eRegulations Kenya

Investment incentives

Investment incentives, both fiscal and non fiscal, are available in Kenya. The Kenya Revenue Authority implements the issuance of the fiscal (tax) incentives in collaboration with other Authorities eg Capital Market Authority , Export processing zones Authority (for issuance of the EPZ incentives ) among others as provided under the Income Tax Act, Laws of Kenya.

The tax incentives are mainly in form of capital deductions. These deductions are made at the point of computing the gains or profits of a person /company for any year of income.

Capital deductions

These are divided into:

Industrial building deductions
Farmworks deductions
Wear and tear deductions
Investment deductions

1. Industrial Building Deductions

It applies to the capital expenditure incurred by a person on the construction of an industrial building to be used in a business carried out by them or their lessee. This allowance is claimed by the person who incurred the capital expenditure i.e. the owner of the building and the building must be used for the purpose of the business only so as to enjoy the industrial building deduction.

It is granted on a straight line basis on the balance of constructions.The applicable rates are as follows:

i) Industrial Building-2.5% capital deduction applicable within the first Forty (40) years of operation.

ii) Hotels - 10% capital deduction applicable within the first 10 years of operation

iii) Hostels and Educational Buildings certified by the commissioner - 50% capital deduction for the first 2 years of operation. These buildings include; Laboratory, Workshops, Accommodation halls, classrooms, dining halls/cafeteria, other halls for use by the students, administration building, sporting facilities and staff quarters.

iv) Building in uses for training of film producers, actors or crew - 100% capital deduction.

iv) Rental residential building approved by the minister in a planned developed area - 25% capital deduction.

v) Commercial building- 25% capital deduction in a developed area.

2. Farm Works Deductions

This refers to expenditure by the owner or tenant of agricultural land on construction of farm works.

Applicable rates

Farmhouse- Allow 1/3 of the expenditure on one house. Employee houses qualify.

Any other immovable buildings for the proper operation of the farm deduct 100% of the whole amount.

3. Wear and Tear Deductions

This is an allowance that is granted to the investor to cater for wear and tear on machinery.

Categories &Applicable Rates

Class I @ 37.5%

Heavy earth moving self-propelling equipment such as:Carterpillars, tippers, lorries of 3 tonnes and above, tractors (heed, Train, Engine head, buses and coaches, loaders, rollers and graders, transport trucks, combine harvesters, mobile cranes and forklifts etc.

Class II @ 30%

Office electronic machinery and equipments e.g. computers and its peripherals, computer printers, scanners and processors, calculators, mobile phones, photocopiers, stamping and franking/fax machines, duplicating machines, photo printers, cash registers, tax registers.

Class III @ 25%

Other self-propelling machines such as motor bikes, saloon cars and hatchbacks, tutuk, pick-ups and delivery vans, aircrafts, minibuses (nissans included), lorries < 3 tonnes.

Class IV @ 12.5%

Other non-self-propelling machine such as;Ship, Bicycles, Wheelbarrow, lifts & conveyor belts, carpets and curtains, partitions in a building, shelves, safes, sign boards and advertising stands, furniture and fittings, plant and machinery, security and alarm systems fixed in a car, tractor trailer, train coaches, milking machinery, beds in a hotel, a plough and lawn mowers, refrigerator, T.V, non-self-propelling forklifts and cranes, boats and petroleum pipeline.

Class v @20%

Computer Software and for Telecommunication equipment its 20% for five years on a straight line basis

4. Investment Deductions

This is a deduction granted on cost of a building and machinery installed therein as an incentive to encourage investments.

Applicable rates

Investments situated within Nairobi, Mombasa and Kisumu - 100% investment allowance
Investments worth 200 Million Kenya shillings situated outside Nairobi, Mombasa, Kisumu attract a 150% investment allowance
Investment Deduction-Manufacturing Under Bond- For production of export goods under bonded warehouses
Investment Deduction-Export Processing Zones- 100% investment deduction
Shipping Allowance - applies to the purchase of a new and unused power driven ship of more than 125 tons gross or the purchase and subsequent refitting for the purpose of that business of a used power-driven ship of more than 125 tons- 100% investment deduction