Kenya Tax Relief - Afrikan Heroes

Here’s What The New Tax Relief For Startups In Kenya As Announced By President Ruto Means

April 3, 2023

On Thursday, March 30, 2023, Kenya’s President William Ruto announced that startup companies based in Kenya would be exempted from paying taxes on unrealised gains, effective July 1, 2023. The president made the announcement at the Ole Sereni Hotel in Nairobi during the American Chamber of Commerce Regional Business Summit. He noted that his administration wanted to make Kenya an apex innovation centre by attracting investments from startups, but a few hindrances remain that are preventing such businesses from realising their full potential.

President Ruto stated that the Kenyan government would exempt startup companies from paying taxes on unrealised gains on employee-allocated shares starting 1st July this year. He added that his administration is committed to promoting the best operating environment for business enterprises by introducing policies designed to make Kenya the most competitive investment destination across the continent.

Additionally, the president noted that Kenya has one of the most developed financial services sectors on the continent and is ripe for the establishment of an International Financial Centre in Nairobi to attract global financial players. He also announced that Kenya, the United States government and the American Chamber of Commerce had launched a trilateral business dialogue to address and resolve the challenges of U.S. investors and businesses in Kenya, in a bid to boost trade among the two nations.

The exemption of startup companies from taxes on unrealised gains on employee-allocated shares is a positive development for the startup ecosystem in Kenya. This move will provide a much-needed financial boost for new businesses that are struggling to attract investment. By removing this tax burden, more startups are likely to attract investment, which will help them grow and scale up.

However, it is important to note that this exemption is only on unrealised gains, and startups will still be required to pay taxes on any realised gains.

An unrealized gain or loss is a change in the value of an asset that has not yet been sold. This means that it is only a paper gain or loss and has not resulted in any cash or taxable event. For example, if you buy a stock for $10 and its value increases to $15, you have an unrealized gain of $5. However, if you sell the stock for $15, then you will have a realized gain of $5 that will be taxable.

Unrealized gains or losses are not taxed until they are realized, which means until the asset is sold. So, if you hold on to the asset and it continues to increase in value, you won’t owe any taxes until you sell it.

To calculate unrealized gains or losses, you need to determine the current market value of the asset and compare it to its original purchase price. The difference between the two values will give you the unrealized gain or loss.

Unrealized gains or losses can be relevant at any stage of a business. For example, if a business owns stocks or other investments that have increased in value, the unrealized gains will increase the net worth of the business. On the other hand, if a business has assets that have decreased in value, it will have an unrealized loss. These unrealized gains or losses may affect the financial statements of the business, but they will not result in any tax liability until the assets are sold.

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Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard

Eight Months Into COVID-19, Kenya Stops COVID-19 Related Tax Relief

December 23, 2020

No more COVID-19 tax reliefs for businesses in Kenya still looking for more. In a majority vote by the country’s parliament, the series of tax cuts put in place since April to cushion the economy from the impact of the COVID-19 pandemic have been ended.

“I am going to surrender 50,000 shillings more every month. Let it go to the government. But let it be utilized efficiently to deliver services to my people and to all of us,” lawmaker John Mbadi said before voting on the changes.

Here Is What You Should Know

The tax cuts were introduced in April, weeks after Kenya reported its first case of the coronavirus. They were targeted at protecting the country which also is East Africa’s richest economy.
Now lawmakers said the cuts were not sustainable, reinstating a warning by the country’s finance ministry’s estimate this month that the Kenyan government will have foregone 65 billion shillings ($595.24 million) in revenue from the tax cuts.
The implication of this is that a reduction of 5 percentage points to the income tax rate for top individual earners and corporations will be reversed to 30%. The value-added tax rate will also be restored to 16% from 14% during the first phase of the pandemic.
However, government voted to keep one of the relief measures. Accordingly, Kenyans earning less than 24,000 Kenyan shillings ($220) will still be granted 100% tax relief.
The position of the lawmakers who the tax cut reversal is to the effect that the pandemic had not subsided and Kenyans still needed help.
Kenya’s economic output declined in the second quarter for the first time since the 2008 global financial crisis. The tourism and agriculture exports, the main hard currency earners, have taken big hits.

A Look At All The Reversals

Exemption of Small Businesses From Tax

Under the Tax Laws (Amendments) Act, small and medium enterprises (SMEs) with annual earnings below Ksh.1 million ($9139) were exempted from tax, while those from Ksh.1 million ($9139) to Ksh. 50 million ($465,983) now have the turnover tax rate reduced to one percent from the previous three percent. This was not reversed. Position remains the same.

Reduction In Value Added Tax

Kenya’s tax law also saw that reduction from previous 16% to a new 14% of value-added tax in line with the cushion measures. New sectors such as insurance and security brokerage services have also been included in the VAT tax net. This has been reversed back to 16%.

Reduction In Personal Income Tax (PAYE)

Under the former law, Kenyans earning Ksh. 24000 ($223) and below received a 100% waiver on pay as you earn (PAYE) while earners above the threshold saw their PAYE discounted by 5%. This was not reversed.

Generally, the maximum tax rate on corporate and personal earnings in Kenya was pegged at 25% during the COVID era for those with annual income above Ksh. 688,000. Before this was 30%. This has now been reversed to 30%.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer