Kenya Tax Deductions
Kenya Tax Deductions for Foreign Investors (2025)
As of 2025, tax deductions in Kenya are governed by the Income Tax Act (CAP 470).
The Act outlines specific expenses that are allowable as deductions when computing taxable income for both resident and non-resident companies operating in Kenya.
The following are tax-deductible expenses and allowances applicable to foreign investors with a permanent establishment or registered business in Kenya.
General Business Expenses
Expenses wholly and exclusively incurred in the production of income are deductible.These include:
- Rent, utilities, and office expenses
- Salaries and wages
- Legal and professional fees
- Marketing and advertising expenses
- Staff training and development costs
Capital Allowances and Investment Deductions
The Second Schedule of the Income Tax Act provides for the following deductions on capital expenditures:- Investment Deduction
100% of qualifying investment cost is deductible in the first year for:- Construction of industrial buildings
- Purchase of new or unused machinery for manufacturing
- 150% investment deduction applies for investments outside Nairobi and Mombasa.
- Wear and Tear Allowance (Depreciation)
Applies to depreciable assets used in the business.
Rates vary by asset class:- Industrial buildings: 10%
- Motor vehicles and aircraft: 25%
- Computers and IT equipment: 30%
- Other machinery: 12.5%–37.5%
- Scientific Research Expenditure
Expenditure on scientific research related to the business is fully deductible, including costs on:- Salaries of researchers
- Laboratory equipment
- Research materials
Bad Debts
Debts proved to be irrecoverable and previously included in income are deductible, provided reasonable recovery efforts have been made.Foreign Exchange Losses
Realized foreign exchange losses on revenue items or loans used in the production of income are deductible.Unrealized losses may also be deductible under certain conditions.
Interest Expense
Interest on loans used to generate taxable income is deductible.Subject to thin capitalization rules for non-resident-controlled entities:
- Debt-to-equity ratio should not exceed 3:1.
Lease Payments
Lease or rent payments for property used in business are deductible.Operating lease payments for vehicles and equipment are allowable.
Training and Education
Expenditure on training Kenyan employees in recognized institutions is allowable.Management and Professional Fees
Fees paid to non-residents for professional or consultancy services are deductible.Subject to withholding tax, typically 20% for non-residents unless reduced under a Double Taxation Agreement (DTA).
Payments to Related Parties
Allowable, subject to:- Transfer pricing rules
- Arms-length principle
- Documentation requirements under the Income Tax (Transfer Pricing) Rules, 2006
Pension Contributions
Employer contributions to registered pension schemes are deductible, subject to prescribed limits under the Retirement Benefits Act.Donations
Donations to registered charitable organizations and public benefit institutions are deductible, provided the organization has approval from the Commissioner of the Kenya Revenue Authority.Additional Notes for Foreign Investors
Only expenses incurred in Kenya or in relation to Kenyan-source income are deductible.All deductible expenses must be supported by proper documentation, including invoices and payment evidence.
This overview outlines the tax deductions allowed for foreign investors in Kenya as of 2025, based strictly on the provisions of the Income Tax Act and related regulations.
Investors are advised to maintain compliant records to support all deduction claims during audits or tax filings.