A proposed amendment to the Income Tax Act (ITA) is seeking to repeal a long-standing tax exemption that benefits certain non-citizen employees working in the country potentially undermining the country’s position as a regional hub.  

If enacted, the proposed changes in Kenya’s Finance Bill 2025 will make all employment income earned by non-citizens in Kenya fully taxable, regardless of the individual’s duration of stay or their employer’s corporate structure. 

“The Bill proposes to repeal this provision and consequently, all gains and profits from employment income of non-citizens operating in Kenya will be fully taxable irrespective of the number of days the individual was present in Kenya,” the proposed law reads. 

Under the current law, one-third of the employment income earned by non-citizens is exempt from tax, provided specific conditions are met.  

These include employment by a non-resident company or partnership, performing duties linked to a regional office approved by the Commissioner, absence from Kenya for an aggregate of 120 days in a year, and the stipulation that the gains are not deductible in the employer’s tax computations. 

The Finance Bill 2025 now proposes to remove this provision entirely.  

This means that non-citizens working in Kenya, even temporarily or through regional offices, will be subject to full income tax on all their earnings derived from employment activities in the country. 

The repeal could have far-reaching implications for multinational companies (MNCs), regional headquarters, and development organisations with foreign staff based in Kenya.  

Currently, many MNCs leverage Kenya as a strategic base for East and Central Africa operations, in part due to its favourable tax treatment for expatriates.  

The removal of this tax break may lead to increased labour costs, as employers may be forced to gross up salaries or rethink their expatriate deployment strategies. 

Suitability indices 

The new changes could shakeup Kenya’s ranking on expatriate suitability indices that is followed by companies seeking to expand in frontier economies. 

“This change undermines Kenya’s positioning as a regional hub,” a Nairobi-based tax expert said.  

“Companies that previously stationed senior executives here for ease of access to the region may now consider alternatives like Rwanda or Mauritius, where the tax regime is more predictable for expatriates.” 

From the government’s perspective, the repeal aligns with broader efforts to expand the tax base and eliminate preferential tax treatments. 

Kenya continues to grapple with rising public debt and fiscal deficits, prompting a push to raise domestic revenue.  

This is coupled with recent social unrest in a push back against tax increments that saw many Kenyans lose their lives.  

The move may reduce Kenya’s competitiveness in attracting foreign talent and discourage knowledge transfer, particularly in sectors like technology, finance, and development, which rely heavily on international expertise. 

The Finance Bill 2025 is currently undergoing public participation and parliamentary review. If approved by the National Assembly and signed into law by the President, the new provision would take effect on July 1, 2025. 

Stakeholders across the private sector, especially those with cross-border operations, are closely monitoring the bill’s progress.