Resident companies are subject to tax on income arising in or derived from sources in Kenya. Effective 7 November 2019, income assessable to tax in Kenya also includes income from ‘digital marketplaces’ (see Secs. 8.1.1. and 8.2.1. for details). The tax base consists of gross income, less allowable expenses and other allowances incurred in the production of taxable income. Foreign source income is not taxable.

Dividends

Dividends are subject to withholding tax in the hands of the distributing company and are not taxable in the hands of the recipient entity. Dividends paid to resident companies are exempt from tax if the recipient entity holds at least 12.5% of the voting power in the distributing company. It is clarified that dividends distributed out of income exempt under the income tax act are not subject to tax.

Capital Gains

Tax on capital gains has been reinstated with effect from 1 January 2015. Gains derived from the sale or transfer of property is subject to tax and property is broadly defined under the domestic law. For the purpose of capital gains, property includes land, building, marketable securities, money, and goods. However, gains are not aggregated with other taxable business income but assessed to tax separately. Gains on securities traded on an exchange licensed by the Capital Markets Authority were exempt from tax from 1 January 2016 until 24 April 2020.

Effective from 1 July 2023, the following capital gains are subject to tax in Kenya:

Gains that accrued to a company or a partnership on or after 1 January 2015, on the transfer of property situated in Kenya, whether or not the property was acquired before 1 January 2015;
Gains derived from the alienation of shares or comparable interests, including interests in a partnership or trust, if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 20% of their value directly or indirectly from immovable property situated in Kenya; and
Gains derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the 365 days preceding such alienation, held directly or indirectly at least 20% of the capital of the company.

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