Corporate Expenses Guide
A comprehensive guide to understanding which business expenses are tax deductible according to the Kenya Income Tax Act. Learn how to properly categorize and document expenses for tax compliance.
Basic Principles
General Rule for Deductibility
Under the Kenya Income Tax Act, an expense is deductible if it:
- Is incurred wholly and exclusively for the purpose of generating business income
- Is a revenue expense (not a capital expense)
- Is not prohibited by the Income Tax Act
- Has proper documentation (receipts, invoices, etc.)
Deductible Expenses
Office Rent
Rent paid for business premises
Examples:
- •Office rent
- •Warehouse rent
- •Shop rent
Utilities
Water, electricity, internet, and phone bills
Examples:
- •Electricity bills
- •Water bills
- •Internet
- •Phone
Salaries & Wages
Employee compensation
Examples:
- •Salaries
- •Wages
- •Bonuses
- •Allowances
Professional Fees
Fees paid to professionals
Examples:
- •Consultant fees
- •Accountant fees
- •Legal fees
Travel & Accommodation
Business travel expenses
Examples:
- •Air tickets
- •Hotel accommodation
- •Meals during travel
Marketing & Advertising
Promotional and marketing costs
Examples:
- •Advertising
- •Marketing campaigns
- •Website development
Office Supplies
Stationery and office materials
Examples:
- •Stationery
- •Printing
- •Office equipment (revenue)
Vehicle Expenses
Business vehicle operating costs
Examples:
- •Fuel
- •Repairs
- •Insurance
- •Parking fees
Insurance
Business insurance premiums
Examples:
- •Business insurance
- •Vehicle insurance
- •Public liability
Legal & Audit Fees
Legal and audit services
Examples:
- •Legal fees
- •Audit fees
- •Compliance fees
Interest on Business Loans
Interest paid on business loans
Examples:
- •Bank loan interest
- •Overdraft interest
Repairs & Maintenance
Repairs to business assets
Examples:
- •Equipment repairs
- •Building maintenance
- •Vehicle repairs
Training & Development
Employee training costs
Examples:
- •Training courses
- •Workshops
- •Seminars
Non-Deductible Expenses
Personal Expenses
Expenses for personal use
Examples:
- •Personal groceries
- •Personal clothing
- •Personal travel
Capital Expenses
Expenses that create assets
Examples:
- •Purchase of vehicles
- •Building construction
- •Equipment purchase
Note: These are capitalized and depreciated over time
Entertainment
Entertainment expenses (limited deduction)
Examples:
- •Client entertainment
- •Staff parties
Note: Limited to 1% of gross income or KES 50,000, whichever is lower
Fines & Penalties
Fines and penalties
Examples:
- •Traffic fines
- •Late payment penalties
- •Regulatory fines
Private Use
Expenses with private benefit
Examples:
- •Personal use of company vehicle
- •Private phone bills
Common Expense Categories
Documentation Requirements
Required Documents
To claim expenses as deductions, you must maintain proper documentation:
- Original Receipts/Invoices: Keep all original receipts and invoices for expenses
- Payment Records: Bank statements, M-Pesa statements, or payment vouchers
- Business Purpose: Document the business purpose of each expense
- Expense Register: Maintain a detailed expense register or accounting records
Retention Period
Keep all expense documentation for at least 7 years from the end of the tax year. KRA may request these documents during audits.
Capital vs Revenue Expenses
Key Difference
Revenue Expenses (Deductible)
Expenses that maintain or operate your business
- • Office rent
- • Utilities
- • Salaries
- • Repairs
- • Office supplies
Fully deductible in the year incurred
Capital Expenses (Not Directly Deductible)
Expenses that create or improve assets
- • Vehicle purchase
- • Building construction
- • Equipment purchase
- • Major renovations
Capitalized and depreciated over time
Compliance & Best Practices
Best Practices
- Categorize expenses immediately after incurring them
- Keep separate records for business and personal expenses
- Use eTIMS receipts where applicable for better verification
- Review expenses regularly to ensure proper categorization
- Maintain digital backups of all receipts and invoices
KRA Audit Considerations
During audits, KRA will verify that expenses are legitimate business expenses. Ensure all expenses have clear business purposes and proper documentation. Mixed personal/business expenses should be apportioned appropriately.
Track Your Expenses
Use our expense calculator to track and categorize your business expenses.