Link between immigration laws and salary taxes

All non-Kenyan citizens coming to Kenya for employment are required to obtain work permits from the Department of Immigration (DoI).

It is the duty of the local employer to apply and obtain a work authorisation document, which gives an individual the right to live and work legally in Kenya.

A foreigner who engages in employment without valid work authorisation commits an immigration offence and is liable to either a fine of up to Sh500,000, imprisonment for up to three years, or both.

The process of obtaining a work permit can be long and tedious. However, during the waiting period for approval, is an expatriate already working in Kenya on a special pass liable to pay taxes on employment income?

The general answer is yes, but there may be specific circumstances and tax provisions that exempt that individual from taxation. For the purposes of this article, let us assume the individual is wholly taxable on their Kenya duties.

The next step involves obtaining a personal identification number (PIN), an essential piece of data for all employees in Kenya.

For individuals who wish to be tax compliant as quickly as possible, the process of getting a PIN has not always been straightforward, as documentary requirements for registering a foreigner appear to vary. However, the Kenya Revenue Authority’s (KRA) efforts to hasten the issuing of these numbers for expatriates once they have relevant work authorisation documents is a step in the right direction.

On the taxation front, KRA seldom uses individual work permits to establish if a person is a resident in Kenya. However, this has become a common query during KRA audits.

For instance, any individual issued with a special pass for the initial three months, and then renewed for a further three months, is likely to be regarded as resident in Kenya if they have physically spent 183 days or more in Kenya in a given tax year.

The importance of this is that any Kenyan resident is liable to Kenyan income tax on their worldwide employment income. A non-resident is only taxable on employment income sourced or derived from Kenya.

This, therefore, means that KRA has greater potential to widen its tax net where a foreign national is deemed to be tax resident in Kenya.

It will be the statutory responsibility of the Kenyan employer to deduct income tax from an employee’s emoluments monthly and remit the money to KRA. In cases where foreign employees do not have a PIN, the employer is unable to include them on their monthly PAYE return.

This means that any bulk payment of PAYE that an employer subsequently makes on behalf of that individual is not allocated to his or her respective iTax ledger account. The individual is also not able to register on iTax and file a self-assessment return.

If KRA intends to meet its ever-increasing tax collection targets, it will do well to review the processes that hinder the ability of companies and individuals to be tax compliant. Having a more efficient, streamlined and automated PIN application/ approval process will help.

As will close co-ordination and the exchange of information between KRA and DoI to seal loopholes on individuals who may be legally working in Kenya but are not registered with a KRA PIN.

The writer is senior tax associate, PwC Kenya. [email protected]