Nairobi, Kenya – July 9, 2025 – The Kenyan government has enacted significant changes to its tax regime, removing long-standing income tax exemptions for certain expatriate workers, a move that could reshape the country’s appeal to foreign talent. The Finance Act 2025, signed into law by President William Ruto on June 26, 2025, grants the Kenya Revenue Authority (KRA) expanded powers to collect taxes from non-residents earning income in Kenya, signaling a broader push to boost domestic revenue. New Tax Provisions for Expatriates Under the amended Tax Procedures Act, the KRA can now pursue taxes from non-residents—defined as individuals who spend fewer than 183 days in Kenya within a tax year and lack permanent residency—on income derived from employment, business operations, or investments within the country. Previously, certain expatriates, particularly those employed by foreign companies, benefited from a provision allowing a one-third deduction of their total gains and profits before taxation. This preferential treatment has been scrapped, meaning these workers will now face taxation on their full income, reducing their take-home pay.
The Finance Act also empowers the KRA to compel local agents, payors, or financial institutions to remit taxes owed by non-residents directly to the authority, closing enforcement gaps in cross-border transactions, including those involving digital services and royalties. According to analysts at the law firm Bowmans, this change is particularly significant for non-residents earning Kenya-sourced income, as it strengthens the KRA’s ability to enforce compliance.
Impact on Kenya’s Economic Landscape
The removal of tax exemptions for expatriates has sparked mixed reactions. Proponents argue it levels the playing field for local professionals, who have long faced higher tax burdens compared to some foreign workers. However, critics warn that the policy may deter skilled international talent, potentially impacting Kenya’s attractiveness as a hub for foreign investment. Kenya, a key economic player in East Africa, has been grappling with significant fiscal challenges, including a staggering foreign debt and a need to fund public services. The government’s push to increase revenue comes amid broader tax reforms, including the recently implemented Finance Act 2025, which also maintains tax exemptions for electric vehicles to boost e-mobility but introduces new levies on solar and wind energy equipment.
Context of Broader Tax Reforms
The decision to tax expatriates more comprehensively aligns with Kenya’s efforts to address resource mobilization gaps. According to a report by The Standard, less taxation on high-net-worth individuals and an underdeveloped property tax regime have been identified as key challenges. The KRA’s expanded powers are seen as a step toward closing these gaps, particularly as the country seeks to meet International Monetary Fund (IMF) conditions for critical financing by tackling endemic corruption and boosting domestic revenue.
Compliance and Next Steps
For expatriates and their employers, compliance with the new tax regime will require careful navigation. Non-residents earning income in Kenya must file annual tax returns by June 30 each year, with employment income subject to the Pay As You Earn (PAYE) system. Kenyan citizens working abroad may receive relief for taxes paid in foreign jurisdictions, provided they furnish proof, but non-residents will face stricter scrutiny under the new rules.
The KRA has faced challenges with its iTax system, which experienced technical glitches due to heavy traffic during the June 30, 2025, filing deadline. In response, the authority extended the deadline to July 5 and waived penalties for late filings, urging taxpayers to comply promptly to avoid future penalties.
Looking Ahead
As Kenya implements these tax changes, the balance between revenue generation and maintaining economic competitiveness remains delicate. While the policy aims to bolster fiscal sustainability, its long-term impact on foreign investment and Kenya’s position as a regional business hub will depend on how expatriates and multinational companies adapt to the new tax landscape.
For further details on the Finance Act 2025, taxpayers and employers can visit the KRA’s official website at itax.kra.go.ke or consult with tax professionals to ensure compliance with the updated regulations.
