The Finance Act 2023 update in Kenya

The Kenya government announced that the Finance Act 2023 was signed into law. (Click here to view the official page)

The Act introduces some changes to Kenya’s tax and social contributions system as follows:

Effective July 1, 2023

• Tax on the benefit from shares received by employees in lieu of cash emoluments from an eligible start-up
  The taxable benefit on the shares employees received in lieu of cash emoluments from an eligible start-up shall be deferred and taxed within thirty days of the earlier of:
  • Expiry of five years from the end of the year of the award of the shares
  • Disposal of the shares by the employee
  • The date the employee ceases to be an employee of the eligible start-up.
    • In order to be recognized as an eligible startup business incorporated in Kenya, they must meet the following criteria: a) The business has an annual turnover of no more than one hundred million Kenyan Shillings; b) The business does not engage in management, professional, or training businesses; c) The business has not been formed through the splitting or restructuring of an existing entity; and d) The business has been in operation for no more than five years.
    • The taxable benefit will be either the fair market value of the shares at the time of taxation or the value of the shares based on the last issued financial statements if the fair market value is not available.
• Taxation of "club entrance and subscription fees"
  The Act provides that “club entrance and subscription fees” (e.g. gym, fitness club membership etc) paid by a Customer on behalf of the employees shall be treated as a benefit and taxed on the employee.
  • Please visit Taxation of Club entrance and Subscription Fees on page 12 to read the full details.
• Mileage - Exclusion from tax
  Payments employees receive as a traveling allowance to perform official duties have been excluded from taxation. The mileage claims are based on approved rate cards from the Automobile Association of Kenya.
• New individual tax rates for pay-as-you-earn (PAYE)
  The Act has adopted a new tax band of 32.5% for income between KES 500,000 and KES 800,000/month and 35% for income exceeding KES 800,000/month.
  

  Annual	Monthly	Rate
  KES 0 - 288,000	KES 0 - 24,000	10%
  KES 288,000.01-388,000	KES 24,000.01 - 32.333,33	25%
  KES 388,000.01 - 6,000,000	KES 32.333,34 - 500,000	30%
  KES 6,000,000.01 - 9,600,000	KES 500,000.01 - 800,000	32.5%
  above KES 9,600,000.01	above KES 800,000.01	35%

  Please visit this page to view the rate table from 2022 for the comparison.

• • Monthly Affordable Housing Levy Deduction
    • Both employees and Customers are subject to the levy at 1.5% of the employee’s gross salary through the National Housing Development Fund. This is deducted monthly from employees’ payroll and Customers’ invoices.
    • The Kenya Revenue Authority has clarified in this public notice that the gross monthly salary includes both basic salary and regular cash allowances. Regular allowances include housing, travel or commuter, car allowances, and any other regular cash payments. However, non-cash payments and irregular income such as leave allowance, bonus, gratuity, pension, severance pay, or any other terminal dues and benefits are excluded from the calculation.

Effective January 1, 2024

• Amendment of the definition of market value for shares provided under an Employee Share Ownership Plan (ESOP)
  The Finance Act 2023 in Kenya proposes to amend the definition of market value for shares provided under an Employee Share Ownership Plan (ESOP) by changing it from the market value when the shares were granted by the employer to the market value when the option is exercised by the employee, for shares fully listed on any security exchange in Kenya. 
  Please visit Market Value for Employee Share Ownership Plan on page 11 to read more details.
• Contributions relief towards a post-retirement medical fund
  A relief on contributions Kenya residents must make towards a post-retirement medical fund will be introduced. The relief is at 15% of contribution capped at KES 60,000 p.a.
  Please visit Contributions to Post- Retirement Medical Fund on page 12 to read more details.

Please visit the Kenya government page to read the latest details.