Orlando Harmon
In Kenya, medical insurance reimbursements are not usually taxable. However, the tax industry in Kenya is very dynamic, and taxpayers must rely on current information from the Kenya Revenue Authority (KRA). The Income Tax Act provides for insurance relief on premiums paid for health policies by resident individuals. This relief is part of tax reliefs in Kenya, which reduce the amount of tax one has to pay and are granted on a monthly basis.
| Characteristics | Values |
|---|---|
| Reimbursed medical insurance or medical expenses | Not taxable |
| Tax reliefs | Personal relief, insurance relief |
| Personal relief | Ksh.1,408 per month |
| Insurance relief | 15% of the amount of premiums paid for self, spouse or child, up to Kshs. 60,000 per annum |
| Tax Laws (Amendment) Act, 2024 | Exempts from tax the reimbursement of expenditure incurred by public officers for official duties |
| Income Tax Act Cap 470 | Requires individuals with annual tax liability > Kshs. 40,000 to pay income tax in 4 instalments |
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What You'll Learn
Medical insurance reimbursements are not taxable
In Kenya, medical insurance reimbursements are not taxable. This is in accordance with the Finance Act, 2023, which amended Section 5(2) of the Income Tax Act (ITA) to exempt from tax amounts reimbursed to an employee for medical insurance or medical expenses.
The Income Tax Act in Kenya provides that any person whose annual tax liability is more than Kshs 40,000 per year should pay income tax in instalments four times a year. These instalments are due on the 20th of April, June, September, and December, with any balance to be paid by the last day of April the following year. Personal relief, which is the amount deducted by a resident individual from their tax payable, acts as a credit against tax liability. As of 1 January 2018, every resident individual in Kenya is entitled to a personal relief of Ksh.16,896 per annum (Kshs.1,408 per month).
Insurance relief is also offered by the government to all life insurance policyholders. Resident individuals are entitled to relief on premiums paid for life, education, and health policies. This relief is subject to a maximum of Kshs. 60,000 per annum and is provided on a monthly basis. The education policy must have a maturity period of at least 10 years.
It is important to note that the tax industry in Kenya is dynamic, and taxpayers should rely on the most current information from the Kenya Revenue Authority (KRA).
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Medical expenses are not taxable
In Kenya, medical expenses are not taxable. This includes reimbursed medical insurance or medical expenses. However, it is important to note that this is specific to Kenya and may not apply to other countries.
The Income Tax Act in Kenya provides tax reliefs for individuals, including personal and insurance relief components. Personal relief is a deduction from the tax payable by a resident individual, acting as a credit against their tax liability. Every resident individual is entitled to a personal relief amount, which was Ksh.16,896 per annum (Kshs.1,408 per month) effective January 1, 2018. This amount can reduce the tax burden for individuals.
Insurance relief is also offered by the government, specifically for life insurance policyholders. Resident individuals can claim relief on premiums paid for life, education, and health policies. The current insurance relief is 15% of the premium amount paid for themselves, their spouse, or child, up to a maximum of Kshs. 60,000 per annum. To be eligible for the education policy relief, the policy must have a maturity period of at least 10 years.
Additionally, expatriates working in Kenya may be eligible for tax deductions under certain conditions. If expatriates are employed by a regional office that conducts no business in Kenya and are absent from the country for at least 120 days in a tax year, they may claim a one-third deduction from their taxable income. Furthermore, the Tax Laws (Amendment) Act, 2024, introduced exemptions for non-resident public officers, exempting reimbursement for expenses incurred while performing official duties.
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Tax relief for insurance premiums
In Kenya, tax reliefs are granted to reduce the amount of tax one has to pay. These are granted on a monthly basis. One type of tax relief is insurance relief, which is offered by the government to all life insurance policyholders.
Insurance Relief for Tax Payers
Resident individuals in Kenya are entitled to insurance relief on premiums paid for life, education, and health policies. This includes insurance for themselves, their spouse, or child. The insurance relief is granted at a rate of 15% of the premiums paid, up to a maximum of KShs. 60,000 per annum. For education policies, there is a minimum maturity period of 10 years.
Tax Relief for Employers
Employers in Kenya are required to deduct tax from the employment income of their employees and remit it to the Kenya Revenue Authority (KRA). This is known as the PAYE (Pay As You Earn) system. Under PAYE, employers are also required to pay an Affordable Housing Levy of 1.5% of the employee's gross monthly salary.
Tax Relief for Employees
Employees in Kenya are entitled to personal relief, which is deducted from the tax they pay. The current rate of personal relief is Ksh.16,896 per annum (Kshs.1,408 per month) for resident individuals. Additionally, employees can claim deductions for contributions to a registered pension or provident fund, up to a limit of Kshs. 360,000 per year (Kshs. 30,000 per month).
Tax Relief for Expatriates
Expatriate employees in Kenya may be exempt from tax on certain reimbursements, such as airfare and moving expenses, if they are solely in the country to perform their duties. Under certain conditions, expatriates may also claim a one-third deduction from their taxable income if they are employed by a regional office that carries no business in Kenya and if they are absent from the country on business for at least 120 days in any tax year.
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Tax exemptions for non-residents
In Kenya, non-residents are taxed only on their income earned within the country or derived from it. Non-residents are also subject to a 20% withholding tax on royalties paid to them.
Expatriates may claim a one-third deduction from taxable income if they are employed by a regional office that does not conduct business in Kenya and if they are absent from the country on business for at least 120 days in any given tax year.
Additionally, the actual airfare and moving expenses paid to expatriate employees recruited outside of Kenya and who are there solely to perform their duties are not taxable. Leave passages for such employees are also not taxable. Income earned by a non-resident contractor, subcontractor, consultant, or employee involved in the implementation of a project financed through a 100% grant is also exempt from taxation.
To avoid double taxation, Kenya has entered into Double Tax Agreements (DTA) with other countries. These agreements set out the method to be adopted for the elimination of double taxation using either the exemption or credit method.
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Tax deductions for medical service providers
Taxation in Kenya is on an accrual basis, meaning that tax is due whether or not it has been received, as long as it is recognised as due. Every time income is earned, tax is payable. In the case of medical service providers, there are several tax deductions to be aware of.
Firstly, under the Income Tax Act Cap 470, any person whose annual tax liability exceeds Kshs 40,000 per year should pay income tax in instalments four times a year. The deadlines for these payments are 20th April, 20th June, 20th September, and the last day of April (usually 30th) the following year.
Secondly, medical service providers can deduct expenses directly linked to their income. Allowable expenses include stationery, employee pay, work-related travel (local and international), mobile phone expenses (only 70% deductible), tools and equipment, annual practising certificates, financing costs, professional indemnity insurance, general insurance, repairs and maintenance, office furniture, and electronic items.
Thirdly, employers are required to deduct and remit payments to the National Hospital Insurance Fund (NHIF) on behalf of their employees. The contribution is graduated, with a minimum of Kes 500 and a maximum of Kes 1,700 per employee earning Kes 100,000 every month.
Fourthly, employers must also deduct and remit the PAYE (Pay As You Earn) tax to the Kenya Revenue Authority (KRA) by the 9th day of the following month. This applies to employees earning Ksh. 24,000 and above per month.
It is important to note that specific details and regulations may change, so it is advisable to consult the most up-to-date information or a tax professional for accurate and current guidance.
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Frequently asked questions
Reimbursed medical insurance or medical expenses are not normally taxable in Kenya.
The first step is to gather all deductible expenses, which can include general insurance, repairs and maintenance, office furniture, electronic items, and medical machines. The next step is to deduct these expenses from the income earned. Finally, determine the taxable income for the year by CRC, including income from employment and other sources.
Yes, Kenya offers both personal and insurance tax reliefs. Every resident individual is entitled to a personal relief of Ksh.16,896 per annum (Kshs.1,408 per month), which can reduce the amount of tax you have to pay. Insurance relief is also offered on premiums paid for health, life, and education policies, with a maximum annual relief of Kshs. 60,000.
