Author: TaxDAO
1 . Introduction
Kenya is regarded as Africa's crypto pioneer. A 2022 United Nations report noted that Kenya has the highest percentage of its population using crypto assets in Africa. While crypto assets offer more possibilities to Kenyans, they also bring significant risks in terms of financial stability, tax security, etc. To mitigate these risks and ensure financial stability, the Kenyan government has created a safe crypto asset ecosystem by improving legislation. In addition, the Central Bank of Kenya (CBK) is also actively exploring the possibility of issuing central bank digital currency (CBDC). These adjustments reflect Kenya's strong adaptability to emerging financial technologies.
2. Kenya's basic tax system /span>
Kenya's tax system is relatively complex, mainly implementing territorial tax system and personal tax system, with territorial tax system as the main one and income tax as the main one. Personal tax system. Kenya's tax system includes various tax levies and exemptions, zero tax rates, tax incentives, tax refunds, etc. The main taxes in Kenya include income tax, value added tax, customs duties and excise duties. All taxes on income in Kenya are collected by the central government, so county governments in Kenya no longer tax income. However, local governments in Kenya have the power to levy property and entertainment taxes locally. 2.1 Income Tax >
In Kenya, income tax is the most important tax item. Income tax applies to individuals and businesses (both resident and non-resident) on all income derived in or from Kenya. Income from different sources has different taxation methods.
2.1.1 Corporate Income Tax
Kenya's corporate income tax is a tax levied on all legal entities on their income arising in or derived from Kenya. . Companies incorporated in Kenya are considered to be tax residents in Kenya. A company registered outside Kenya will also be considered a Kenyan tax resident if its management and control is exercised in Kenya during a tax year.
In terms of tax rates, resident companies in Kenya (including subsidiaries of foreign parent companies in Kenya) are subject to The corporate income tax rate is 30%, and the corporate income tax rate applicable to the operating income of branches and permanent establishments of foreign companies in Kenya is 37.5%. Kenyan residents and non-resident enterprises that meet certain conditions can also enjoy special preferential tax rates. The specific regulations are rather complicated and will not be listed one by one.
The taxable income of Kenyan corporate income tax includes all types of income, namely sales of goods, contracts for construction and The total income obtained from providing services also includes but is not limited to dividends, interest income, royalty income, rental income, and overseas income. In addition, noteworthy tax-exempt income includes: dividends distributed by a company to a resident company in which it owns 12.5% or more of its shares are tax-exempt; dividends paid by a registered venture capital company are also tax-exempt; and dividends paid by a licensed securities dealer on the Kenya Stock Exchange are also tax-exempt. Income from securities with a term of no more than 24 months is tax-exempt; income from unit trusts or collective investment schemes set up by employers is exempt from income tax.
Non-resident companies in Kenya are only liable for income arising in or derived from Kenya. Tax obligations. Dividends, interest, royalties and rental income derived by non-resident companies through their permanent establishments are taxable in Kenya. Capital gains realized by non-resident companies from their assets situated in Kenya are subject to capital gains tax.
2.1.2 Withholding Income Tax < Kenya imposes withholding income tax on both resident and non-resident companies, with a tax rate of (3%-30%) within the range. The 2017 Finance Act specifically grants tax incentives to enterprises, developers and operators in special economic zones in terms of withholding income tax: (1) dividends paid to non-residents are tax-exempt; (2) management fees, Professional and technical fees, training fees and royalties are subject to a 5% withholding tax rate; (3) Interest paid to non-residents is subject to a 5% withholding tax rate. The Finance Act 2018 and the Finance Act 2019 have made relevant provisions on withholding tax on insurance premiums. The withholding tax rate for insurance premiums is 5%, and aircraft insurance is exempt from withholding tax. Reinsurance premiums, including those paid to non-resident reinsurance companies, are also subject to a 5% withholding tax.
Kenya and Canada, Denmark, France, Germany, India, Iran, Norway, Qatar, South Africa, More than a dozen countries, including South Korea, China, and Sweden, have signed double taxation avoidance agreements. Under the agreements, withholding tax rates range from 0% to 20%.
2.1.3 Personal income tax According to the Kenya Income Tax Act, Kenyan residents are required to pay tax on their global employment income and other income from Kenya. Income earned or derived from Kenya is subject to income tax. Non-resident individuals are only required to pay personal income tax on their Kenyan-source income or income derived from within Kenya. Income derived by an individual from different sources should be calculated separately according to its source and only expenses related to that source of income can be deducted. Taxable income includes employment income, business income, property income, dividend and interest income, income from licenses or contracts, agricultural income, capital gains, pension income and income from the digital economy market. Kenya's personal income tax has a progressive tax rate ranging from 10% to 30%.
Kenya has a special approach to determining the tax residency of natural persons. In addition to the common ones of having a permanent residence and a single In addition to the 183-day residence standard in a tax year, if a taxpayer does not have a permanent residence in Kenya, but has lived in Kenya during a tax year and the average annual stay in the previous two tax years exceeds 122 days, then he is also a tax resident. . 2.2 Value Added Tax (VAT) /span>
VAT applies to the supply of taxable goods or services in Kenya and Import of taxable goods or services. Companies and partnerships can register as VAT payers voluntarily, while businesses with annual revenue exceeding KSh5,000,000 are required to register for VAT compulsorily. The standard VAT rate is 16% and applies to most goods and services, with certain exported goods and services being zero-rated and certain goods and services, such as some basic foods and medical supplies, being exempt from VAT. It is important to note that Kenya’s 2019 Finance Bill explicitly imposes VAT on digital markets, but the relevant implementation mechanism will be announced separately. To facilitate compliance, the Kenya Revenue Authority (KRA) has implemented a withholding VAT system. System), appointing specific agents to withhold and pay VAT. The agent will withhold tax when making payment and report and remit it to KRA. To ensure security, taxpayers can verify the identity of their agents through the Agent Checker tool in KRA’s iTax system.
2.3 Consumption Tax /span>
Excise duty is a tax levied by the Kenyan government on the production and import of certain goods and services. Enterprises and individuals that produce, provide or import taxable consumer goods or services are taxpayers of consumption tax. Kenya's excise tax is levied on certain goods (such as alcohol, tobacco, fuel) and services (such as telecommunications services), and the rate of tax varies depending on the type of good or service.
It should also be noted that Kenya's 2018 Finance Act stipulates that in each fiscal year Initially, the consumption tax rate is adjusted for inflation. Related service fees of financial institutions are exempt from consumption tax, including loan interest, insurance premiums and commissions generated from loans or profit sharing. At the same time, Kenya exempts insurance commissions that do not exceed the amount specified in the Insurance Law from consumption tax, and the amount exceeding this amount is subject to corresponding consumption tax. 2.4 Digital Service Tax (DST) /span>
Kenya's 2020 Finance Bill introduced a digital services tax. The tax will come into effect on January 1, 2021 and will apply to individuals or businesses that provide or assist in providing digital services to users in Kenya and will be levied at 1.5% of turnover (excluding VAT). For Kenyan residents and companies resident in Kenya, the digital service tax can be offset against annual income tax payable; for non-residents and companies without a permanent establishment in Kenya, the digital service tax will be the final tax amount. The taxable scope of the digital service tax includes downloadable digital content such as e-books, movies, mobile applications, subscription media (such as newspapers, etc.), streaming services, music, games, electronic tickets for concerts and restaurants, and online ride-hailing services. Services, and any other digital services. If the regulations are not complied with, the government will restrict the relevant companies from entering the Kenyan market.
3. Overview of Kenya’s Cryptocurrency Taxation and Regulatory Policies span>
3.1 Overview of Crypto Asset Tax Policy < /span>
Before the 2023 fiscal bill, Kenya will charge income tax to individuals who actively trade crypto assets, while for long-term The holder is subject to capital gains tax. However, in order to further regulate the crypto asset market, the Finance and National Planning Committee of the National Assembly of Kenya approved the Capital Markets (Amendment) Bill 2023, according to which all crypto assets and blockchains will be regulated by the Kenya Capital Markets Authority. The bill aims to introduce regulatory and tax mechanisms for the country's digital industry, marking an important step for Kenya in introducing regulatory and tax mechanisms for the digital industry.
According to the bill, the government will conduct investigations on all non-physical assets (including encrypted assets, Token Code, digital forms For transactions (including purchase, sale, exchange, etc.) of digital assets (including assets generated by encryption or other means), a fixed tax of 3% is levied based on the transaction volume (not the profit income).
Taxable activities governed by crypto tax policies include: obtaining airdropped tokens, Use tokens to exchange stablecoins (such as BTC for USDT), exchange different types of tokens with each other (such as BTC for ETH), and buy and sell non-fungible tokens (NFTs). In addition, Kenyans who own or trade crypto assets need to disclose all their relevant holdings to the Kenya Revenue Authority. There is quantity. As required, individuals and businesses engaged in crypto-asset transactions provide tax information to the Capital Markets Authority (CMA), among which individual crypto-asset traders need to apply for a license from the CMA and eventually establish a centralized electronic register of crypto-asset transactions.
3.2 Overview of Crypto Asset Regulatory System < /span>
In addition to the tax system, Kenya is actively building its crypto asset regulatory framework to cope with the domestic valuation of up to several billion The huge crypto asset market worth tens of billions of dollars. Kenya has taken a series of pioneering measures to regulate the use and trading of crypto assets, protect consumers and promote the development of the digital economy.
Blockchain Association of Kenya (BAK) under the guidance of the National Assembly’s Finance and National Planning Sector Committee , has begun drafting the Virtual Asset Service Providers Bill. This legislative work is a key step for Kenya to embrace the digital economy and maintain its important position in the African crypto asset sector. The draft bill will cover the definition of crypto assets, the regulation of currencies created through crypto mining, and the responsibilities of individuals or companies that trade them, including taxation, ownership issues and measures to promote innovation in the field.
Among them, especially in the regulation of crypto assets obtained through mining, the Virtual Asset Service Provider The draft Commerce Bill regulates various aspects of mining activities. Kenya’s regulatory framework aims to ensure the legality of mining activities and provide clear legal guidance for them.
According to the draft, first, mining companies may need to comply with anti-money laundering (AML) and anti-terrorist financing (CFT) and other international standards. Second, Kenya may implement tax policies requiring crypto miners to declare and pay taxes on their mining income to ensure that the government can obtain tax revenue from crypto asset mining activities. Third, environmental impact is also an important factor that Kenya considers when regulating mining activities. Given the potential environmental impact of mining, Kenya may require crypto miners to use renewable energy or ensure energy efficiency of mining activities. Fourth, technical standards and security measures are equally important. Kenya may formulate relevant rules to protect mining activities from cyber attacks and theft, ensuring the security and reliability of the mining process. Finally, consumer protection is also a key part of Kenya’s regulatory framework, aimed at protecting consumers from fraud and unfair trade practices related to mining. This includes providing clear risk disclosures and dispute resolution mechanisms. At the same time, Kenya's regulatory framework will maintain a certain degree of flexibility to adapt to the rapid development of crypto asset mining technology and changes in market conditions, seeking to encourage technological innovation and industry best practices by providing incentives, R&D support and cooperation opportunities. Kenya has faced significant challenges in advancing its regulatory framework for crypto assets, particularly It is aimed at the controversial digital identity encryption project "Worldcoin (WLD)". The project plans to distribute currency to users worldwide and requires retinal scans to create a digital identity, raising serious concerns about personal privacy and data security from the Kenyan government. In response, Kenya took a firm stance and decided to shut down Worldcoin’s operations in the country, a decision that reflects the Kenyan government’s cautious approach to regulating emerging technologies and its commitment to protecting citizens’ privacy and security. Additionally, the Kenyan government stressed the importance of public education to raise citizens’ awareness of the risks associated with crypto assets and to strike a balance between promoting technological innovation and ensuring regulatory compliance. Kenya’s regulatory framework has shown adaptability and flexibility, responding quickly to emerging technologies and market changes, in line with the growing global demand for data privacy (e.g., the EU’s General Data Protection Regulation (GDPR) for strict protection of personal data) and security. consistent with the concerns. This stance could provide a reference for other countries in handling similar projects, prompting global regulators to pay more attention to personal privacy and data protection while promoting technological innovation.
In addition, the Central Bank of Kenya (CBK) is also actively exploring the possibility of central bank digital currency (CBDC) , in response to the emergence of private crypto assets, and pay attention to the business opportunities and risks they bring. This exploration reflects the central bank’s openness to emerging payment technologies, while also demonstrating its active role in maintaining financial stability and preventing illegal activities.
In 2024, with the development of AI technology, the Kenyan government plans to develop a cryptocurrency exchange and The market integrates a real-time tax system to monitor and record transaction details to ensure effective supervision of crypto asset transactions, improve tax efficiency, and ensure that crypto asset-related income is not missed. The Kenyan government plans to use M-PESA Paybills (a widely used mobile payment platform in Kenya) and Till Numbers as virtual Electronic Tax Registers (ETRs) from December 25, 2024. The move is part of Kenya’s tax reforms to increase transparency in crypto asset transactions through digital means, broaden the tax base and address tax evasion.
4. Summary and Outlook span>
The Kenyan government has shown a cautious yet open attitude towards the field of crypto assets. Kenya's adjustments in tax and regulatory policies reflect the government's careful balance between promoting economic growth, ensuring social equity and responding to international pressure. Through these policy adjustments, the Kenyan government has demonstrated a high degree of sensitivity and adaptability to changes in domestic and international economic situations, while also demonstrating its positive role in promoting the country's modernization process.
Looking ahead, Kenya is expected to work with other countries and international organizations to jointly address the impact of crypto assets. In view of the challenges and opportunities faced by the financial sector, we will continue to strengthen tax collection and management, optimize the tax structure, and promote the healthy development of financial technology within the regulatory framework. Kenya is expected to clarify the legal status of crypto assets, formulate more detailed regulatory rules, and implement stricter supervision on crypto asset exchanges and trading activities. Referring to the experience of South Africa and Nigeria, Kenya is expected to become a leader in Africa in establishing a regulatory framework for crypto assets. In addition, Kenya may advance tax policy reforms to improve tax compliance of crypto asset transactions. These measures will help Kenya find a balance between financial innovation, financial security and economic development, and provide a solid foundation for the sustainable development of the crypto asset industry.