The definitions provided in this glossary are for general informational purposes only and do not constitute legal definitions. They are simplified explanations intended to help users understand common legal terms in everyday language.
This glossary is not a substitute for legal advice, formal legal definitions or consultation with a qualified legal professional. Legal terms may have different meanings depending on the context, jurisdiction or applicable laws. For official interpretations, please refer to the relevant statutes, legal texts or consult us.
A
Accountant’s Certificate – A written statement by a certified accountant confirming the accuracy of financial or tax information.
Advance Tax – A tax paid in advance, typically by commercial vehicle owners, before using the vehicle on public roads.
Agency Notice – A legal order issued by the Kenya Revenue Authority (KRA) to a third party (like a bank), instructing them to pay taxes owed by a taxpayer from the taxpayer’s funds.
Affordable Housing Levy (AHL) – A mandatory contribution by both employers and employees (each contributing 1.5% of the employee’s gross salary as of July 2025) to fund affordable housing initiatives.
Amended Return – A corrected version of a previously submitted tax return.
Assessment – The process by which the KRA determines the amount of tax owed by a taxpayer.
B
Base Erosion and Profit Shifting (BEPS) – Tax planning strategies used by multinational companies to shift profits from high-tax to low-tax countries, reducing their tax bills.
Beneficial Ownership – A situation where someone enjoys the benefits of ownership (like dividends or control) even though the legal title is in another person’s name.
Binding Private Ruling – An official written interpretation by the KRA on how tax laws apply to a specific transaction, which the taxpayer can rely on.
C
Capital Gains Tax (CGT) – A tax on the profit made from selling property, land or shares, currently at 15% of the net gain (as of July 2025). It is a final tax.
Chargeable Income – The income on which tax is actually charged after deductions and exemptions.
Commissioner – Refers to the Commissioner General of the Kenya Revenue Authority or any officer authorised to perform duties under tax law.
Corporate Income Tax (CIT) – The tax levied on the profits of companies and other corporate entities in Kenya. The standard rate is 30% for resident companies and 37.5% for non-resident companies (as of July 2025).
Customs Duty – Tax imposed on goods imported into Kenya.
D
Date of Accrual – The date when income is considered to have been earned, even if payment has not been received yet.
Deductible Expense – A cost that can be subtracted from gross income to reduce taxable income.
Digital Service Tax (DST) – A now-defunct tax on income earned by non-resident persons through online marketplaces and digital platforms. It is now replaced by the Significant Economic Presence (SEP) tax.
Domestic Minimum Top-Up Tax – Introduced to ensure multinational groups with a consolidated annual turnover of at least EUR 750 million pay an effective tax rate of at least 15% in Kenya (as of July 2025). This is based on the OECD’s Pillar Two framework.
Double Taxation Agreement (DTA) – A treaty between Kenya and another country to prevent a person from being taxed on the same income in both countries.
Duty-Free – Goods that are exempt from customs duties, often available at specific locations like airports.
E
e-Invoicing – The electronic generation and transmission of invoices in real-time to the tax authority, often through systems like eTIMS.
eTIMS (Electronic Tax Invoice Management System) – A KRA software solution for electronic generation and transmission of tax invoices in real-time, designed to enhance VAT compliance.
Excisable Goods – Products like alcohol, fuel and tobacco that attract excise duty.
Excisable Services – Services like telephone and internet data services that attract excise duty.
Excise Duty – A tax on the production or sale of specific goods within the country, and on certain services.
Exempt Income – Income that is not subject to tax under the law.
Export Processing Zone (EPZ) – Special zones in Kenya where businesses enjoy tax incentives to promote export activities, including a reduced corporate income tax rate for a specified period.
F
Filing Deadline – The latest date by which tax returns must be submitted to KRA.
Final Tax – Tax that is not subject to further adjustment or assessment (for example, withholding tax on qualifying interest and Capital Gains Tax).
Fringe Benefit Tax (FBT) – A tax paid by an employer when they give a loan to an employee, director or their relative at an interest rate lower than the market rate. The tax is charged on the benefit the person gets from paying less interest than usual.
G
Goods in Transit – Goods passing through Kenya that are not for local sale, usually exempt from import duties.
Gross Income – All income received before any deductions or expenses are taken out.
H
Holding Company – A company that owns enough shares in another company to control it, often used in tax planning.
Hypothetical Tax Liability – A theoretical amount of tax used for comparison or planning, not an actual payment.
I
Import Declaration Form (IDF) – A mandatory document submitted to KRA before importing goods.
Import Duty – Tax charged on goods brought into the country.
Income Tax – A direct tax levied on an individual’s or entity’s income, encompassing various categories like employment income, business income, rental income and investment income.
Input Tax – VAT paid by a business when purchasing goods or services, which can be reclaimed.
Installment Tax – Tax paid in parts throughout the year based on estimated income, applicable to certain taxpayers whose income is not subject to PAYE.
International Taxation – Tax rules governing cross-border transactions, often involving DTAs and BEPS.
Investment Allowance – A tax deduction allowed for wear and tear on business assets such as machinery or buildings.
iTax – The online platform provided by KRA for taxpayers to file returns, make payments and access various tax services.
K
Kenya Revenue Authority (KRA) – The government agency responsible for tax collection and enforcement in Kenya.
KRA PIN – A Personal Identification Number issued by KRA, required for many financial and legal transactions, including filing taxes, opening bank accounts and registering businesses.
L
Late Payment Penalty – A fine imposed for not paying tax on time.
Loss Carryforward – A tax rule that allows a business to apply a loss from one year to reduce taxable income in future years, though limitations on the carryforward period have been introduced.
M
Minimum Tax – A now-defunct tax that was introduced to ensure that businesses pay at least some tax, even if they report losses.
Monthly Rental Income (MRI) – A simplified tax regime for landlords earning residential rental income between KES 288,000 and KES 15 million annually. The tax rate is 7.5% on gross rent (as of July 2025).
Multinational Enterprise (MNE) – A company with operations in multiple countries, often involved in international tax planning.
N
Non-Resident – A person or business that does not meet the criteria for being taxed as a Kenyan resident.
Notice of Objection – A formal response by a taxpayer disagreeing with a tax decision.
O
Objection Decision – KRA’s Commissioner-General’s official response to a taxpayer’s notice of objection.
Offshore Account – A bank account located outside Kenya.
Output Tax – VAT charged by a VAT-registered business on its sales of goods and services.
P
Pay As You Earn (PAYE) – Income tax deducted from an employee’s salary by the employer and submitted to KRA.
Penalty – A financial punishment for breaking tax laws, such as failing to file returns or making false statements.
Permanent Establishment (PE) – A fixed or lasting business presence in Kenya through which a foreign company or person carries out business, making them taxable in Kenya.
Personal Relief – A tax relief granted to resident individuals, reducing their overall income tax liability.
Presumptive Tax – A now-defunct tax that was charged on small businesses with a turnover below KES 5 million annually, typically based on the value of their business permit or trading licence. (Note: Turnover Tax is now used for businesses with turnover between KES 1M and KES 25M, as of July 2025).
Professional Fees Withholding Tax – Tax deducted at source when paying professionals like lawyers or consultants.
R
Real-Time Data Transmission – Requirement for businesses to send sales data directly to KRA systems (for example, through TIMS or eTIMS).
Refund Claim – A formal request to KRA for repayment of overpaid taxes.
Related Party Transaction – A deal between companies with shared ownership or control, subject to scrutiny in transfer pricing.
Resident – A person or company legally considered to be based in Kenya for tax purposes.
Royalties – Payments for the use of intellectual property, often subject to withholding tax.
S
Self-Assessment – When a taxpayer calculates and declares their own tax liability.
Significant Economic Presence (SEP) Tax – A tax introduced to replace DST, levied on the gross turnover of non-resident entities operating within digital marketplaces in Kenya.
Stamp Duty – A tax charged on certain legal documents or instruments, used to record and give legal effect to certain types of transactions.
Supply (VAT) – Any transaction where goods or services are provided for consideration, forming the basis of VAT.
T
Tax Agent – A professional authorised by KRA to represent or assist taxpayers with their tax matters.
Tax Avoidance – Designing transactions mainly to reduce or avoid tax. In Kenya, KRA’s Commissioner-General may adjust tax liability and apply penalties under certain conditions.
Tax Compliance Certificate (TCC) – A certificate issued by KRA confirming that a taxpayer has complied with their tax obligations.
Tax Evasion – Illegally avoiding tax through fraud or misrepresentation.
Tax Invoice – An official document issued by a VAT-registered business for a sale, required to claim input tax.
Tax Planning – The legal arrangement of finances to reduce tax liability.
Tax Appeals Tribunal (TAT) – A judicial tribunal where taxpayers can contest decisions made by KRA.
Taxable Income – The portion of income that is subject to tax after deductions and allowances.
TIMS (Tax Invoice Management System) – The predecessor to eTIMS, also used for real-time electronic invoice transmission.
Turnover Tax (TOT) – A simplified tax regime for small businesses with a gross annual turnover between KES 1 million and KES 25 million. The rate is 1.5% of the gross turnover (as of July 2025).
U
Undeclared Income – Income not reported to KRA, often discovered during audits.
Unilateral Relief – A tax relief offered by Kenya even when there is no Double Taxation Agreement with another country.
V
Value Added Tax (VAT) – A consumption tax on the value added to goods and services at each stage of production and sale. The standard rate in Kenya is 16% (as of July 2025).
VAT Exempt – Goods or services not subject to VAT; suppliers cannot claim refunds on input VAT paid.
VAT Refund – A request to reclaim excess input VAT that exceeds output VAT.
Voluntary Tax Disclosure Program (VTDP) – A temporary program allowing taxpayers to declare previously unpaid taxes with reduced penalties.
W
Waiver of Penalties and Interest – Relief granted by KRA to reduce or cancel tax penalties and interest under certain conditions.
Withholding Tax (WHT) – Tax deducted at source from payments like dividends, interest, rent, royalties or service fees, and sent to KRA on behalf of the recipient.
Z
Zero-Rated – Goods or services taxed at 0% VAT; suppliers can claim refunds on input VAT paid.