How do I optimise my tax position within the law?

 

Receive income from countries that have a double tax agreement with Kenya:

Kenya has double tax agreements with the following countries: Canada, India, Denmark, Iran, France, Germany, South Korea, Norway, Qatar, South Africa, Sweden, UAE, UK, Zambia and Singapore.
Where a Kenyan tax resident earns any employment or business income from these countries and is taxed there, this tax credit will be recognised by the KRA for Kenyan tax purposes, and in this way avoiding the double taxation of the same income.

 

Tax free remuneration

Where, as an employee you receive the following incomes, these would not be subject to tax in Kenya:

a) A daily per diem not exceeding KES 2,000;
b) Bonuses, overtime allowance and retirement benefits paid to an employee whose gross income is in the lowest tax band (KES 12,298.33 per month);
c) Meals provided by an employer to employees, where the value per month does not exceed KES 4,000 per month.

 

Pay KES 20,000 per month as an employee pension contribution

An employee’s contribution to any registered defined benefit fund or defined contribution fund is now an admissible deduction in arriving at the employee’s taxable pay of the month. The law allows for a maximum deduction of KES 20,000 against an individual’s gross income e.g. where you have a gross salary of KES 100,000, your taxable income would be reduced to KES 80,000.

The contribution needs to be made to a pension scheme registered with the Retirement Benefits Authority and the KRA for the contribution made to be tax deductible.

When one withdraws from a pension before their retirement, the first KES 300,000 is regarded as tax free, while if done after retirement, the first KES 600,000 is regarded as tax exempt. As such, a pension contribution works as a tax shield during your working life, a significant tax free amount when you retire and a retirement nest.

Pay for a life, medical or educational insurance policy

An insurance relief of 15% of ones insurance premiums on life, education or medical policies is granted to Kenyan tax payers, where the insurance is taken with a local insurer. This insurance relief is subject to a maximum of KES 5,000 per month. The taxpayer ought to request the insurance company to issue them with an insurance relief card showing name of insured, type of policy, capital sum payable, maturity date, premiums payable and commencement date of the policy.

Pay for a mortgage for house you live in

If you take a mortgage for a house you live in, from a bank, insurance company, the National Housing Corporation or building society, you are allowed as a tax deduction an amount of interest up to a maximum of KES 300,000 annually (equivalent to KES 25,000 per month) with effect from 1st January, 2017. Where a person occupies any premises for residential purposes for part of a year of income the allowable deduction shall be limited to the period of occupation.

Claim disability tax benefit if you are a person living with disability

If you are a person living with a disability and registered with the National Council for People with Disability (NCPWD) and the KRA, then the first KES 150,000 of your monthly salary would be tax free. This is equivalent to KES 1.8m per year. By March 2017, 349,000 Kenyans had registered with the National Council for People with Disability (NCPWD).

Check your tax status before the end of the year with your employer

As your employer may not be aware of all applicable tax deductions and tax reliefs, then you need to check with your employer that your annual tax has been computed correctly at the end of the year. This allows for any corrections to be made well before your employer issues your P9 tax deduction card in January.
Also, it’s a good idea to confirm that your iTax profile reflects the correct tax liability and tax for the year, speak to your KRA tax station and apply for a tax compliance certificate.

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