Kenya Taxes for US Expats: A Complete Guide
- Living as an Expat in Kenya
- Kenya at a Glance
- US Expat Taxes in Kenya
- Who Has to File Taxes in Kenya?
- Who Qualifies as a Tax Resident in Kenya?
- What Types of Taxation Does Kenya Have?
- Does the US Have a Tax Treaty with Kenya?
- Does Kenya Have a Totalization Agreement with the US?
- What Tax Forms Do Americans Living in Kenya Have to File?
- What Tax Deductions Are Available for Americans Living in Kenya?
- Navigating Tax Compliance for US Expats in Kenya
Living as an Expat in Kenya
The Republic of Kenya in East Africa is a famous work destination for thousands of Americans. Expats take jobs at international schools, foreign embassies, oil and gas companies, and technology firms. There are also countless volunteer opportunities for those interested in positively impacting the people of Kenya.
Regardless of what brought you to Kenya, you will still need to file your US tax return. This is because the US engages in citizenship-based taxation, not residency-based taxation. Citizenship-based taxation means that any US citizen must file a return and pay taxes to the federal government, regardless of whether they live in the country. On the other hand, countries that engage in residency-based taxation tax only the residents who are physically residing within their borders.
Kenya at a Glance
- Primary Tax Forms: FBAR, 2555, 1116, and standard US tax forms (e.g., 1040)
- Date Primary Tax Form Is Received: January
- Tax Deadline: June 30th
- Currency: Kenyan Shilling
- Population: Approximately 55 million
- Number of US Expats in Kenya: Several thousand
- Capital City: Nairobi
- Primary Language: Swahili
- Tax Treaty: No
- Totalization Agreement: No
US Expat Taxes in Kenya
Let’s start with the question that is undoubtedly on your mind: Yes, US expats living or working in Kenya do have to file taxes. This holds true regardless of whether you have established residency in Kenya. As long as you are a citizen of the United States or a green card holder, you must file a US tax return.
Additionally, you will have to file taxes in Kenya. Both Kenya and the US calculate taxes based on a standard calendar year. This makes the process of filing both sets of taxes much more straightforward.
Kenya’s tax deadline usually falls on the last day of June each year. On the other hand, the US tax filing deadline is in the middle of April. In 2023, the deadline is Monday, April 18th.
While the US deadline is two months before the Kenyan due date, you should try to complete both documents simultaneously. This will save you the hassle of preparing documents on two separate occasions. It will also allow you to compare both groups of documents to find any discrepancies or inaccuracies.
Whatever you do, don’t wait until the last minute to begin filing your tax documents. Get to work as soon as you receive the information you need to file (i.e., year-end financial statements). Filing early will help you beat the rush and give you extra time to seek professional assistance if you encounter any issues.
Who Has to File Taxes in Kenya?
The easy answer to this question is “everyone.” You must file taxes in Kenya whether you are an expat who is simply working there or has established residency.
The two primary revenue sources you will be taxed on as an expat in Kenya are capital gains and income. The capital gains tax is a flat rate of just 5%. Based on total earnings, the income tax rate varies between 10% and 30% in 5% increments.
The taxable income brackets are as follows:
|Taxable Income||Tax Rates|
|147,850 KES or less||10%|
|147,851 to 286,623 KES||15%|
|286,624 to 425,666 KES||20%|
|425,667 to 564,709 KES||25%|
|Over 564,709 KES||30%|
The above figures are subject to change if the Kenyan government alters or modifies existing tax laws. Therefore, reviewing the most up-to-date tax brackets each year is essential.
As in America, income generated in Kenya will be taxed before you receive it. However, the tax calculations are imperfect, meaning you could owe additional taxes during your annual self-assessment. If you owe additional taxes to the Kenyan government, you must pay them by the filing deadline.
Who Qualifies as a Tax Resident in Kenya?
Three criteria are used to determine whether you are a “tax resident” under Kenyan laws. You will be classified as a resident of Kenya if you:
- Established permanent residence in Kenya during the tax year in question
- Spent 183 days or more in Kenya during a specific tax year
- Spent an average of 122 days or more in Kenya over the past two tax years
If you meet any of these three criteria, you will be taxed as a resident, meaning you have to pay taxes at the rate mentioned above on all global income. Comparatively, foreigners working in Kenya who do not meet one of the three residency requirements will have to pay taxes only on income generated in Kenya.
For instance, let’s say you worked in Kenya in 2022 but remained in the country for only 180 days. In this instance, you would have to pay income taxes on earnings generated in Kenya but not your international income.
Tax Rate for Foreigners in Kenya
The tax rate for foreigners is identical to that for residents. Any income you generate from work inside the country will be taxed using the above tax brackets if you do not meet residency requirements under Kenyan tax law. Fortunately, none of your international revenue will be taxed in Kenya.
What Types of Taxation Does Kenya Have?
Kenya’s primary form of taxation is its income tax. Income tax is deducted directly from your wages. Kenya also taxes capital gains earnings at a rate of 5%. Some of the income sources that can be taxed include:
- Rent payments made to landlords
- Interest accrued from banks
Expats working in Kenya will also have to contribute to the National Hospital Insurance Fund and the National Social Security Fund. These programs are comparable to the US’s Social Security program.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
Does the US Have a Tax Treaty with Kenya?
Unfortunately, there is no Kenya-US tax treaty. A tax treaty is an agreement between two or more nations designed to prevent citizens of one country from being “double taxed” while residing in a foreign nation.
The lack of a Kenya-US tax treaty means you may have to pay income taxes to both the US and the Kenyan governments. This can drastically increase your tax liability when filing your return.
The good news is that you can use a few programs to reduce your tax liability, even though no treaty is in place. These programs, such as the Foreign Earned Income Exclusion (FEIE) credit, allow you to decrease the amount of income you claim when filing your US return, thereby preventing you from overpaying in income taxes.
FEIE and other credits lower your tax liability, meaning you will owe the US government less in income taxes.
Does Kenya Have a Totalization Agreement with the US?
There is no Kenya-US totalization agreement. You may have to contribute to both Social Security and Kenya’s version of these programs, the NSSF and NHIF.
A totalization agreement is similar to a tax treaty in that it is designed to prevent double taxation. However, a totalization agreement specifically guards against double taxation for social programs similar to Social Security.
If you lived in a nation with a social program like Social Security and a totalization agreement with the US, you would not have to contribute to both programs. Instead, you would have to contribute only to the program of your host nation.
Since Kenya has no such agreement with the United States, you will likely end up paying into both nations’ social programs.
What Tax Forms Do Americans Living in Kenya Have to File?
Filing expat taxes while living in Kenya is relatively straightforward. All expats should start the filing process by filling out a 1040 form, which is the basic tax form for individuals. From there, you should explore programs that can lower your tax liability (how much you owe to the US government).
There are many great programs out there that can help you decrease your tax liability. However, you may not qualify for all of them (more on that in an upcoming section).
Once you have determined which credits you qualify for, you must fill out the requisite forms. For instance, if you are eligible for foreign-earned income exclusion credits, you must complete form 2555.
Failing to submit the appropriate forms can cause delays in processing your return. More importantly, making a mistake on your forms could cause you to overpay or face fines from the IRS.
Other forms you may need include:
- Form 1116 (foreign tax credit)
- Form 8938 (statement of specified foreign assets)
- Form 5471 (information return for US persons with ties to foreign corporations)
These are only a few standardized forms for expats living or working in Kenya. Remember, not all of these forms will apply to you. In fact, many of them probably won’t.
Most expats working or living in Kenya need only a handful of US tax forms. However, if you need multiple forms or don’t know which documents to fill out, seek professional tax services. Doing so could help you save thousands and avoid any issues during filing.
Make a list of forms that you use this tax year and include links to those forms on the IRS’s website so you can easily find them in the years to come.
What Tax Deductions Are Available for Americans Living in Kenya?
The Foreign Earned Income Exclusion allows you to exclude a large portion of your Kenyan income from your US tax return calculations. The exact amount you can exclude varies each year. In 2022, the FEIE limit was $112,000.
For example, suppose that you earned $120,000 in Kenya in 2022. Ordinarily, you would have to claim your total earnings on your US tax return, even though you already paid taxes on these wages in Kenya. However, under FEIE, you would be taxed only $8,000 when filing your US return.
In addition to the FEIE, you may be able to reduce your liability using foreign housing credits. This program lets you deduct some or all of your foreign housing expenses when filing your US return. If the combination of the FEIE deductions and the foreign housing credits exceeds your Kenyan income, your US tax liability could be $0.
Navigating Tax Compliance for US Expats in Kenya
Looking to file your expat taxes in Kenya without overpaying? Look no further than Greenback Expat Tax Services – your go-to experts in expat taxes. Trust us to help you navigate the complexities of filing your taxes abroad and ensure that you don’t pay more than necessary.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.