Loss-making in Kenya: is there still a minimum tax?
Whether a loss-making Kenyan software company still faces a minimum tax, and the returns it must file on time while it makes losses.
By Achekam · · 4 min read · For Software (SaaS) businesses in Kenya
A Nairobi software company a few years old is doing what venture-backed start-ups are meant to do: hiring engineers, spending on cloud infrastructure and marketing, and losing money while revenue grows. The founders know corporation tax is charged on profit, so a loss should mean no tax. Then someone at a meetup mentions "the minimum tax" charged on turnover whether you make a profit or not, and the finance lead is no longer sure.
This article sets out what the law says on the points that are clear, where it is not settled, and what a loss-making Kenyan company still has to file. It is not tax advice for your year of income; it is a map of the questions to put to your tax adviser.
The minimum tax and the court rulings, at the time of writing
Kenya introduced a minimum tax of 1%, charged on turnover rather than on profit. That tax was struck down by the High Court in September 2021, and the Court of Appeal upheld the decision in December 2022.
For a loss-making company, those rulings were significant: a company with losses was no longer expected to pay a turnover-based minimum tax under that provision.
Why its revival is uncertain
Kenya's tax laws change through Finance Acts and other amending laws. Whether the minimum tax has since been revived is marked uncertain in the research this article relies on, and Achekam does not state a position on it.
That uncertainty is the point to act on. Do not rely on a meetup conversation or an old blog post either way. Ask your tax adviser, in writing, whether any minimum or turnover-based tax applies to your company for the year of income you are filing, and under which provision. Keep the answer with your tax file.
Corporation tax charged only on profits
Kenyan resident companies, and non-resident companies with a permanent establishment in Kenya, pay corporation tax at 30% at the time of writing, with special regimes for some zones and companies. The tax is charged on taxable profit, so a company whose deductible costs exceed its income has no corporation tax to pay on profit for that year.
Two cautions for software companies:
- Taxable profit is not accounting profit. Some costs in your income statement may not be deductible, and some income may be taxed differently. Your adviser works from the accounts to the tax computation, and a loss in the books may not be a loss for tax.
- Instalment tax depends on your position. Kenyan instalment tax falls due on the 20th day of the 4th, 6th, 9th and 12th months of the year, based on the lower of 110% of the previous year's tax or the year's estimate. A company that expects to stay loss-making should agree its instalment position with its adviser rather than ignoring the dates; paying instalment tax on time explains the calendar.
Companies in Kenya use their own 12-month financial year, so all of these dates run from your year end, not from the calendar year.
The return is still due within six months
A loss does not remove the duty to file. A Kenyan corporation tax return is due within six months after the year end, profit or loss. Filing on time also matters for your own record of losses, which your adviser will want to use against future profits under the rules that apply.
KRA explains how companies file and pay corporation tax on iTax, including the IT2C return due six months after year-end and instalment tax, on its filing and paying taxes page for companies. For a start-up, a practical approach is to set the filing date in the founders' calendar on the first day of the financial year, and to ask the accountant for the draft statements well before it.
Turnover tax is a different regime for small businesses
Turnover tax is not the same thing as the minimum tax. It is a separate, simplified regime for resident businesses with gross turnover above KES 1 million and not above KES 25 million, and KRA gives the rate as 1.5% of gross sales; confirm the current rate on KRA's own page before relying on it.
Because turnover tax is charged on gross sales rather than profit, a business inside it pays even in a loss-making year. An early-stage software company with modest local revenue may fall inside the band, so check with your adviser which regime applies to you. Turnover tax for small Kenyan businesses covers the band and its rules in more depth.
What Achekam computes once its rules are approved
Once its rules are approved, Achekam computes Kenyan corporation tax, instalment tax, VAT, withholding tax, turnover tax, capital gains tax and stamp duty. Every Kenyan tax figure in Achekam's rule book was seeded as "under review", and nothing is computed from a figure until an Achekam platform administrator approves it. No firm user can change a rate.
Achekam does not file Kenyan returns. A person with the KRA filing permission files on iTax and uploads the acknowledgement, and a different person verifies it before the return counts as filed. Achekam's computations are a working tool for you and your adviser, not a ruling on whether a minimum tax applies.
Questions to put to your adviser this year
- Does any minimum or turnover-based tax apply to our company for this year of income, and under which provision?
- Are we inside or outside turnover tax, and why?
- What is our tax loss, as opposed to our accounting loss?
- What instalment tax, if any, should we pay, and on which dates?
- Who files the IT2C return, and by what date?
Send those questions to your adviser before the year ends, so the answers shape your year-end work rather than arrive after the deadline.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
