Understanding corporate income tax in Kenya is crucial for any business. Corporate income tax is charged against a business’s annual profit.
The following organizations are required to pay an annual corporate income tax:
- Resident companies,
- Resident companies with business activities outside Kenya on income derived from outside Kenya,
- Non-resident companies on income attributed to a Kenyan PE (permanent establishment).
Corporate Income Tax Rates
Both resident and non-resident (PE) companies now pay an income tax of 30% of their profit, this is after the provisions under the Finance Act 2023. Previously, before the enactment of the Finance Act 2023, Non-resident companies (PE) paid an income tax rate of 37.5%.
Payment of Corporate Income Tax
Companies are required to pay an annual income tax after the end of an income year, and subsequently file an income tax return.
In Kenya, a conventional tax year is a calendar year. Therefore, most companies have a January-December income year(accounting period). Still, companies are free to determine their income period, but it has to be 12 months, and should a company decide to change its accounting period, such change must be notified to the Kenya Revenue Authority.
Companies are required to have their financial statements audited, which is important in determining their income tax payable.
The corporate income tax is due on the last day of the fourth month after the end of an income year. Usually, for companies with a Jan-December income period, their corporate income tax is due on the 30th of April of the following year.
Instalment Tax
The instalment tax is sort of an advance tax because companies pay in instalments, during the year of income, to offset the expected income tax liability.
At the beginning of each accounting period(income year), a company must determine an Instalment Tax, which is the higher of:
- Estimated profits of the year, and
- 110% of the last year’s tax liability.
The Instalment Tax identified is payable in 4 equal instalments, and is due of the 20th day of the 4th, 6th,9th and 12th months during the year of income; meaning on the 20th of April, June, September and December for companies with a January-December accounting period.
At end of the income year, the corporate income tax payable is then determined upon a statutory financial audit as stipulated under the Companies Act 2015.
After the actual income tax payable has been determined based on the audited accounts, then, the balance of tax due which is the difference between the total tax payable and the instalment tax paid in the income year must be paid by the last day of the fourth month after income year end (30th April for Jan-Dec accounting period)
Note: Agricultural companies are required to pay in 2 instalments as follows; 75% of the instalment tax is due on the 20th of the 9th month, and the remaining 25% is due on the 20th of the 12th month.
Filing Returns
Companies are required to file their annual income Tax Return within six months after end of their income year (by 30th June for companies with Jan-Dec accounting period).
What we can do for you;
Our Tax Consultancy services are modeled to meet the tax compliance needs of businesses of all types and sizes.
We help our clients with income tax preparation and work with their accounting departments to keep track of business expenditures and file their annual income tax returns.
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