Relocating to Kenya as a U.S. Remote Worker: Kenyan Tax, U.S. Tax and the Missing Treaty

A U.S. employee who moves to Kenya for a year or more faces two tax systems, and there is no treaty to coordinate them. This article explains when a remote worker in Kenya becomes tax resident, how the Income Tax Act taxes salary paid from abroad, what the missing U.S. treaty means, and where the United States’ own rules come in.

When an individual becomes resident in Kenya

Section 2 of the Income Tax Act sets the residence tests for an individual. A person is resident for a year of income if she has a permanent home in Kenya and was present in Kenya for any period in that year. If she has no permanent home in Kenya, she is resident if she was present for 183 days or more in the year, or if she was present for an average of more than 122 days per year in that year and the two preceding years. The year of income runs from 1 January to 31 December.

That calendar-year rule matters for a December arrival. Someone who lands in December with no permanent home will not meet the 183-day or the 122-day tests for that first year, so she is unlikely to be resident for it on the day-count tests. If she takes a home in Kenya on arrival, the permanent-home limb needs a closer look, because the Act does not define a permanent home and we found no authority settling when a leased flat qualifies. She is likely to be resident for the following year if she stays. Take advice on the first-year position before she arrives, not after.

What Kenya taxes

Section 3(1) charges tax on income accrued in or derived from Kenya, whether the recipient is resident or not, and section 3(2)(a)(ii) includes gains or profits from any employment or services rendered. Section 5(1) then deems certain employment income to be Kenyan. It covers amounts paid to a person who is, or was at the time of the employment or services, a resident, for employment or services rendered in Kenya or outside Kenya. The effect is that a resident worker is taxable in Kenya on her salary even when it is paid by a foreign employer into a foreign account.

For a non-resident, section 5(1) reaches amounts paid by an employer resident in Kenya or by the permanent establishment of a non-resident employer in Kenya. A non-resident whose foreign employer has no Kenyan presence is therefore a harder case under that limb. On a plain reading of section 3, work physically done in Kenya is likely to be treated as Kenyan-source, but we found no decision applying the Act to a non-resident employee of a foreign company paid abroad, so treat that as unsettled.

The missing treaty

Section 41 gives effect to special arrangements made with other governments for relief from double taxation. Those are treaty arrangements. The National Treasury’s table of Kenya’s double taxation agreements does not list the United States, whereas it lists countries such as the United Kingdom, Canada, Germany and South Africa. Without a treaty, no tie-breaker rule decides which country has the primary right to tax, and no treaty article assigns relief. We did not find a general unilateral foreign tax credit provision in the Act, so a worker should not assume that Kenya will credit tax she has paid to another country. Confirm the current treaty list before relying on this point, as it can change.

The U.S. side

U.S. citizens and resident aliens are taxed by the United States on their worldwide income wherever they live. The IRS offers the foreign earned income exclusion to qualifying individuals living abroad. To claim it, a person must meet either the bona fide residence test, which requires residence in a foreign country for an uninterrupted period that includes an entire tax year, or the physical presence test, which requires presence in foreign countries for at least 330 full days in any period of 12 consecutive months. The exclusion does not reduce self-employment tax, which matters if she is classified as a contractor. We do not advise on U.S. tax, and a U.S. adviser must confirm her position, including whether she is a U.S. citizen, a green card holder or neither, since that decides the U.S. reach.

Practical steps before the move

She should fix her arrival date and keep a day-count record from the first day. She should decide whether to register with the KRA for a PIN and how her employer will pay her, because the payroll route affects who accounts for the tax; see our article on payroll registration for a foreign employer. She should also ask the employer whether it will gross up or share any double-tax cost, which is a contract point to settle before she moves. The classification of her role also changes the tax result, as explained in our article on employee or independent contractor.