The Kenyan government has demonstrated a cautious yet open stance in the field of crypto assets.

Written by: TaxDAO

1. Introduction

Kenya is regarded as a crypto pioneer in Africa. A report by the United Nations in 2022 indicated that Kenya has the highest proportion of crypto asset users in Africa. While crypto assets provide more possibilities for the Kenyan people, they also pose significant risks in terms of financial stability and tax security. To mitigate these risks and ensure financial stability, the Kenyan government is creating a secure crypto asset ecosystem through improved legislation. Additionally, the Central Bank of Kenya (CBK) is actively exploring the possibility of issuing a Central Bank Digital Currency (CBDC). These adjustments reflect Kenya's strong adaptability to emerging financial technologies.

2. Overview of Kenya's Basic Tax System

Kenya's tax system is relatively complex, primarily implementing a territorial tax system and a personal tax system, with the territorial system being predominant and the personal tax system applied to income tax. The Kenyan tax system includes various types of tax collection and exemptions, zero rates, tax incentives, and refunds. The main taxes in Kenya include income tax, value-added tax (VAT), customs duties, and excise tax. All income taxes in Kenya are collected by the central government, so county governments no longer tax income. However, local governments in Kenya have the authority to levy property and entertainment taxes.

2.1 Income Tax

In Kenya, income tax is the most important tax item. Income tax applies to individuals and corporations (including residents and non-residents) on all income earned or sourced from Kenya. Different sources of income have different tax treatments.

2.1.1 Corporate Income Tax

Kenya's corporate income tax is levied on all legal entities for income generated or sourced within Kenya. Companies registered in Kenya are considered tax residents of Kenya. Companies registered outside Kenya will also be considered tax residents if their management and control are exercised within Kenya during a tax year.

In terms of tax rates, the corporate income tax rate for resident companies in Kenya (including foreign parent companies' subsidiaries in Kenya) is 30%, while the corporate income tax rate for foreign companies' branches and permanent establishments in Kenya is 37.5%. Resident and non-resident companies in Kenya may qualify for special preferential tax rates under certain conditions, with specific regulations being quite complex and not listed in detail.

Taxable income for corporate income tax in Kenya includes all types of income, such as total revenue from the sale of goods, contracting projects, and providing services, as well as but not limited to dividends, interest income, royalties, rental income, and foreign income. Notably, exempt income includes: dividends distributed by companies to resident companies holding 12.5% or more of their shares are tax-exempt; dividends paid by registered venture capital companies are also tax-exempt; income generated from securities traded by licensed securities dealers on the Nairobi Securities Exchange held for no more than 24 months is tax-exempt; and income from unit trusts or collective investment schemes established by employers is exempt from income tax.

Non-resident companies in Kenya are only liable for tax on income generated within Kenya or sourced from Kenya. Dividends, interest, royalties, and rental income obtained by non-resident companies through their permanent establishments are taxable in Kenya. Capital gains from assets located in Kenya are subject to capital gains tax.

2.1.2 Withholding Tax

Kenya levies withholding tax on both resident and non-resident companies, with rates ranging from 3% to 30%. The Finance Act of 2017 specifically provides tax incentives for companies, developers, and operators within special economic zones regarding withholding tax: (1) dividends paid to non-residents are tax-exempt; (2) management fees, professional fees, training fees, and royalties paid to non-residents are subject to a 5% withholding tax rate; (3) interest paid to non-residents is also subject to a 5% withholding tax. The Finance Acts of 2018 and 2019 provided regulations regarding withholding tax on insurance premiums, with a withholding tax rate of 5% on insurance premiums, and aircraft insurance is exempt from withholding tax. Reinsurance premiums, including those paid to non-resident reinsurance companies, are also subject to a 5% withholding tax.

Kenya has signed double taxation avoidance agreements with over ten countries, including Canada, Denmark, France, Germany, India, Iran, Norway, Qatar, South Africa, South Korea, China, and Sweden, under which withholding tax rates range from 0% to 20%.

2.1.3 Personal Income Tax

According to the Income Tax Act of Kenya, resident individuals are required to pay income tax on their global employment income, as well as other income earned or sourced from within Kenya. Non-resident individuals are only required to pay personal income tax on income sourced from Kenya or earned within Kenya. Income from different sources should be calculated separately based on its source, and only expenses related to that income source can be deducted. Taxable income includes employment income, business income, property income, dividends and interest income, income from licenses or contracts, agricultural income, capital gains, pension income, and income from the digital economy market. Kenya's personal income tax operates on a progressive tax rate, ranging from 10% to 30%.

Kenya's determination of tax residency for individuals is quite unique. In addition to the common standards of having a permanent residence in the country and residing for 183 days in a single tax year, if a taxpayer does not have a permanent residence in Kenya but has resided in Kenya during a tax year and has stayed in Kenya for an average of more than 122 days in the previous two tax years, they are also considered a tax resident.

2.2 Value Added Tax (VAT)

VAT applies to the supply of taxable goods or services provided within Kenya, as well as the import of taxable goods or services. Businesses and partnerships can voluntarily register as VAT taxpayers, while businesses with annual revenues exceeding 5,000,000 Kenyan Shillings must register for VAT. The standard VAT rate is 16%, applicable to most goods and services, with certain exported goods and services enjoying zero rates, while specific goods and services such as basic food and medical supplies are exempt from VAT. It is important to note that Kenya's Finance Act of 2019 explicitly imposes VAT on the digital market, but the relevant implementation mechanism will be announced separately.

To promote compliance, the Kenya Revenue Authority (KRA) has implemented a Withholding VAT System, appointing specific agents to withhold and pay VAT. Agents will withhold tax at the time of payment and report and remit to the KRA. To ensure security, taxpayers can verify the identity of agents through the "Agent Checker" tool in the KRA's iTax system.

2.3 Excise Tax

Excise tax is a tax levied by the Kenyan government on the production and importation of specific goods and services. Businesses and individuals producing, providing, or importing taxable consumables or services are liable for excise tax. Kenya's excise tax is levied on specific goods (such as alcohol, tobacco, and fuel) and services (such as telecommunications services), with rates determined by the type of goods or services.

It is also noteworthy that Kenya's Finance Act of 2018 stipulates that excise tax rates will be adjusted for inflation at the beginning of each financial year. Relevant service fees from financial institutions are exempt from excise tax, including loan interest, insurance premiums, and commissions arising from loans or profit-sharing. Additionally, Kenya exempts insurance commissions not exceeding the limits set by the Insurance Act from excise tax, while amounts exceeding that limit are subject to the corresponding excise tax.

2.4 Digital Service Tax (DST)

Kenya's Finance Act of 2020 introduced a digital service tax. This tax became effective on January 1, 2021, and applies to individuals or businesses providing or assisting in providing digital services to users within Kenya, levied at 1.5% of revenue (excluding VAT). For Kenyan residents and businesses permanently residing in Kenya, the digital service tax can be offset against annual income tax liabilities; for non-residents and businesses without a permanent establishment in Kenya, the digital service tax will be the final tax amount. The taxable scope of the digital service tax includes downloadable digital content, such as e-books, movies, mobile applications, subscription media (such as newspapers), streaming services, music, games, electronic tickets for concerts and restaurants, ride-hailing services, and any other digital services. Failure to comply with regulations will result in the government restricting relevant businesses from entering the Kenyan market.

3. Overview of Kenya's Crypto Taxation and Regulatory Policies

3.1 Overview of Crypto Asset Taxation Policies

Before the enactment of the 2023 Finance Act, Kenya imposed income tax on individuals actively trading crypto assets and capital gains tax on long-term holders. However, to further regulate the crypto asset market, the Finance and National Planning Committee of the National Assembly of Kenya approved the Capital Markets (Amendment) Bill of 2023, which states that all crypto assets and blockchain will be regulated by the Capital Markets Authority of Kenya. This bill aims to introduce regulatory and taxation mechanisms for the country's digital industry, marking an important step for Kenya in establishing regulatory and taxation frameworks for the digital industry.

According to the bill, the government will impose a fixed tax of 3% on all transactions involving non-physical assets (including crypto assets, token codes, digital assets stored in digital form, and assets generated through cryptographic means or other methods) based on the transaction volume (rather than profit).

Taxable activities governed by the crypto taxation policy include: obtaining airdropped tokens, exchanging tokens for stablecoins (e.g., BTC for USDT), swapping different types of tokens (e.g., BTC for ETH), and buying and selling non-fungible tokens (NFTs).

Additionally, Kenyans who own or trade crypto assets are required to disclose all relevant holdings to the Kenya Revenue Authority. As required, individuals and businesses engaged in crypto asset trading must provide tax information to the Capital Markets Authority (CMA), where individual crypto asset traders need to apply for a license from the CMA, ultimately establishing a centralized electronic registry for crypto asset trading.

3.2 Overview of Crypto Asset Regulatory Framework

In addition to the taxation system, Kenya is actively building its regulatory framework for crypto assets to address the vast crypto asset market valued at hundreds of billions of dollars domestically. To regulate the use and trading of crypto assets, protect consumers, and promote the development of the digital economy, Kenya has taken a series of pioneering measures.

The Blockchain Association of Kenya (BAK), under the guidance of the Finance and National Planning Committee of the National Assembly, has begun drafting the Virtual Asset Service Providers Bill. This legislative effort is a key step for Kenya to embrace the digital economy and maintain its significant position in Africa's crypto asset sector. The draft bill will cover the definition of crypto assets, regulation of currencies created through crypto asset mining, and the responsibilities of individuals or businesses trading, including taxation, ownership issues, and measures to promote innovation in the field.

In particular, regarding the regulation of crypto assets obtained through mining, the draft Virtual Asset Service Providers Bill stipulates multiple aspects of mining activities. Kenya's regulatory framework aims to ensure the legality of mining activities and provide clear legal guidance.

According to the draft, first, mining companies may need to comply with international standards, including Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT). Second, Kenya may implement tax policies requiring crypto miners to declare and pay taxes on their mining income to ensure the government can collect taxes from crypto asset mining activities. Third, environmental impact is also an important factor considered by Kenya when regulating mining activities. Given the potential environmental impact of mining, Kenya may require crypto miners to use renewable energy or ensure the energy efficiency of mining activities. Fourth, technical standards and security measures are equally important; Kenya may establish relevant rules to protect mining activities from cyberattacks and theft, ensuring the safety and reliability of the mining process. Finally, consumer protection is a key part of Kenya's regulatory framework, aimed at preventing consumers from being affected by fraud and unfair trading practices related to mining. This includes providing clear risk disclosures and dispute resolution mechanisms.

At the same time, Kenya's regulatory framework will maintain a certain degree of flexibility to adapt to the rapid development of crypto asset mining technologies and changes in market conditions, seeking to encourage technological innovation and industry best practices by providing incentives, research and development support, and collaboration opportunities.

In advancing its crypto asset regulatory framework, Kenya has faced significant challenges, particularly regarding the controversial digital identity crypto project "Worldcoin (WLD)." This project plans to distribute currency to global users and requires retinal scans to create digital identities, raising serious concerns from the Kenyan government about personal privacy and data security. In response, Kenya has taken a firm stance, deciding to shut down "Worldcoin" operations in the country, reflecting the Kenyan government's cautious attitude towards regulating emerging technologies and its commitment to protecting citizens' privacy and security. Furthermore, the Kenyan government has emphasized the importance of public education to raise citizens' awareness of the risks associated with crypto assets and seeks to balance technological innovation with regulatory compliance. Kenya's regulatory framework demonstrates adaptability and flexibility, capable of quickly responding to emerging technologies and market changes, aligning with the growing global focus on data privacy (e.g., the EU's General Data Protection Regulation (GDPR) on the strict protection of personal data) and security. This position may provide a reference for other countries dealing with similar projects, prompting global regulators to place greater emphasis on personal privacy and data protection while promoting technological innovation.

Additionally, the Central Bank of Kenya (CBK) is actively exploring the possibility of a Central Bank Digital Currency (CBDC) to address the emergence of private crypto assets and the opportunities and risks they present. This exploration reflects the CBK's open attitude towards emerging payment technologies while also demonstrating its proactive role in maintaining financial stability and preventing illegal activities.

In 2024, with the development of AI technology, the Kenyan government plans to develop a real-time tax system integrated with crypto asset exchanges and markets to monitor and record transaction details, ensuring effective regulation of crypto asset transactions, enhancing tax efficiency, and ensuring that revenues related to crypto assets are not overlooked. Starting from December 25, 2024, the Kenyan government plans to utilize M-PESA Paybills (a widely used mobile payment platform in Kenya) and transaction digital identification codes (Till Numbers) as a virtual electronic tax register (ETRs). This initiative is part of Kenya's tax reform, enhancing the transparency of crypto asset transactions through digital means, expanding the tax base, and addressing tax evasion issues.

4. Conclusion and Outlook

The Kenyan government has demonstrated a cautious yet open stance in the field of crypto assets. In terms of tax and regulatory policies, Kenya's adjustments reflect the government's careful balancing act between promoting economic growth, ensuring social equity, and responding to international pressures. Through these policy adjustments, the Kenyan government shows a high sensitivity and adaptability to changes in domestic and international economic conditions, while also reflecting its proactive role in advancing the country's modernization process.

Looking ahead, Kenya is expected to collaborate with other countries and international organizations to jointly address the challenges and opportunities presented by crypto assets, continue to strengthen tax administration, optimize the tax structure, and promote the healthy development of fintech within the regulatory framework. Kenya is anticipated to clarify the legal status of crypto assets, establish more detailed regulatory rules, and implement stricter regulations on crypto asset exchanges and trading activities. Drawing on the experiences of South Africa and Nigeria, Kenya is likely to become a leader in Africa in establishing a regulatory framework for crypto assets. Furthermore, Kenya may advance tax policy reforms to improve tax compliance in crypto asset trading. These measures will help Kenya find a balance between financial innovation, financial security, and economic development, providing a solid foundation for the sustainable development of the crypto asset industry.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。