New law lets KRA pursue digital, rental and employment taxes from non-residents

The Kenya Revenue Authority (KRA) can now directly collect taxes from non-resident individuals and entities, following a key amendment to the Tax Procedures Act under the Finance Act 2025.

The new provisions empower KRA to pursue taxes from persons who are not based in Kenya but earn income subject to taxation under Kenyan law, including income from employment, business operations, or investments within the country.

“Section 42 of the Tax Procedures Act is amended— (a) in subsection (1), by inserting the words ‘or a non-resident person who is subject to tax in Kenya’ immediately after the word ‘taxpayer’; (b) in subsection (2)— (i) in the opening statement, by inserting the words ‘or the non-resident person who is subject to tax in Kenya’ immediately after the word ‘taxpayer’,” the Finance Act 2025 reads.

Non-resident persons are defined as individuals who do not have a permanent establishment in Kenya and who stay in the country for less than 183 days within a given tax year. Despite not being physically present, such individuals remain liable for taxes on income earned from Kenyan sources.

Tax experts have pointed out that the amendment effectively brings non-residents under all legal frameworks tied to third-party tax collection. These include procedures related to notices issued to tax agents, responsibilities placed on banks and financial intermediaries, treatment of joint accounts, and the enforceability of payments made by agents acting on behalf of the non-residents.

Tighten tax compliance

Analysts also noted that the expansion aligns with global efforts to tighten tax compliance across borders and curb base erosion.

The changes are expected to enhance KRA’s reach, especially as digital commerce and cross-border transactions continue to grow.

KRA enforces both direct and indirect taxes on income and consumption. Direct taxes affecting non-residents include several key obligations, depending on the nature of income earned within Kenya.

Non-residents providing digital services to consumers in Kenya are required to pay the digital service tax (DST). This applies to income earned through digital platforms and online marketplaces. KRA requires the returns to be filed by the 20th day of the month following the transaction.

For individuals, income tax applies to earnings from business, employment or even hobbies.

Kenyan citizens working abroad in entertainment, sports, or other professions may receive relief for tax paid in foreign jurisdictions, provided they furnish proof. These individual income tax returns must be filed annually, with a deadline set for June 30, each year.

Employment income earned by non-residents in Kenya is also taxed through the Pay As You Earn (PAYE) system. Employers are responsible for deducting and remitting the tax monthly, with the deadline falling on the 9th of the following month.

Withholding tax

Non-residents earning income from rental properties are subject to a 30 per cent withholding tax on gross rental income.

Other Topics To Read

• Business
• Headlines
• Kenya Revenue Authority
• KRA
• Taxes
• Digital Service Tax
• Excise Duty
• withholding tax
• Finance Act 2025
• non-resident tax
• New law lets KRA pursue digital
• rental and employment taxes from non-residents

For those paying Monthly Rental Income (MRI), the returns must be submitted by the 20th of the following month, while annual returns must be filed by June 30.

“Foreign companies operating in Kenya without permanent establishment are taxed under Corporate Income Tax at a rate of 37.5 per cent. These returns are due within six months after the end of a company’s financial year,” KRA says.

Small and micro enterprises, including those run by non-residents, may also be liable for Turnover Tax if they generate between Sh1 million and Sh50 million annually. The tax, levied at one per cent of gross turnover, must be paid and filed by the 20th of the following month.

In cases where non-residents profit from the sale or transfer of property in Kenya, Capital Gains Tax (CGT) is applied at five per cent on the gains made.

In addition, non-residents are subject to Withholding Tax on various forms of income. This includes dividends, royalties, management fees, professional services, and interest income. The payer is obligated to deduct the appropriate tax and remit it directly to KRA on behalf of the non-resident recipient.

Indirect taxes imposed on consumption include Value Added Tax (VAT) and Excise Duty, which vary depending on the nature of the goods or services.