KRA Gains Expanded Powers to Tax Non-Residents Under Finance Act 2025

Kenya’s tax landscape underwent a significant transformation as the Finance Act 2025 came into effect, granting the Kenya Revenue Authority unprecedented powers to pursue taxes from non-residents spending fewer than 183 days in the country and entities deriving income from Kenyan sources. The amendments, signed into law by President William Ruto on June 26, 2025, aim to close enforcement gaps in cross-border transactions, particularly in digital services, royalties, and employment income. As Kenya grapples with a KSh 11.36 trillion public debt and a KSh 876.1 billion budget deficit, the expanded tax net is seen as a critical move to bolster revenue. However, the changes have sparked concerns among businesses and individuals, who fear increased compliance burdens and potential disruptions to Kenya’s attractiveness as a hub for foreign investment.

The Finance Act 2025 amends Section 42 of the Tax Procedures Act, extending the Kenya Revenue Authority’s enforcement mechanisms to non-resident individuals and entities. Previously, these powers applied primarily to resident taxpayers, limiting the taxman’s ability to recover dues from non-residents without a permanent establishment in Kenya. Now, non-residents who spend fewer than 183 days in the country within a tax year are liable for taxes on income earned from Kenyan sources, including employment, business operations, digital services, and investments. “This is a game-changer for tax compliance,” said Jane Mwangi, a Nairobi-based tax consultant. “The Kenya Revenue Authority can now issue agency notices to banks, agents, or payors to remit taxes on behalf of non-residents, ensuring no income escapes the net.”

The amendments specify that non-residents are subject to the same enforcement tools as residents, including agency notices that require third parties, such as banks or financial intermediaries, to withhold and remit taxes. This applies to income from digital platforms, royalties, rental properties, and employment under the Pay As You Earn system. “If a non-resident earns consultancy fees from a Kenyan client, the client may now be required to withhold taxes and remit them directly to the Kenya Revenue Authority,” explained Mwangi, highlighting the impact on cross-border transactions. The changes also cover joint accounts and payments made by agents, closing loopholes that previously allowed non-residents to evade taxation.

The move is part of Kenya’s broader strategy to expand its tax base amid economic pressures. With inflation at 5.1 percent and the Kenyan shilling trading above KSh 130 to the US dollar, the government is seeking new revenue streams to address fiscal challenges. The Finance Act 2025 builds on earlier reforms, such as the 2023 introduction of a 3 percent digital service tax on non-resident digital platforms, now reduced to 1.5 percent under the 2025 Bill. “The government is targeting the digital economy, which has grown exponentially,” said Peter Ndung’u, a tax policy analyst in Nairobi. “Non-residents offering services through platforms like Upwork or Amazon will now face stricter scrutiny.” Returns for digital service tax must be filed by the 20th of the following month, adding to compliance demands.

Businesses, particularly those with international operations, are bracing for the impact. The amendments impose new obligations on entities making payments to non-residents, requiring them to verify tax compliance and potentially act as tax agents. “This could complicate operations for startups and multinationals,” said Sarah Wanjiku, a Mombasa-based entrepreneur with clients abroad. “We now have to ensure our foreign contractors are registered with the Kenya Revenue Authority, or we risk penalties.” The changes also affect non-residents earning rental income from Kenyan properties, a growing sector as foreign investors tap into Nairobi’s real estate market. “Landlords abroad will need to appoint local agents to handle tax remittances,” said Ndung’u, noting the added administrative burden.

Public sentiment, as reflected on platforms like X, reveals a mix of support and apprehension. “The Kenya Revenue Authority is finally catching up with the digital age,” posted a user from Eldoret, praising the move to tax non-resident income. Another user, however, warned, “This could scare away foreign investors at a time when Kenya needs them most.” The hashtag #KRATaxPowers trended briefly, with some users questioning whether the Kenya Revenue Authority has the capacity to enforce such measures effectively. “The Kenya Revenue Authority’s systems are already glitchy,” wrote a Nairobi resident. “How will they track non-residents across borders?” The concerns echo past challenges, such as technical hitches during tax filing deadlines, which prompted the Kenya Revenue Authority to extend deadlines to July 5, 2025.

The Finance Act 2025 retains safeguards to protect taxpayers, a point emphasized by tax experts. Agency notices cannot be issued if a taxpayer has appealed an assessment before a court or the Tax Appeals Tribunal, preserving the right to dispute tax demands. “This is a critical check on the Kenya Revenue Authority’s powers,” said Charles Kanjama, a constitutional lawyer. “Non-residents can still challenge unfair assessments without immediate enforcement actions.” The Act also extends a tax amnesty program until June 30, 2025, for penalties and interest on unpaid principal taxes accrued before December 31, 2023, provided the principal is paid. “This amnesty offers relief to non-residents who may have unknowingly accrued tax liabilities,” Kanjama added, encouraging compliance.

The expanded powers align with global trends in taxing the digital economy. Kenya’s significant economic presence tax, introduced in 2024, already targets non-resident digital platforms with a turnover above KSh 5 million, and the 2025 Act broadens this scope to include services offered over the internet or digital marketplaces. “Kenya is following the OECD’s lead in taxing cross-border digital transactions,” said Ndung’u, referencing international frameworks. The Act also introduces excise duty on digital services by non-residents, further tightening the tax net. For instance, a non-resident streaming service consumed in Kenya must now comply with excise duty requirements, with payments deemed made in Kenya if used by a local consumer.

Despite the revenue potential, critics argue that the changes could harm Kenya’s competitiveness. “Foreign investors may think twice before setting up operations here,” said John Muriithi, a business owner in Kisumu. “The compliance costs could outweigh the benefits of operating in Kenya.” The Kenya Revenue Authority has countered these concerns, emphasizing its new independent customs dispute system to enhance transparency. “We’re not just chasing taxes; we’re ensuring a fair system,” said a Kenya Revenue Authority official, speaking anonymously. The authority has also invested in its iTax platform to streamline compliance, though users report persistent technical issues.

The amendments come at a politically sensitive time, with Kenya facing protests over governance and economic policies, including the July 2025 Saba Saba demonstrations that left 11 dead and 567 arrested. “The government needs revenue, but these measures must be balanced with public trust,” said Kanjama, warning against perceptions of overreach. The Kenya Revenue Authority’s focus on non-residents also aligns with efforts to tax high-net-worth individuals, with recent proposals targeting wealth taxes and higher rates on luxury goods. “This is about fairness,” said the Kenya Revenue Authority official. “If you earn from Kenya, you contribute to Kenya.”

For non-residents, the implications are significant. Employment income earned in Kenya, even for short-term assignments, is now subject to the Pay As You Earn system, with no personal reliefs available. Non-residents must file annual income tax returns by June 30, with double taxation relief available under agreements with countries like the UK or India, provided proof is submitted. “I work remotely for a Kenyan firm, but I’m based in Dubai,” said a consultant on X. “Now I need a Kenyan tax agent?” Such sentiments highlight the learning curve for non-residents navigating Kenya’s tax system.

The Finance Act 2025 also introduces other reforms, such as a 10 percent investment allowance on spectrum licenses for telecom operators and a reduced digital asset tax from 3 percent to 1.5 percent, signaling a balanced approach to encouraging investment while expanding revenue. “The government is trying to modernize taxation without stifling growth,” said Mwangi. However, the success of these measures depends on the Kenya Revenue Authority’s enforcement capacity and public acceptance. As Kenya positions itself as a digital and financial hub, the expanded tax powers could either strengthen its fiscal position or deter the very investments it seeks to attract.