Thorny issue of tax residency for Kenyan expatriates and diaspora

The Kenyan tax laws that govern the taxation of individuals are based on residency status. FILE PHOTO | POOL

The Kenyan tax laws that govern the taxation of individuals are based on residency status. A resident is an individual who has a permanent home in Kenya and was present in the country for any period in a particular year of income.

The law was recently amended to define a permanent home. However, this has not addressed the concerns that have previously been raised.

Kenyans working abroad for extended periods have had a challenge determining their tax residency status.

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The law also defines a permanent home as a place where an individual resides or is available to that individual for residential purposes in Kenya or where in the opinion of the commissioner, the individual’s personal or economic interests are closest.

This gives the commissioner leeway in interpreting a permanent home and may base it on many factors. For instance, an individual with any home available to them, ancestral or any family property to which they may have unrestricted access, could be considered to have a permanent home in Kenya.

Let us take the example of Sara. Sara is a Kenyan national based in country X. She started working in country X in 2019 and has been there ever since.

She has relatives in Kenya and occasionally travels back to Kenya to spend her holidays with them. She does not own or rent a home in Kenya. In 2022, she visited Kenya for the holidays for a short duration and stayed with one of her relatives.

Sara is working on filing her 2022 Kenyan tax return. Will she be considered to have a permanent home in Kenya and a resident for tax purposes in Kenya in 2022?

A person who has a permanent home in Kenya and visits the country even for a day in a tax year would be considered a resident for tax purposes and would be taxed on all the employment income they earn from any part of the world.

This means that they would be required to report all the employment income earned in a year irrespective of where they earned it from when filing their Kenyan tax returns for the year.

International best practice alludes that the concept of home may be taken to mean any form of a home such as a house or an apartment belonging to or rented by an individual. It may also include a furnished room.

The taxman may consider issuing clarifications if a Kenyan who has an ancestral home or relatives in Kenya and occasionally visits them, would be considered to have a permanent home in Kenya if they have unrestricted access to the family home.

The second clarification is if the rule on the permanent home applies to expatriate employees relocating to Kenya for short-term assignments.

Should they be considered tax residents from the onset of their assignments since they would be expected to rent a home in Kenya from the start of their assignment? 

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The clarifications can be done through guidelines on what constitutes a permanent home to assist taxpayers to understand their residency status and Kenyan tax obligations.
Would the duration of the assignment for the expatriates coming into Kenya be considered when determining if they have a permanent home in Kenya?

The writer is a tax and payroll consultant at PwC Kenya.