than those categorized as zero-rated supplies and services, and 0% on goods and services listed under the second schedule to the VAT Act.
ii. Import duty: Depending on the item to be imported, the Import tax rates vary between 0%, 10% and 25% as provided by the East Africa Community Common External Tariff. However, sensitive items attract duty higher than 25%.
iii. Import Declaration fee: It is a fee on all goods imported into Kenya for use in the country, save for those exempt. It is charged at 2.5% on the total value of the imports.
iv. Excise duty: It is a tax imposed on certain goods and services manufactured/supplies in Kenya or imported into Kenya. The rates are dependent on the nature of the goods and service. Excisable services include telephone and internet data services, money transfer services, fees charged by financial institutions, etc.
v. Railway Development levy: It is a levy on all goods imported into the country for use within the country, save for those exempted. It is charged at 2% f the value of the imports. The purpose is to provide funds for the construction and operation of a standard gauge railway network in order to facilitate the transportation of goods.
vi. Export and Investment Promotion Levy: It is a levy on certain goods imported into the country for use. The levy is to be used to provide funds to boost manufacturing, increase exports, create jobs, save on foreign exchange and promote investments. The rate is dependent on the nature of the goods but is either 10% or 17.5%.
Property Tax
i. Capital Gains Tax: This is a tax imposed on the net gain which accrues to a company or an individual upon sale or disposal of certain assets (land, building, marketable securities not listed on the Nairobi stock exchange) situated in Kenya. It is charged at 15% of the net gain and it is a final tax.
ii. Stamp Duty: It is a tax charged on instruments relating to the property situated in Kenya or any other matter done in Kenya, except otherwise exempted. The duties to be paid depend on the nature of the instrument.
iii. Betting Tax: Chargeable on the gross gaming revenue of a bookmaker at the rate of 15%. This is in addition to Excise duty payable on Betting.
People Tax
i. Payroll taxes: It is a tax on the incomes paid to employees. It is collected at source by the employer under the Pay as You Earn Scheme.
ii. National Social Security Fund Contribution: It is a fund to be made up of contributions by both the employer and the employee.
iii. Social Health Insurance Fund: Households with income from salaried employment shall contribute 2.75% of their gross salary or wage to the SHIF for each month. It is the employer's obligation to deduct and remit the employees' contributions to the Social Health Authority (SHA) by the 9th day of the following month.
iv. Affordable Housing Levy: This is to be paid by the employee but to be deducted from source by the employer.
National Industrial Training Levy (NITA): All employers are required to pay to the Directorate of Industrial Training a monthly levy of KES 50 per employee.
Financing
i. Crowdfunding: Funds can be raised from individuals or entities to finance a business through a crowdfunding platform, that is, a website, internet based portal or other applications that facilitate interactions between investors and issuers and other related interactions, to a maximum of 100 Million KES within a 12 month period except otherwise approved by the Capital Markets Authority. It is a regulated fund raising mechanism and as such applicants would need to comply with the Capital Markets (Investment-Based Crowdfunding) Regulations, 2022. This mode of raising funds is however limited to Micro, Small and Medium Enterprises (MSMEs) with a minimum of two years operating track record and a good corporate governance record, as well as startups with a good operating track record and a good corporate governance record. Start-up means a company incorporated in Kenya that is newly established or has not been in existence for more than 10 years, which is established for the sole purpose of developing an innovative and scalable product or service.
ii. Capital Market: An investor can set up as a publicly listed company and raise funds through the issuance of its shares to the general public on compliance with listing rules.
iii. Business Incubators/Accelerators: There are various incubators and accelerators within Kenya that support start-ups and they can assist with a wide range of needs of the budding company including funding. For example, the Meltwater Entrepreneurial School of Technology, a Pan-African tech incubator and seed fund support African software entrepreneurs, offering training, support and investment.
iv. Government Grants and Loans
Kenya offers a range of funding options for individuals looking to start or expand their businesses in the country. These include both government-backed initiatives and facilities provided by financial institutions.
Government Grants and Loans
The Kenyan government has established various programs to support entrepreneurship and small business development:
- Youth Enterprise Development Fund – Provides loans and grants to youth (aged 18–35) for starting or expanding businesses
- Uwezo Fund – Offers interest-free loans to women, youth, and persons with disabilities
- Women Enterprise Fund – Provides credit to women entrepreneurs and supports the marketing of their products
Bank Loans
Commercial banks in Kenya offer a variety of loan products tailored to the needs of small and medium enterprises:
- Equity Bank's Jijenge Loan and KCB's Biashara Loan are designed specifically for SMEs
- Loan facilities are available in both Kenyan Shillings and major foreign currencies
- Collateral, a good credit history, and detailed business plans are typically required
These financing options make Kenya a conducive environment for both local and foreign entrepreneurs seeking to establish or grow their businesses.
v. Joint Ventures
Joint ventures (JVs) involve collaboration between two or more entities—local or international—to undertake a specific business activity or project while sharing risks, resources, and returns. In Kenya, joint ventures are particularly popular among foreign investors seeking local market knowledge, regulatory compliance support, and established networks.
JVs are common in sectors such as construction, real estate, manufacturing, and extractives. They provide a strategic pathway for foreign companies to enter the Kenyan or broader African market while leveraging the strengths and capabilities of local partners. A well-structured joint venture agreement is essential to ensure clarity in governance, financial contributions, intellectual property rights, and dispute resolution.
vi. Public private partnerships
A Public-Private Partnership is a long-term collaboration between government entities and private sector companies to deliver public services or infrastructure projects. PPPs in Kenya are governed by the PPP Act, and the framework is designed to attract private capital, technical expertise, and operational efficiencies into projects that serve public needs.
Kenya has successfully implemented PPPs in areas such as road construction, port development, energy generation, and affordable housing. The government's commitment to PPPs offers a structured and secure entry point for investors looking to participate in large-scale national development projects. The PPP model is also gaining traction across Africa, as governments seek to bridge infrastructure gaps and improve service delivery through sustainable partnerships.
vii. Angel investors
Angel investors are high-net-worth individuals who invest their personal funds in early-stage businesses in exchange for equity. In addition to funding, they often provide mentorship, industry expertise, and networking opportunities. Angel investors typically enter at the seed or early growth stage and are known for being more flexible and founder-friendly than institutional investors.
Across Africa, angel investment is gaining traction as entrepreneurial activity increases, especially in countries with growing youth populations and digital innovation. In Kenya, organizations such as the Kenya National Chamber of Commerce and Industry (KNCCI) and Nairobi Business Angel Network (NaiBAN) are helping to connect startups with angel investors.
viii. Venture capital
Venture capital (VC) firms manage pooled funds from multiple investors and focus on high-potential businesses with scalable models. VC firms usually invest at later stages, once a business has demonstrated traction or market validation. Along with funding, they often take an active role in strategic decision-making and business expansion. VC firms look for strong teams, innovative solutions, and a clear path to profitability.
Kenya is among the top destinations for VC funding in Africa, alongside Nigeria, South Africa, and Egypt. Many international VC firms and Africa-focused funds are increasingly directing capital toward East African startups, recognizing the region's potential as a launchpad for scalable businesses across the continent.
J. CULTURAL OR POLITICAL NUANCE
In the heart of East Africa, a digital revolution pulses through Kenya's tech ecosystem. From mobile money innovations like M Pesa to bustling innovation hubs such as Nairobi's iHub and Gearbox, Kenya has been hailed globally as Africa's "Silicon Savannah." Yet behind this narrative of progress lies a complex interplay of cultural attitudes and political entanglements that quietly but profoundly shape the trajectory of the sector.
While Kenya's young, tech-savvy population is pushing the boundaries of digital creativity, its cultural and political environment is testing the resilience of that momentum.
Kenyan youth are the lifeblood of its digital economy. With over 75% of the population under 35, the appetite for technological experimentation is palpable. However, deep-rooted societal norms can hinder innovation. Traditional career expectations still steer many young people toward more 'conventional' professions like law, medicine, or civil service. Startups often perceived as unstable or unproven struggle to attract top-tier local talent, even as global investors court them.
Moreover, family and communal obligations frequently clash with the entrepreneurial mindset. The "harambee" spirit Kenya's ethos of collective responsibility creates expectations on successful entrepreneurs to support extended families and communities, often at the expense of reinvestment and growth.
Gender dynamics also persist. Despite a surge in female-led tech initiatives, cultural expectations continue to limit women's participation in STEM fields, leading to a male-dominated industry. Programs like AkiraChix have emerged to counter this, but systemic biases remain stubbornly intact.
The Kenyan government has taken notable steps to support the tech industry. Initiatives such as the Konza Technopolis dubbed "Africa's Silicon Valley" and tax breaks for ICT companies are commendable. However, inconsistent policy implementation and political interference frequently undercut these ambitions.
The relationship between tech and politics is uneasy. Regulatory uncertainty particularly in data protection, digital taxation, and internet freedoms creates a volatile environment for both startups and established firms. The 2022 enforcement of Kenya's Data Protection Act, for instance, was a positive step, but enforcement has been opaque, and many tech firms remain unsure about compliance standards.
Moreover, political patronage sometimes dictates which startups receive funding or visibility, raising concerns about meritocracy. Corruption and bureaucratic inefficiencies discourage foreign investment, especially when approvals and tenders are subject to informal "gatekeeping."
Censorship, too, looms over digital expression. As social media becomes a platform for political dissent, the state has grown increasingly vigilant. Crackdowns on bloggers and digital activists under vaguely defined cybercrime laws send a chilling message to tech entrepreneurs and content creators alike.
Kenya's tech sector is undeniably vibrant, but for it to reach its full potential, structural and cultural shifts are essential. Tech hubs must do more than incubate ideas they must advocate for policy clarity, digital rights, and inclusive practices. The private sector, academia, and civil society must collaborate to embed ethical governance into the DNA of innovation.
Crucially, culture must evolve with the economy. That means normalizing failure in entrepreneurship, celebrating women in tech, and educating families on the long-term value of innovation-driven careers.
Kenya stands at a defining crossroads. The promise of Silicon Savannah is real but so are the cultural and political landmines threatening to derail it. Whether Kenya's digital revolution deepens or merely dazzles will depend not only on code and capital but on courage: the courage to reform, to challenge norms, and to believe that innovation deserves a truly enabling environment.
References
Central Bank of Kenya. (2022). Digital Credit Providers Regulations. Retrieved from: https://www.centralbank.go.ke
Capital Markets Authority. Regulatory Sandbox Guidelines. Retrieved from: https://www.cma.or.ke
Office of the Data Protection Commissioner. (2019). Data Protection Act. Retrieved from: https://www.odpc.go.ke
Financial Reporting Centre. POCAMLA Guidelines. Retrieved from: https://www.frc.go.ke
Kenya Investment Authority. Investor Toolkit. Retrieved from: https://www.invest.go.ke
Business Registration Service. Companies Act, 2015. Retrieved from: https://www.brs.go.ke
Kenya Revenue Authority. Tax and Compliance Guide. Retrieved from: https://www.kra.go.ke Source: https://www.csm.tech/blog-details/cybersecurity-is-a-legitimate-threat-to-kenyas-digital-future
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