Corporate taxation in Kenya

Income Tax, or the tax on income, is charged on income of a person (individual & or Companies) for each year in accordance with section 3(1) of the Income Tax Act.

S 3(1)’’..... a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.’’

It is important to understand the words and phrases used in the taxation of income for easier interpretation. These include:

Year of income. Year of Income is a period of 12 months commencing 1 January and ending on 31 December in each year. It is the same as calendar year. Income tax is charged for each year of income.

The year of income should be distinguished from the accounting year. There is a date to which accounts of a business are prepared each year, and this date would indicate the accounting year end. The accounting year ending on 31 December would coincide with the year of income. Other accounting year-ends would however fall in a given year of income and the profit or loss per the accounts would be for that year of income. For example, an accounting date ended 30 May 2011 would fall to be treated as the year of Income 2011.

(Taxable) income this is a gross income from various sources minus allowable deductions i.e. expenses incurred wholly and exclusively in the production of the income.

(Taxable) person, A person whose income is taxed is either:

a) an individual i.e. a natural person; or b) a legal person e.g. a company. The company here includes a Trust, Co-operative Society, Estate, Club, Trade Association etc.
A taxable person does not include a partnership. A partnership is not taxed on its income, but the partners are taxed on their share of profit or loss from the partnership.

Resident and non-resident persons. There are