IT 5
Companies: corporation tax, instalment tax and incentives
1Scope and legal basis
A company is a separate taxable person under the Income Tax Act, charged on its total income for the accounting year at the rates in the Third Schedule: 30% for a resident company, and, since the Finance Act 2025, 30% for the permanent establishment of a non-resident company with an additional repatriated income tax of 15% on profits repatriated from the branch (replacing the old 37.5% branch rate). Distributions to shareholders are then taxed as dividends (withholding tax at 5% for residents holding less than 12.5%, exempt above that, 15% for non-residents), so company profit is taxed once at the company and once, lightly, on distribution. The Third Schedule and the special economic zone, export processing zone and other statutes carve out reduced rates for favoured activities, and section 12G imposes a minimum top-up tax on large multinational groups. Instalment tax under section 12 and the Twelfth Schedule spreads the payment over the year.
2Key definitions
3Charge, computation and rates
The rate table
| Company | Rate | Notes |
|---|---|---|
| Resident company (general) | 30% | On taxable profit after capital allowances and losses |
| Non-resident company with a permanent establishment (branch) | 30% plus 15% repatriated income tax | Finance Act 2025; the branch is otherwise computed like a resident company, and head office charges are deductible only if arm's length and supported |
| Non-resident mining or petroleum contractor | 30% (reduced from 37.5% by the Finance Act 2026), plus 15% repatriation tax | Ninth Schedule regime for extractives |
| EPZ enterprise | 0% for ten years, 25% for the next ten, then 30% | Must export at least 80% of output; 20% may be sold locally with duty and VAT paid |
| SEZ enterprise, developer, operator | 10% for ten years, 15% for the next ten | Plus withholding exemptions in the first ten years and 100% investment allowance |
| Motor vehicle assembler (local assembly) | 15% for the first five years, extended a further five if at least 50% of ex-factory value is local content | Third Schedule |
| Shipping business; carbon market exchange or emission trading operator | 15% for the first ten years | Third Schedule |
| Company certified by the Nairobi International Financial Centre Authority | 15% for the first ten years and 20% for the next ten, where it invests at least KES 3 billion in Kenya in the first three years | Plus 5% capital gains tax on the investment shares held five years |
| Residential developer of at least 100 units a year | 30% (the 15% rate was repealed by the Finance Act 2026) | The preferential rate lapsed for years from 1 July 2026 |
| Unit trusts, collective investment schemes, REITs registered with the CMA | Exempt at the vehicle level | Income taxed on distribution to unit holders; REIT property transfers exempt from CGT and stamp duty (Finance Act 2026) |
| Non-resident ship or aircraft owner or operator; message transmission | 2.5% of gross Kenyan receipts; 5% for message transmission | Gross-basis charges for non-residents without a full PE computation |
Computing the company's tax
- Start with accounting profit, make the section 15 and 16 adjustments (IT 3), deduct capital allowances (IT 4), deduct losses brought forward from the same business within the five-year limit, and apply the rate. Dividends received from a resident company are exempt where the recipient holds 12.5% or more of the voting power, and otherwise taxed at source at 5% as a final tax; dividends from a non-resident company are taxable at 30% with credit for foreign tax only under a treaty.
- Withholding tax deducted from the company's own receipts (professional fees 5%, contractual fees 3%, interest 15%, commercial rent through an appointed agent 10%) is a credit against the year's tax; a resulting overpayment is refunded on application within five years or carried forward.
- Advance tax on commercial vehicles (KES 2,500 per tonne of load capacity or KES 5,000 per year for vans, pick-ups and lorries, and KES 100 per passenger capacity per month or KES 5,000 a year for buses and matatus, whichever is higher) is paid at licensing and credited against the year's tax.
- Fringe benefit tax at 30% on low-interest employee loans and the employer's AHL (1.5%) and NSSF contributions are deductible expenses of the company.
- A company must account for corporation tax on its own profit and for the withholding tax, PAYE, VAT, excise and levies it collects as agent; the agency taxes are not its expense and never reduce its own tax.
Instalment tax for Baraka Ltd, year to 31 December 2026
Tax for 2025 (assessed): KES 12,000,000. Estimate for 2026: KES 15,000,000. The instalment base is the lower of 110% × 12,000,000 = 13,200,000 and 15,000,000, so 13,200,000.
Instalments: 25% × 13,200,000 = KES 3,300,000 on 20 April, 20 June, 20 September and 20 December 2026. Withholding tax credits received during the year reduce the instalments where the company so elects.
Actual tax for 2026 turns out to be KES 15,500,000. Balance of tax: 15,500,000 - 13,200,000 = KES 2,300,000, due by 30 April 2027 (within four months of the year end), with the return by 30 June 2027 (by 30 April for years starting on or after 1 January 2027).
Underestimation penalty: where the instalments paid are less than the tax finally assessed by more than the allowed margin (the Twelfth Schedule's 20% penalty on the shortfall applies where the instalment estimate was below the actual by more than 10%), interest also runs at 1% a month on the shortfall from the instalment date.
Groups, reorganisations and dividends
- Kenya has no group relief: each company is taxed alone and a loss in one subsidiary cannot be surrendered to another. Groups plan through management fees and interest (arm's length, with withholding tax) and through the dividend exemption above 12.5%.
- Transfers of assets within a group on a reorganisation may be made at tax written-down value for capital allowances and are exempt from capital gains tax and stamp duty where the reorganisation is for a legitimate business purpose and not a step towards a sale to a third party; the Finance Act 2026 also exempts transfers of property to a registered REIT.
- Dividends: a company must withhold 5% on dividends to resident individuals and to resident companies holding under 12.5%, and 15% on dividends to non-residents (the 5% rate for East African Community citizens was repealed by the Finance Act 2026), and pay the withholding tax within five working days. Dividends paid out of untaxed income (exempt income, capital gains taxed at 15%) attract compensating tax at the company; the 2020 amendments narrowed compensating tax to dividends out of untaxed gains.
- Deemed dividends: a loan or advance to a shareholder that is not repaid, and an expense incurred for a shareholder's benefit, are treated as dividends distributed and taxed accordingly.
4Compliance: returns, payment and penalties
A company registers for a PIN and the relevant obligations (income tax company, PAYE, VAT, excise) on iTax, pays instalment tax on the four dates, files the self-assessment return with audited accounts and the tax computation within six months of the year end (four months for accounting years beginning on or after 1 January 2027), and pays the balance within four months. The return is accompanied by the capital allowances schedule, the withholding tax credit schedule, and, for groups over the transfer pricing thresholds, the local file within six months and the country-by-country report where consolidated revenue exceeds KES 95 billion. Late filing costs the higher of 5% of the tax due and KES 20,000; late payment 5% plus interest at 1% a month; under-declared instalments attract the Twelfth Schedule penalty and interest; and the minimum top-up tax return and payment are due by the end of the fourth month after the tested year. EPZ and SEZ enterprises file the same returns and account for the 20% local sales at full rates; an EPZ enterprise that loses its licence loses the holiday from the beginning of the year.
5Examinable focus
What KASNEB tests
Expect a full corporate tax computation (adjusted profit, capital allowances, losses, tax at 30%, less withholding and advance tax credits, with the instalment tax schedule and the balance of tax dates) and, in Advanced Taxation, a branch versus subsidiary comparison: 30% plus 15% repatriation tax against 30% plus 5% or 15% dividend withholding, with the deductibility of head office costs and the treaty position. Learn the incentive rates by heart (EPZ 0/25/30, SEZ 10/15, assembly 15, NIFC 15/20) and their conditions, the instalment formula with the 110% rule and the agricultural 75/25 split, the dividend exemption at 12.5%, compensating tax on untaxed distributions, and the minimum top-up tax as the newest topic. Theory parts ask why there is no group relief and how groups plan around it.