Tax: Kenya

The following taxes are relevant in respect of a domestic sale or purchase or transfer of title or interest in an aircraft in Kenya:

Value Added Tax (VAT) is charged in Kenya pursuant to provisions of the Value Added Tax Act (No. 35 of 2013) (the VAT Act) on taxable supplies made by a registered person in Kenya. A person is required to register for VAT where the person makes or expects to make an annual turnover of KES 5 million (approximately USD 50,000) or more from the supply of taxable supplies. A taxable supply refers to a supply of goods and services except supplies exempt from VAT under the VAT Act.

Under Part 1 of the First Schedule to the VAT Act, the supply by way of sale or importation of aeroplanes and other aircraft of unladen weight exceeding 2,000 kilograms (excluding helicopters) is exempt from VAT. The supply of services relating to hiring, leasing and chartering of aircrafts (excluding helicopters) is also exempt from VAT.

Stamp duty is charged at various rates pursuant to the provisions of the Stamp Duty Act (Cap 480, Laws of Kenya) (the Stamp Duty Act) on instruments set out in the Schedule to the Stamp Duty Act (the Schedule). Every instrument specified in the Schedule, executed in Kenya or outside Kenya, which relates to property situated, or to any matter or thing done or to be done in Kenya, is chargeable with stamp duty as specified in the Schedule. Specific exemptions exist depending on the nature of the transaction.

Stamp duty on an agreement for transfer of aircraft is not specifically provided for under the Stamp Duty Act. However, agreements for transfer of any kind of property not specified in the Schedule are subject to nominal stamp duty of KES 200 (approximately USD 2). A Bill of Sale is also chargeable to nominal stamp duty. In this regard, it is advisable that the Bill of Sale or the agreement for sale or transfer of an aircraft is taken to the Collector of Stamp Duty for assessment and be stamped with nominal stamp duty. Stamp duty is payable by the purchaser or the transferee.

Every instrument chargeable to stamp duty is required to be stamped within 30 days after it is first executed or if executed outside Kenya, within 30 days after it is received in Kenya. No instrument or document chargeable to stamp duty can be admitted in evidence in any proceedings (other than criminal proceedings) unless it is duly stamped.

Wear and tear deductions are allowable on aircraft at the rate of 50% in the first year of use and the residual value at the rate of 25% per year on a straight line basis.  Where the amount realised from the sale of an aircraft exceeds the written down value or residual value of the aircraft, the excess amount shall be treated as a trading receipt / profit which is added to the taxable business income of the seller and subject to corporate tax or, conversely, a trading loss for the year of income which would reduce the taxable income of the seller.

No taxes will apply in Kenya in respect of an intra EU sale, purchase or transfer of aircraft.

Where the purchaser is a foreign entity which is not registered in Kenya and does not have a tax presence in Kenya, the following taxes will apply:

The exportation of taxable goods from Kenya is subject to VAT at the rate of zero percent (i.e. zero-rated supply). In this regard, the sale of aircraft to a person outside Kenya is an export of goods which is zero-rated for VAT purposes. Where an individual supplies zero-rated goods, the supplier is allowed to claim a VAT refund from the Kenya Revenue Authority in respect of the VAT portion incurred in making the zero-rated supplies.

Export levy is charged on exportation of certain goods from Kenya. Sale of aircraft is however not chargeable to export levy. There are no other taxes applicable in Kenya on the sale of aircraft (exportation) to a person outside Kenya.

As highlighted in question 3 above, the exportation of aircraft will be subject to VAT at the rate of zero percent. No other taxes apply.

Import duty is charged at various rates (i.e. 0%, 10% or 25%) on an ad valorem basis on the customs value of the goods pursuant to the East African Community Customs Management Act, 2004. The import duty rate is dependent on the nature and description of the goods as set out in Annex I to the Protocol on the Establishment of the East African Community (EAC) Customs Union (referred to as the Common External Tariff code). The value for purposes of import duty assessment is normally based on the cost, insurance and freight (CIF) value of the goods imported. However, other valuation methods, such as Transaction Value of Identical Goods, are applied where importation is made from a related non-resident party.

Aircrafts and aircraft parts are subject to import duty at the rate of zero per cent under the EAC Common External Tariff code.

As stated under question 1 above, importation of aeroplanes and other aircraft of unladed weight exceeding 2,000 kilograms (excluding helicopters) into Kenya is exempt from VAT.

Excise duty is chargeable on excisable goods manufactured in Kenya by a licensed manufacturer, excisable goods imported into Kenya (for example motor vehicles) and excisable services supplied in Kenya by a licensed person, at various specific rates provided under the First Schedule to the Excise Duty Act, 2015.

Aircraft and aircraft parts are not listed as excisable goods under the First Schedule to the Excise Duty Act, 2015 and therefore their importation to Kenya is not subject to excise duty.

IDF is charged at the rate of 3.5% of the customs value of chargeable goods imported for use in Kenya pursuant to the provisions of the Miscellaneous Fees and Levies Act, 2016. Importation of aircraft (excluding helicopters) of unladed weight exceeding 2,000 kilograms into Kenya is exempt from IDF.

RDL is charged at a rate of 2% of the customs value of chargeable goods imported for use in Kenya pursuant to the provisions of the Miscellaneous Fees and Levies Act, 2016. Importation of aircraft is chargeable to RDL and payable by the importer at the port of entry into Kenya. Goods from the EAC Partner States are exempt from RDL as long as they meet the EAC Rules of Origin requirements.

PVoC is not a customs duty or levy but a programme whereby goods destined for Kenya are required to undergo an inspection at the port of origin and be issued with a Certificate of Conformity (CoC) to Kenya standards. Presentation of the CoC is a mandatory requirement to facilitate clearance of imports by both the Kenya Revenue Authority and the Kenya Bureau of Standards at the port of entry. While some imports are exempt from the PVoC process, they would still be subject to destination inspection at the port of entry into Kenya. This process would need to be complied with by an importer of aircraft.

Please refer to our response to question 1 above.

Stamp duty of 0.1% of the amount secured by the mortgage is payable in the case of aircraft mortgages.

Nominal stamp duty of KES 200 (approximately USD 2) is payable by the lessee on a lease agreement in respect of an aircraft.

No additional taxes or duties are payable on registration of aircraft in Kenya with Kenya Civil Aviation Authority (KCAA) save for RDL on importation of the aircraft to Kenya as discussed in question 5 above.

The following fees are paid to KCAA for the issuance of a certificate of registration or re-registration. Please note that these fees may be reviewed by KCAA from time to time.

Not applicable.

In Kenya, taxation of asset leasing arrangements (excluding land and buildings) is governed by the Income Tax Act and the Income Tax (Leasing) (Amendment) Rules, 2007. The following taxes are applicable:

Generally, lease payments in respect of a cross-border lease for equipment and self-propelling vehicles made by a resident lessee to a non-resident lessor are subject to withholding tax at the rate of 15% of the gross amount payable. However, pursuant to section 35 (1) (c) of the Income Tax Act, lease premiums made by a resident lessee to a non-resident person not having a permanent establishment in Kenya in respect of use of an aircraft are not subject to withholding tax.

Where a lessor who is resident in Kenya enters into a cross-border lease arrangement with a non-resident lessee, the gross lease payments made to the lessor is income which is subject to tax in Kenya. Where both the lessor and the lessee are resident in Kenya, withholding tax is not applicable on the lease payments, however, the taxable income in respect of the lease payments will be subject to tax in the hands of the lessor.

As discussed in question 1 above, the leasing of aircraft is exempt from VAT and therefore the lease payments made in respect of leasing of aircraft are not subject to VAT in Kenya.

Nominal stamp duty of KES 200 (approximately USD 2) is payable by the lessee on the lease agreement in respect of the aircraft.

Kenya applies a source-based taxation system and therefore only income that is accrued in or derived from Kenya is subject to tax in Kenya. However, where a business is carried on or exercised partly within and partly outside Kenya by a resident person, the whole of the income from that business is taxable in Kenya on a worldwide basis.  In this regard, the taxable income of resident commercial aircraft owners, charterers and operators derived from Kenya and outside Kenya is subject to tax in Kenya at the resident corporate rate of 30%. On the other hand, the taxable income that is accrued in or derived from Kenya by non-resident commercial aircraft, owners, charterers and operators is subject to tax in Kenya at the non-resident corporate rate of 37.5%.

Exemption from income tax on a reciprocal arrangement

Income derived from Kenya by a non-resident person who carries on the business of aircraft owner, charterer or air transport operator is exempt from tax in Kenya if the country where the non-resident person is resident extends a similar exemption to Kenyan resident aircraft owners, charterers or air transport operators.

As discussed in question 1 above, the lease payments made in respect of hiring, chartering or leasing of aircraft (excluding helicopters), are exempt from VAT.

Please refer to our responses to question 10 above.

Generally, interest payments paid to a resident or non-resident lender (unless exempt) are subject to withholding tax in Kenya at the rate of 15%. A lower withholding tax rate may apply where the interest payments are paid to a person (whether corporate or individual) who is resident in a country which has an effective double tax agreement with Kenya. The payer is responsible for calculating, deducting and remitting the withholding tax to the Kenya Revenue Authority. There is no exemption available in respect of withholding tax on interest payments relating to aircraft loan repayments.

Where the non-resident lender is related to the resident borrower, the rate of interest applicable on the aircraft loan should be at arm’s length in compliance with the Income Tax (Transfer Pricing) Rules 2006 to reflect such profit as would have accrued if the business had been conducted between independent parties dealing at arm’s length. Further, where the loan advanced by the related non-resident lender is interest free, the resident borrower will be required to compute a deemed-interest charge based on the prevailing Treasury Bill rates and subject the deemed interest to withholding tax at the rate of 15% and remit to the Kenya Revenue Authority.

Not applicable.

KCAA imposes various charges to aircrafts operators including, landing charges, parking charges, aircraft handling charges, air navigation charges and en-route charges. These charges are not exempt from VAT under the VAT Act and therefore VAT at the rate of 16% is applicable on the fees/charges payable by aircraft operators/owners.

The airfare payable by passengers for local flights is exempt from VAT whereas the airfare payable in respect of transportation of passengers on international flights is zero-rated for VAT purposes.

Aviation fuel and other aviation fuel products are subject to the following taxes:

Not applicable.