Tax Free Employment Benefits

Tax Free Employment Benefits – The Income Tax Act exempts the below employment benefits from tax

Medical benefits provided to a full-time employee and a whole-time service director, including their beneficiaries (spouse and up to 4 children below 21 years).

Income Tax Act Section 5(4)Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include—

(b)in the case of a full-time employee or his beneficiaries. (Which expression includes a whole time service director, or a director who controls more than five per cent of the share capital or voting power of a company). The value of any medical services provided by the employer or medical insurance provided by an insurance provider approved by the Commissioner of Insurance and paid for by the employer on behalf of a full-time employee or his beneficiaries.

“whole time service director” means a director of a company who is required to devote substantially the whole of his time to the service of such company. In a managerial or technical capacity, and is not the beneficial owner of, or able, either directly or through the medium of other companies or by any other means, to control more than five per cent of the share capital or voting power of such company;

Medical benefits provided to a non-whole-time service director, partner, and sole proprietor, including their beneficiaries, subject to a maximum value of Shs.1million.

(Tax Free Employment Benefits) Income Tax Act Section 5(4)Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include—

(b)in the case of a full-time employee or his beneficiaries (which expression includes a whole time service director, or a director who controls more than five per cent of the share capital or voting power of a company) the value of any medical services provided by the employer or medical insurance provided by an insurance provider approved by the Commissioner of Insurance and paid for by the employer on behalf of a full-time employee or his beneficiaries

Amounts paid by an employer as a gratuity or similar payment in respect of employment into a registered pension scheme subject to a maximum of Kshs. 240,000.

Income Tax Act Section 5(4) Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include

(g)an amount paid by an employer as a gratuity or similar payment in respect of employment or services rendered, which is paid into a registered pension scheme:
Provided that—

(a)this paragraph shall only apply in respect of amounts not exceeding two hundred and forty thousand shillings for each year of service;

Education fees of an employee’s dependents or relatives, if taxed on the employer.

Income Tax Act Section 5(4)Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include
(d)educational fees of employee’s dependents or relatives disallowed under section 16(2(a)(iv) which have been taxed in the hands of the employer;

International passage cost for non-citizen employees recruited outside Kenya solely to serve the employer.

Income Tax Act Section 5(4) Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include

(a)the expenditure on passages between Kenya and any place outside Kenya borne by employer:

Provided that this paragraph shall not apply to expenditure. Other than expenditure on the provision of passages for the benefit of an employee recruited, or engaged outside Kenya and who is in Kenya solely for the purpose of serving the employer and is not a citizen of Kenya;

Non-cash benefits not exceeding Shs. 36,000 p.a

Income Tax Act 5(2)(b)save as otherwise expressly provided in this section, the value of a benefit, advantage, or facility of whatsoever nature the aggregate value whereof is not less than thirty six thousand shillings granted in respect of employment or services rendered;

Shs. 2,000 per day towards subsistence and travelling allowance for a person working outside the usual place of work.

Income Tax Act Section 5(2)(a)(iii)notwithstanding the provisions of subparagraph (ii). Where such amount is received by an employee as payment of subsistence, travelling, entertainment or other allowance. In respect of a period spent outside his usual place of work while on official duties, the first two thousand shillings per day expended by him for the duration of that period shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of his gains or profits;

Meals provided at employer’s canteen or by a third party registered taxpayer both at the employer’s and at third party premises where the value of the meal does not exceed Shs. 48,000 p.a. per employee.

Income Tax Act Section 5(4) Notwithstanding anything to the contrary in subsection (2) “gains or profits” do not include;

(f)the value of meals served to employees in a canteen or cafeteria operated or established by the employer or provided by a third party who is a registered taxpayer. (Whether the meals are supplied in the premises of the employer or the premises of the third party). Where the value of the meal does not exceed the sum of forty-eight thousand shillings per year per employee subject to such conditions as the Commissioner may specify;

The first Shs. 150,000 p.m. of total income and deduction of upto Shs. 50,000 p.m. for non-reimbursed hospital admission costs, drugs treatment, and home care services for disabled persons registered with the National Council for Persons with Disabilities and approved by the Commissioner.

The Persons with Disabilities (Income Tax Deductions and Exemptions) Order, 2010 (Legal Notice No. 36 of 2010)

Deduction of 1/3 of employment income of a non-citizen resident employee, of a non-resident company or partnership trading for profit approved by the Commissioner. Who is absent from Kenya for an aggregate of 120 days, or more in a year of income and whose employment costs are not deductible in ascertaining the employer’s income chargeable to tax.

Income Tax Act Section 15.(2)(r)Deductions allowed

(r)an amount equal to one-third of the total gains and profits from employment of an individual who is not a citizen of Kenya and—

(i)whose employer is a non-resident company or partnership trading for profit;

(ii)who is in Kenya solely for the performance of his duties in relation to his employer’s regional office. Which office has been approved for the purposes of this paragraph by the Commissioner;

(iii)who is absent from Kenya for the performance of those duties for a period or periods amounting in the aggregate to one hundred and twenty days or more in that year of income; and

(iii)who is absent from Kenya for the performance of those duties for a period or periods amounting in the aggregate to one hundred and twenty days or more in that year of income; and

(iv)whose gains and profits from that employment are not deductible in ascertaining the total income chargeable to tax under this Act of his employer or of any company or partnership which controls, or is controlled by, that employer

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