Kenya provides a number of incentives aimed primarily at promoting exports, and the development of manufacturing, mining, and agriculture.

The following outlines the main incentives:

Intellectual Property Income

Effective 1 January 2024, qualifying intellectual property income is subject to a preferential tax rate. The preferential tax rate is not yet established.

The qualifying intellectual property income is to be calculated as per the formula I = (Q/T) x P, where:

I is income receiving tax benefits;
Q is the research and development expenditures made by the taxpayer, excluding acquisition costs and related party outsourcing costs;
T is the research and development expenditures made by the taxpayer, including acquisition costs and related party outsourcing costs; and
P is intellectual property income including royalties, capital gains and any other income from the sale of an intellectual property asset including embedded intellectual property income calculated under transfer pricing principles.

Investment Deductions

Investment Deduction Allowance (IDA)

Effective 1 July 2022, companies are granted deductions for 150% of the capital investment in tangible capital for manufacturing, such as industrial buildings, machinery, and equipment if:

The cumulative investment value in the preceding 4 years ending on or before 1 July 2022 outside Nairobi City County and Mombasa County is at least KES 2 billion; or
The cumulative investment value outside Nairobi City County and Mombasa County in the succeeding 3 years is at least KES 2 billion.

Effective 1 January 2022 and until 30 June 2022, the deduction was reduced to 100% of the capital investment in physical capital for manufacturing, such as industrial buildings, machinery, and equipment if:

The cumulative investment value in the preceding 3 years ending on or after 25 April 2020 outside Nairobi City County and Mombasa County is at least KES 2 billion;
The investment value outside Nairobi City County and Mombasa County in the year of income is at least KES 250 million; or
The investment is in a special economic zone.

Effective 1 January 2024, a 10% investment allowance deduction is granted for capital expenditure incurred on the construction of docks and industrial buildings.

Export Promotion Zones

Qualifying companies established in Kenyan export promotion zones can receive a number of incentives, including:

A 10-year corporate income tax holiday, followed by a reduced corporate income tax rate of 25% for 10 years;
A 10-year withholding tax holiday;
VAT and customs duties exemption on inputs;
VAT exemption on locally purchased goods and services, provided they remain in the zone;
Stamp duty exemption; and
100% investment deduction for buildings and machinery over 20 years.

Special Economic Zones

Qualifying companies established in Kenyan special economic zones are eligible for the following benefits:

A reduced corporate tax rate of 10% for the first 10 years, followed by a reduced rate of 15% for the next 10 years;
A reduced withholding tax rate of 5% on all payments to non-residents (except for dividend payments); and
VAT exemption on supply of services to the special economic zone.

Finance Act 2017 introduced the followed benefits effective from 1 January 2018:

100% investment deduction allowance for capital expenditure on buildings and machinery for use in SEZs in the year of first use (150% for SEZs outside Nairobi and Mombasa for investments made until 25 April 2020, see above); and
A reduced withholding tax rate of 5% applies for interest and royalty payments as well as payments for professional, management, and training fees to non-residents.

Effective 1 July 2022, dividends paid by companies licensed under the Special Economic Zones Act are exempt from income tax.

Special Operating Framework

Effective 1 July 2022, a company that fulfils the following conditions is subject to a reduced rate of tax specified in the special operating framework:

The company is engaged in business under a special operating framework arrangement with the Government;
The company is incorporated for purposes of undertaking the manufacturing of human vaccines; and
The capital investment is at least KES 10 billion.

Manufacture of Human Vaccines

Effective 1 January 2024, the exemption for companies undertaking the manufacture of human vaccines has been removed. A reduced corporate tax rate of 10% applies for such companies from 1 January 2024.

Effective 1 July 2023, an exemption applies on the following income:

Royalties paid to non-resident persons by a company undertaking the manufacture of human vaccines; and
Interest paid to a resident person or non-resident person by a company undertaking the manufacture of human vaccines.

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