Tax-Exempt Income in Kenya for Foreign Investors (2025)
As of 2025, the Income Tax Act (CAP 470), the Value Added Tax Act, and other relevant laws provide for specific types of income that are exempt from taxation in Kenya. This article outlines income categories that are legally exempt from tax and may be relevant to foreign investors operating in Kenya.
Income Exempt under the First Schedule of the Income Tax Act
The following categories of income are exempt from income tax under the First Schedule of the Income Tax Act:
Dividends Paid by Approved Special Economic Zone (SEZ) Enterprises Dividends paid to non-resident persons by SEZ enterprises, developers, or operators are exempt from withholding tax, provided the SEZ entity is approved under the SEZ Act.
Income of Approved Export Processing Zone (EPZ) Enterprises EPZ enterprises enjoy a 10-year corporate tax holiday. During this period, income earned from exports is exempt from corporate income tax. Dividends paid out of such exempt income are also not subject to withholding tax.
Interest on Certain Government Bonds and Infrastructure Notes Interest earned by non-residents on infrastructure bonds or Kenya Government securities of specific maturities (typically over 3 years) is exempt from tax, subject to conditions published in the Kenya Gazette.
Income of Charitable Institutions Income of institutions, bodies, or trusts wholly established for charitable, religious, educational, or public benefit purposes may be exempt, upon application and approval by the Commissioner of the Kenya Revenue Authority.
Capital Gains Exemptions
Certain capital gains are exempt from Capital Gains Tax (CGT), including:
Gains on transfer of property for inheritance, gifts, or between spouses
Transfer of shares by a body corporate under internal restructuring, provided it is approved by the Commissioner
Transfers involving strategic investments, where exemption has been granted under a Cabinet Secretary's notice in the Kenya Gazette
Income of Non-Residents with No Permanent Establishment (Certain Cases)
Non-residents supplying digital services to Kenyan users may be subject to Digital Service Tax (DST) instead of income tax, provided they have no permanent establishment in Kenya. DST is a final tax for qualifying transactions.
Income of International Organizations and Diplomatic Missions
Income of international organizations, diplomatic and consular missions, and their accredited staff is exempt from tax in accordance with international treaties and host country agreements.
Tax Exemption Under Investment Promotion Act (2004)
Under the Investment Promotion Act, the Cabinet Secretary may grant tax exemptions for strategic investments or under specified investment promotion frameworks, published in the Kenya Gazette.
Dividends Paid by Real Estate Investment Trusts (REITs)
Dividends paid to non-resident unit holders by a registered REIT are exempt from withholding tax under specified conditions.
Approved Retirement Benefits and Pensions
Lump-sum payments from registered pension schemes are exempt, subject to limits prescribed under the Income Tax Act.
Pension income paid to non-residents may be exempt or taxed at preferential rates under Double Taxation Agreements (DTAs).
Tax Exemptions under Double Tax Agreements (DTAs)
Kenya has DTAs with several countries, which may provide tax exemptions or reduced rates on:
Dividends
Interest
Royalties
Technical and management fees
Application of DTA benefits requires a Certificate of Residence and prior approval from the Kenya Revenue Authority.
This summary reflects the tax-exempt income categories available to foreign investors in Kenya as of 2025. All exemptions are subject to statutory conditions, approvals, and proper documentation as outlined in Kenyan tax laws.
Note: The information in this site is for general guidance only. Users of this site are advised to take professional advice before taking practical tax decisions.
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Note: The information in this site is for general guidance only. Users of this site are advised to take professional advice before taking practical tax decisions.
Please read our terms of service
before entering this site.