UNDERSTANDING KENYA’S INCOME TAX EXEMPTION FOR DONATIONS & CHARITABLE ORGANIZATIONS

March 20, 2025

By Maina Susan – Tax & Finance Writer

The Kenyan tax ecosystem is constantly evolving and morphing to accommodate policies that are aligned with its pursuit of socio-economic development and poverty eradication.

Relatably, KRA issued the Kenya Income Tax (Donations and Charitable Organizations) Exemption Rules 2024 that was made into effect on 18th June 2024.This move followed a repeal of the formerly existent Income Tax (Charitable Donations) Regulations established in 2007.

KEY TAKEWAYS

The Kenya Revenue Authority (KRA) has issued the Kenya Income Tax (Donations and Charitable Organizations) Exemption Rules, establishing stricter guidelines for tax-exempt status in Kenya.
To qualify for tax exemption, charitable organizations must provide verifiable proof that their core activities are exclusively focused on poverty alleviation and eradication.
The tax-exempt status of a charitable organization can be revoked if it fails to comply with the stipulated rules and regulations under the Income Tax Exemption Clause.
Organizations that were granted income tax exemption before June 18, 2024, must comply with these new regulations within 12 months from the effective date.
These tax exemption rules officially took effect on June 18, 2024, impacting all charitable organizations operating in Kenya.

What does this Exemption Rule Entail?

The Income Tax Exemption rule is a set of regulations designed by the Kenyan government to govern the tax-exempt status of charitable organizations and donations in Kenya.

In order to further understand the Kenya Income tax Exemption (Donations and Charitable Organizations )Rule 2024, It’s important to first decipher the basics pertaining to charitable organizations.

What is a Charitable Organization?

“As per Rule 5 of the Tax Exemptions Acts for charitable institutions; An organization is deemed to be charitable only if:

it is organised and operated exclusively for one or more of the charitable purposes.
its charitable purposes are directed towards public benefit and result in the benefit to the residents of Kenya.”

Additionally, for an organization to be deemed as charitable it must clearly detail the following aspects in its founding document:

Clear primary statement of purpose
Specification of the charitable activities it intends to carry out
Specification of the targeted beneficiaries
Specification of the criteria used to identify, assess and select the beneficiaries and the ethicality dispensed in the selection process

It is essential to note that a charitable organization is only considered for tax exemptions if it only primarily engages in activities aimed at accomplishing the charitable purpose for which it was founded and the organisation does not engage or take part in any unlawful activities.

What are the Tax Exemptions Criteria?

The first schedule of the income tax under paragraph 10 clearly exempts income from institutions, bodies, or irrevocable trusts of a public character established solely for the purposes of:

Poverty relief and eradication.
Alleviation of public distress
Advancement of religion programs
Advancement of education programs

To Qualify for exemption; the charitable institution established for poverty relief must prove that:

i) It is solely organized and operated for poverty relief.

ii) It Caters to beneficiaries who are only restricted to persons experiencing poverty.

iii) its charitable purposes and charitable activities provide a public benefit that relieves the poverty of its beneficiaries.

However,As per Rule 23 It is important to also note that the commissioner shall not serve a charitable organization with tax exemption if:

i) The organization exclusively funds, offers donations and support to other charitable organizations without undertaking a charitable purpose.

ii) The organization has been exempted under any other tax law.

Benefits of Income Tax Exemptions for NGOs

A reprieve from income tax obligations which results in increased operational efficiency as more donations and grants will be entirely used for the intended programs and initiatives allocated for.
Reduced operational costs as NGOs allocate saved tax money to expand services and improve operations.
Increment of funding potential as more donors are attracted to the tax-exempt status thereby encouraging larger contributions.
International grants eligibility as many grants require compliance with specific tax-exempt criteria.
Simplification of reporting requirements as a tax-exempt status translates to more streamlined reporting requirements for NGOs helping ease administrative burdens.

What are the Documents Required for Tax Exemption Application?

Certified copies of governing documents, including:Rules, constitution, trust deed, memorandum & articles of association
Certified registration documents of the applican
Audited financial statements for the past three years
Schedule of assets, including corresponding values
Certified bank statements for the past three years
Introduction letter from the County Commissioner, stating:

Name of the organization
Nature and principal activities
Location of the head office

N/B: As a first time applicant for tax exemption; the charitable organization needs to have been in operation in Kenya for a period of at least One year.

Tax Exemptions Certificate Validity and Issuance

Upon successful review and analysis of the tax exemption requests to check for compliance with the rules set, the commissioner proceeds to issue a Tax exemptions Certificate

A tax exemption under these Rules shall:

Be valid for five years.
Be issued within 60 days of application submission if all requirements are met.
Apply as follows:
- Renewals: Effective from the application date or expiry of the previous certificate, whichever is later.
- New applications: Effective from the date of exemption approval.

Tax Exemptions Request Decline

Conversely, if a tax exemption application is declined, the Commissioner must provide the applicant with a detailed explanation of the reasons for the rejection.

Tax Exemptions Status Revocation

Some of the instances that may warrant the revocation of the tax exemption certificate include:

i) The organization’s or its governing documents’ failure to comply with the set Rules and Regulations

ii) Violation of any just clause highlighted under the aforementioned applicable regulations.

Revocation Procedure

The commissioner issues a Notice of Intention to Revoke.This statement details the reasons for revocation as well as a 30-day response period for the company.
Organization Response elucidating on the reasons that affected non-compliance as well as a detailed outline of corrective actions that need to be undertake.
Commissioner’s decision deliberation.spon being satisfied with the organization’s response, the commissioner proceeds to do a revocation in writing. Contrastly, if the commissioner is unsatisfied or fails to get a response within the set 30 day-window; he/she proceeds to revoke the exemption and subsequently notifies the organization in writing.

Significant Compliance Requirements to note:

Charitable organizations that were granted income tax exemption before the implementation of these rules are expected to adhere with these new regulations within 12 months from the dates the rule took effect.These tax exemption rules took effect on June 18,2024.

Failure to comply with these set regulations may result in revocation of tax exemption status in accordance with Rule 20.This will mandate the organizations to file reinstatement requests with the commissioner.

Ensure Tax Compliance Before the Deadline!

It is therefore imperative that charitable and non-profit organizations take corrective measures to ensure compliance with the set Income Tax(Charitable organizations and Donations Exemption) Rules ahead of June 18, 2025 in order to maintain their tax-exempt status.

Need assistance with compliance?

Our expert team provides tailored solutions to help you navigate tax regulations effortlessly.

Contact us today to secure your exemption and avoid potential revocation!