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Digital Asset Taxation in Kenya
Swen Keller
Africa ranks as one of the fastest-growing cryptocurrency markets in the world. Some African nations have experienced this growth more than others but none more than Kenya.
In a bid to control the rapid growth, the Kenyan government, the National Treasury and legislature have proposed various taxes for cryptocurrencies and their service providers in 2023 such as the new Digital Assets Tax.
This article covers all there is to know about the taxation of digital assets in Kenya, which came as an amendment to the nation’s Financial Act 2023 in September of the same year.
The regulation imposes a 3% tax on income from exchanging or transferring digital assets in the country.
Do I Need to Pay Crypto Taxes in Kenya?
Yes, under the Finance Bill 2023, the Kenyan Government passed the Digital Assets Tax into law.
With the introduction of the law, a 3% tax was imposed on digital assets starting from September 1, 2023.
Under the law, a digital asset is defined as “anything that is not tangible, cryptocurrencies, token code, number held in digital form and generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically, and a non-fungible token or any other token of similar nature, by whatever name called.”
This means that you are required to pay a 3% tax on cryptocurrencies, Non-Fungible Tokens, and other digital assets.
Can the KRA Track Crypto?
While the Kenyan government and the Kenyan Regulatory Authority have an interest in cryptocurrencies in the country, there is still not enough regulatory framework in place to track crypto in the country.
That said, the Kenyan government regulates crypto exchanges and their use in the country through 3 Acts: the Kenyan Information and Communication ACT (KICA), The National Payments Systems Act(NPSA), and the Capital Markets Act (CMA).
Also, the Central Bank of Kenya regulates cryptocurrencies through Kenya’s Money Remittance regulations.
Under this regulation, crypto companies must be licensed to offer services in the country.
Crypto companies that are not properly authorized will have their banking services suspended.
How Do You Calculate Crypto Taxes in Kenya?
Based on the new Finance Bill 2023, the Digital Assets Tax in Kenya is 3%.
This means that anytime you exchange, trade, or transfer crypto, you must pay a 3% tax.
In addition, centralized crypto exchanges in Kenya have been mandated to act as tax collectors and deduct the tax whenever a user makes an exchange or transfer.
The crypto exchanges must remit these taxes to the Kenya Revenue Authority within 5 days.
Calculation of the tax is simple, as the 3% tax is deducted from the total value of the exchanged asset.
This means that if you trade 1,000 USDT, you must pay a tax of 3% which is 30 USDT.
That said, it is not yet clear if the tax is to be paid in the underlying crypto traded or its equivalent in fiat currency.
Crypto Capital Gains Tax Kenya
Capital Gains Tax is imposed on profits acquired through the sale or transfer of taxable assets in Kenya.
On the 1st of January 2023, the Income Tax Act was amended and the Capital Gains Tax was increased from 5% to 15%
Capital Gain Tax is due on or before the date of the transfer of the asset, it must however not be later than the 20th of the day of the transfer.
Capital Gains Tax payments can be made online on the KRA portal.
For crypto transactions, a Capital Gains Tax of 15% is required from traders for the net gains realized from the trade or exchange of crypto.
Kenya Crypto Taxes Threshold
The introduction of a Digital Asset Tax (DAT) mandates all traders to pay 3% on the earnings made from the trade or transfer of digital assets.
There is no threshold for crypto taxes. Centralized exchanges have been mandated to deduct the tax whenever users make a transfer or exchange.
There is no mention of any threshold. This means that even the littlest amount or crypto transaction is subject to the tax.
Company Income Tax (Crypto Income Tax) in Kenya
Company Income Tax is a tax imposed on the profit of a business from all sources.
Resident companies in Kenya are taxed on income obtained or derived from Kenya.
Businesses in Kenya are required to pay a 30% company Income Tax on their total profit.
Resident companies with businesses outside Kenya are also taxed on income derived from businesses outside Kenya.
That said, non-resident companies in Kenya are only required to pay Corporate Income Tax on their trading profits that can be attributed to a Kenyan PE.
The Income Tax on repatriated income for branches of foreign companies and PE is 15%.
Tax on Lost or Stolen Crypto
Tax on lost or stolen cryptocurrency is only deductible if the loss was reported to the Kenya Revenue Authority.
That said, you will still have to pay tax on all gains not affected by the loss.
Taxes on NFTs Trading
According to the Digital Assets Tax amendment, residents of Kenya must pay a 3% tax on earnings obtained from the transfer or exchange of digital assets. In this law, a digital asset is defined as anything valuable without a physical presence such as NFTs and cryptocurrency.
The 3% tax on NFTs is from the overall value of the digital asset (NFTs) being exchanged or transferred.
Tax on Crypto Gifts and Donations
The Kenyan cryptocurrency taxation laws are still evolving and currently, there is no law expressly placing crypto gifts and donations under the tax net or requiring citizens to pay tax on crypto gifts and donations.
However, if the crypto gift is transferred or exchanged for income then it is subject to the Digital Assets Tax law which falls under the Finance Act and Capital Gains Tax.
Is any Crypto Tax-Free in Kenya?
No, with the introduction of the new tax on digital assets, all cryptocurrencies are in the tax net and subject to the Digital Assets Tax amendment.
What is a Crypto Tax Calculator?
A crypto tax calculator is a tool that allows you to calculate how much you owe in taxes based on your crypto transaction history.
How to Use a Crypto Tax Calculator?
To use a crypto tax calculator you’ll need to enter the purchase price and sale price of your digital assets to calculate the gains made.
Once you’ve gotten the capital gain, the tax calculator will show you how much you need to pay in taxes.
Best Crypto Tax Calculators in Kenya
The best crypto tax calculators in Kenya include Bitdegree and the free Binance Tax calculator.
Final Thoughts
Kenya’s cryptocurrency regulation space is still evolving and it doesn’t have adequate taxation laws.
The only law that is directly applicable to crypto and NFTs is the Digital Assets Tax law.
That said, the Kenya Revenue Authority isn’t equipped enough to enforce crypto taxation in full force just yet.
FAQ
Most frequent questions and answers
Yes, according to the Digital Assets Tax amendment, they are taxable. Digital assets include NFTs and cryptocurrency.
That said, prior to the implementation of the bill, the proposed tax on crypto was opposed by the Blockchain Association of Kenya. The Blockchain Association of Kenya is of the opinion that the proposed tax may stifle the growth of blockchain-related services in the country. The Blockchain Association has since sued the government.
The tax on the sale of digital assets in Kenya is 3% of the profit gained.
Cryptocurrency traders and NFT traders pay Digital Service Tax through the crypto exchange on gains made from the transferring or exchange of the same.
No, trading Bitcoin is not illegal in Kenya. However, it is not recognized as a legal tender.
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