A section of expatriate workers in Kenya and their employers have been dealt a blow after the Treasury removed a long-standing preferential provision that allowed for deduction of one-third of their total gains and profits from the employment of foreigners before taxation.
The newly signed Finance Act 2025 has deleted the provision that currently allows for the partial deduction of employment gains by a section of foreign workers before taxation—dealing a blow to their net earnings even as the country battles to maximise revenue collection.
The deleted provision allowed for partial taxation of the income of non-citizens as long as the employer is a non-resident company or partnership trading for profit; the employee is in Kenya solely to perform duties in relation to the employer’s regional office, which is approved by the Kenya Revenue Authority(KRA); and the employee is absent from Kenya for a period or periods aggregating to at least 120 days in that year of income.
The provision also applied to foreign workers whose gains and profits are not deductible by the employer or any related entity for purposes of computing taxable income in Kenya.
Analysts said that the deleted provision is likely to dim Kenya’s attractiveness for foreign workers who now face increased tax liability on their personal income.
“This repeal eliminates a long-standing tax incentive designed to attract expatriate employees working in Kenya for regional offices of non-resident companies. In the absence of this provision, 100 percent of the gains and profits earned by such non-citizen employees will now be subject to tax, with no partial exemption available,” law firm Bowmans said in a note.
“Consequently, affected employees may face increased personal income tax liabilities, and employers may incur higher costs if they choose to gross-up salaries to preserve employees’ net take-home pay,” it added.
Kenya is a major hub for expatriate workers owing to the presence of scores of regional and international companies and organisations.
Although the Kenya National Bureau of Statistics has not released data on the number of expatriate workers in the country, the latest available statistics by the Central Bank of Kenya (CBK) on the value of cash sent back home by this group showed that there are thousands of them working here.
The CBK data shows that foreigners living and working in Kenya sent to their home countries a record Sh86.99 billion in the year ended December 2023. This amount was equivalent to Sh7.25 billion a month, and a 24.3 percent rise from Sh69.96 billion the expats had remitted to their home countries in the preceding year.
The Finance Act 2025 has also granted KRA expanded powers to collect taxes from persons not residing in Kenya but are subject to tax in the country.
The Finance Act 2025 has amended the Tax Procedures Act and extended the taxman’s scope beyond resident taxpayers to also include non-resident persons who are subject to tax in Kenya.
The amendment incorporates non-resident persons in all operative provisions governing third-party tax collection, including notices to agents, obligations of banks and other intermediaries, the operation of joint accounts, and the legal effect of payments made by agents on behalf of such persons.
