From the Perspective of Taxation and Regulatory Systems: Why Kenya Has Become a Pioneer in Cryptocurrency Assets in Africa?
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From the Perspective of Taxation and Regulatory Systems: Why Kenya Has Become a Pioneer in Cryptocurrency Assets in Africa?
The Kenyan government has demonstrated a cautious yet open stance toward the crypto asset sector.
Navigating Web3 tides with focused insightsAuthor: TaxDAO
1. Introduction
Kenya is regarded as a pioneer in cryptocurrency adoption across Africa. A 2022 United Nations report indicated that Kenya has the highest proportion of its population using crypto assets on the continent. While crypto assets offer greater opportunities for Kenyan citizens, they also pose significant risks to financial stability and tax security. To mitigate these risks and ensure financial stability, the Kenyan government has been enhancing legislation to create a secure environment for crypto asset ecosystems. 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 fintech innovations.
2. Kenya's Basic Tax System
Kenya's tax system is relatively complex, primarily combining territorial and residence-based taxation, with territorial taxation being dominant. Income tax follows a residence-based principle. The Kenyan tax system includes various types of taxes, exemptions, zero-rated supplies, tax incentives, and refund mechanisms. Major taxes in Kenya include income tax, value-added tax (VAT), customs duties, and excise duty. All taxes on income in Kenya are collected by the central government, meaning county governments do not levy income taxes. However, local governments have the authority to impose property and entertainment taxes locally.
2.1 Income Tax
In Kenya, income tax is the most significant tax category. It applies to both individuals and enterprises—residents and non-residents—and is levied on all income derived from or accrued in Kenya. Different sources of income are taxed differently.
2.1.1 Corporate Income Tax
Corporate income tax in Kenya is imposed on all legal entities deriving income from activities carried out within Kenya or income sourced in Kenya. Companies incorporated in Kenya are considered Kenyan tax residents. Foreign-incorporated companies will also be treated as Kenyan tax residents if their management and control are exercised in Kenya during a given tax year.
On tax rates, resident companies in Kenya—including subsidiaries of foreign parent companies—face a corporate income tax rate of 30%. Branches and permanent establishments of foreign companies operating in Kenya face a higher corporate income tax rate of 37.5% on their business income. Resident and non-resident companies may qualify for special preferential tax rates under certain conditions; however, the detailed provisions are complex and not exhaustively listed here.
Taxable income under Kenyan corporate income tax includes all forms of income such as gross revenue from sales of goods, contracting work, and service provision, as well as dividends, bonus income, interest, royalties, rental income, and foreign-sourced income. Notably, exempt income includes: dividends distributed by a company to another resident company holding 12.5% or more shares; dividends paid by registered venture capital companies; income generated from securities traded on the Nairobi Securities Exchange held for less than 24 months by licensed securities dealers; and income earned by employer-established unit trusts or collective investment schemes, which are exempt from income tax.
Non-resident companies are only liable to pay tax on income arising in or derived from Kenya. Dividends, interest, royalties, and rental income received by non-residents through a permanent establishment must be taxed in Kenya. Capital gains realized by non-residents from assets located in Kenya are subject to capital gains tax.
2.1.2 Withholding Income Tax
Kenya imposes withholding income tax on both resident and non-resident companies, with rates ranging from 3% to 30%. The Finance Act 2017 introduced specific withholding tax incentives for businesses, developers, and operators in economic zones: (1) dividends paid to non-residents are exempt; (2) management fees, technical service fees, training fees, and royalty payments to non-residents are subject to a 5% withholding tax rate; (3) interest payments to non-residents are also subject to a 5% withholding tax. The Finance Acts of 2018 and 2019 established rules on withholding tax on insurance premiums, setting the rate at 5%, while aircraft insurance is exempt. Reinsurance premiums, including those paid to non-resident reinsurers, 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 these treaties, withholding tax rates range from 0% to 20%.
2.1.3 Personal Income Tax
Under Kenya’s Income Tax Act, resident individuals are required to pay income tax on global employment income and other income sourced in or derived from Kenya. Non-resident individuals are only taxed on income sourced in Kenya or received from Kenyan sources. Income from different sources must be calculated separately, with only expenses directly related to each source deductible. Taxable income includes employment income, business income, property income, dividend and interest income, licensing or contract operation income, agricultural income, capital gains, pension income, and income from digital marketplaces. Kenya applies progressive personal income tax rates ranging from 10% to 30%.
The determination of tax residency for individuals in Kenya is unique. In addition to the standard criteria—having a permanent home in Kenya or staying for 183 days in a single tax year—an individual without a permanent home in Kenya may still be considered a tax resident if they were present in Kenya during a tax year and had an average stay exceeding 122 days per year over the previous two tax years.
2.2 Value Added Tax (VAT)
VAT applies to the supply of taxable goods or services within Kenya and to imports of taxable goods or services. Enterprises and partnerships may voluntarily register for VAT, but mandatory registration is required for businesses whose annual turnover exceeds KES 5,000,000. The standard VAT rate is 16%, applicable to most goods and services. Certain exported goods and services are zero-rated, while specific essential goods and medical supplies are exempt from VAT. Notably, Kenya’s Finance Act 2019 explicitly introduced VAT on digital marketplaces, although the implementation mechanism will be announced separately.
To promote compliance, the Kenya Revenue Authority (KRA) has implemented a Withholding VAT System, appointing designated agents to withhold and remit VAT. Agents deduct VAT when making payments and then report and pay it to KRA. For security, taxpayers can verify agent legitimacy via the "Agent Checker" tool on KRA’s iTax platform.
2.3 Excise Duty
Excise duty is a tax levied by the Kenyan government on the production and importation of specific goods and services. Businesses and individuals involved in producing, providing, or importing taxable goods or services are liable for excise duty. The tax applies to specific products such as alcohol, tobacco, fuel, and services like telecommunications, with rates varying according to the type of good or service.
It should also be noted that Kenya’s Finance Act 2018 mandates inflation adjustments to excise duty rates at the start of each fiscal year. Financial institution service fees are exempt from excise duty, including loan interest, insurance premiums, and commissions arising from loans or profit-sharing arrangements. Furthermore, insurance commissions up to the threshold set under the Insurance Act are exempt from excise duty, while amounts exceeding this limit are subject to the tax.
2.4 Digital Service Tax (DST)
The Finance Act 2020 introduced a Digital Service Tax (DST) in Kenya. Effective January 1, 2021, DST applies to individuals or enterprises providing or facilitating digital services to users in Kenya, and is levied at 1.5% of gross turnover (excluding VAT). For resident individuals and businesses operating in Kenya, DST can be offset against annual income tax liability. For non-residents and businesses without a permanent establishment in Kenya, DST is a final tax. Taxable digital services include downloadable digital content such as e-books, movies, mobile apps, subscription media (e.g., newspapers), streaming services, music, games, electronic tickets for concerts and restaurants, ride-hailing services, and any other digital services. Non-compliant businesses may face restrictions on access to the Kenyan market.
3. Overview of Kenya's Cryptocurrency Taxation and Regulatory Policies
3.1 Overview of Cryptocurrency Taxation Policy
Prior to the enactment of the 2023 Finance Bill, Kenya imposed income tax on individuals actively trading crypto assets, while long-term holders were subject to capital gains tax. However, to further regulate the crypto market, Kenya’s Parliamentary Committee on Finance and National Planning approved the Capital Markets (Amendment) Bill 2023, placing all crypto assets and blockchain technology under the oversight of the Capital Markets Authority (CMA). This bill aims to introduce regulatory and tax frameworks for the country’s digital economy, marking a significant step toward formalizing the sector.
Under the bill, the government will impose a flat 3% tax on all transactions involving non-physical assets—including crypto assets, Token Code, digitally stored digital assets, and assets generated through cryptographic or other means—such as purchases, sales, and exchanges—based on transaction volume rather than profit.
Taxable activities covered by the crypto tax policy include receiving airdropped tokens, exchanging tokens for stablecoins (e.g., BTC to USDT), swapping between different token types (e.g., BTC to ETH), and buying or selling non-fungible tokens (NFTs).
Additionally, Kenyans owning or trading crypto assets must disclose all holdings to the Kenya Revenue Authority. Individuals and enterprises engaged in crypto transactions are required to submit tax information to the CMA, with individual traders needing to apply for a license from the CMA, ultimately leading to the creation of a centralized electronic registry for crypto asset transactions.
3.2 Overview of Cryptocurrency Regulatory Framework
Beyond taxation, Kenya is actively building a regulatory framework for crypto assets to manage its large domestic market, valued in the billions of dollars. To regulate the use and trading of crypto assets, protect consumers, and foster digital economic development, Kenya has taken several pioneering measures.
The Blockchain Association of Kenya (BAK), under the guidance of the Parliamentary Committee on Finance and National Planning, has begun drafting the Virtual Asset Service Providers Bill. This legislative effort is a key step in Kenya’s embrace of the digital economy and its aim to maintain leadership in Africa’s crypto space. The draft bill covers definitions of virtual assets, regulation of currencies created through crypto mining, and responsibilities of individuals and businesses engaging in transactions—including tax obligations, ownership rights, and measures to encourage innovation.
In particular, regarding the regulation of crypto assets obtained through mining, the draft Virtual Asset Service Providers Bill outlines multiple aspects of mining operations. Kenya’s regulatory framework aims to legitimize mining activities and provide clear legal guidance.
According to the draft: First, mining companies may need to comply with international standards such as anti-money laundering (AML) and counter-terrorism financing (CFT). Second, Kenya may implement tax policies requiring miners to declare and pay taxes on mining income, ensuring government revenue from crypto mining. Third, environmental impact is a key consideration, and Kenya may require miners to use renewable energy or ensure high energy efficiency due to potential environmental consequences. Fourth, technical standards and security measures are equally important; Kenya may establish rules to protect mining operations from cyberattacks and theft, ensuring safety and reliability. Finally, consumer protection is a critical component, aiming to prevent fraud and unfair practices related to mining, including clear risk disclosures and dispute resolution mechanisms.
At the same time, Kenya’s regulatory framework will retain flexibility to adapt to rapid technological advancements in crypto mining and evolving market conditions, encouraging innovation and best industry practices through incentives, R&D support, and collaboration opportunities.
In advancing its crypto regulatory framework, Kenya has faced notable challenges, particularly concerning the controversial digital identity project “Worldcoin (WLD).” The project plans to distribute currency globally and requires retinal scans to create digital identities, raising serious concerns from the Kenyan government about personal privacy and data security. In response, Kenya took a firm stance by shutting down Worldcoin’s operations in the country—a decision reflecting the government’s cautious approach to regulating emerging technologies and its commitment to protecting citizens’ privacy and security. Moreover, the Kenyan government emphasized the importance of public education to raise awareness of crypto-related risks, seeking a balance between promoting technological innovation and ensuring regulatory compliance. Kenya’s regulatory framework demonstrates adaptability and responsiveness to new technologies and market changes, aligning with growing global attention to data privacy (such as the EU’s GDPR) and security. This position may serve as a reference for other countries dealing with similar projects, encouraging global regulators to prioritize personal privacy and data protection while supporting technological innovation.
In addition, the Central Bank of Kenya (CBK) is actively exploring the possibility of launching a central bank digital currency (CBDC) to respond to the rise of private cryptocurrencies and assess associated opportunities and risks. This exploration reflects CBK’s openness to emerging payment technologies, as well as its proactive role in maintaining financial stability and preventing illicit activities.
In 2024, with advances in 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 oversight of crypto transactions, improving tax efficiency, and preventing the omission of crypto-related revenues. Starting December 25, 2024, the government intends to use M-PESA Paybills—the widely used mobile payment platform in Kenya—and transaction digital identifiers (Till Numbers) as virtual electronic tax registers (ETRs). This initiative is part of Kenya’s broader tax reform, enhancing transparency in crypto transactions, broadening the tax base, and addressing tax evasion through digital tools.
4. Conclusion and Outlook
The Kenyan government has demonstrated a careful yet open posture toward the crypto asset sector. Its tax and regulatory adjustments reflect a nuanced balancing act between promoting economic growth, ensuring social equity, and responding to international pressures. Through these policy shifts, the Kenyan government shows high sensitivity and adaptability to changing domestic and global economic conditions, while also playing an active role in advancing national modernization.
Looking ahead, Kenya is expected to collaborate with other nations and international organizations to jointly address the challenges and opportunities presented by crypto assets, further strengthen tax administration, optimize its tax structure, and promote healthy fintech development within a regulated framework. Kenya is likely to clarify the legal status of crypto assets, establish more detailed regulations, and impose stricter oversight on crypto exchanges and trading activities. Drawing from experiences in South Africa and Nigeria, Kenya has the potential to become a leader in crypto regulation across Africa. Additionally, Kenya may advance tax policy reforms to improve tax compliance in crypto transactions. These efforts will help Kenya strike a balance among financial innovation, financial security, and economic development, laying a solid foundation for the sustainable growth of the crypto industry.
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