Kenya ruling expands tax net to foreign income earned from Nairobi operations

A Kenyan Tax Appeals Tribunal ruling that income earned from projects abroad can still be taxed locally could ripple through Nairobi’s fast-growing pool of remote tech workers, freelancers, and back-office teams working for global companies from Kenya.

In its March 26 ruling in favour of Kenya Revenue Authority (KRA) in a KES 1.9 billion ($14.6 million) dispute with H.P Gauff Ingenieure GmbH & Co KG, a German engineering firm, the tribunal said that companies cannot rely on the physical location of projects to escape Kenyan taxes when “management and control” are in the country.

The tribunal found that where a business or a project is partly run in and out of Kenya, “the whole of the gains or profits” can be treated as Kenyan income. That finding could change how KRA looks at global companies that tap Kenyan talent for various freelance and remote roles. 

“We have established that the appellant exercised management and control while in Kenya; therefore, the respondent (KRA) was right that the income was taxable in Kenya,” the tribunal said, adding that the income “was derived from Kenya.”

In the past decade, Business Process Outsourcing (BPO) companies like Sama expanded operations in Nairobi, making Kenya’s capital a back-office for some tech firms. The BPOs hire software engineers building products for Silicon Valley startups, designers working for European agencies, and operations teams running African portfolios for funds, all without those companies setting up a formal local presence.

The tribunal’s position now challenges that model. If key decisions, coordination, or oversight of work happens in Kenya—even for projects executed elsewhere—tax authorities could argue that value is being created locally and is therefore taxable.

The ruling raises the risk that companies may inadvertently create a taxable presence through their Kenyan staff and signals tighter scrutiny of income earned by local workers from foreign clients.

The dispute

The tax dispute, which started in 2019, centred on whether income from projects outside Kenya, including in South Sudan, should be taxed locally. The German firm argued such income fell outside Kenya’s tax reach, insisting non-resident entities are taxed only on income derived from Kenya.

But the tribunal found otherwise, noting the firm exercised “management and control” from within Kenya. 

The tribunal also found that donor-funded projects are not automatically tax-exempt and that companies must provide formal approvals, including exemption certificates and Gazette notices, to qualify for relief. This could further hit contractors and consultants who rely on grants from Development Finance Institutions (DFIs) and non-profit organisations, especially startups with projects in rural areas. The ruling fits into Kenya’s tightening tax environment, where authorities are expanding the net to capture income that previously slipped through grey areas, particularly in cross-border and digital work.