One of our Praxima clients recently reached out with a compliance query regarding their Kenyan employee’s taxation of employer-paid medical aid. According to current statutory employee benefits, employees contribute up to KES 1,700 towards their health insurance and employers must deduct and remit National Hospital Insurance Fund (NHIF) contributions monthly. Premiums paid for education, health, or life insurance policies can be tax-deductible if the employee provides proof of payment and the policy has a maturity period of at least 10 years. The deduction is 15% of the premiums paid, capped at KES 5,000 per month or KES 60,000 annually.
The client wanted to know:
𝘐𝘯 𝘒𝘦𝘯𝘺𝘢, 𝘪𝘴 𝘦𝘮𝘱𝘭𝘰𝘺𝘦𝘳-𝘱𝘢𝘪𝘥 𝘮𝘦𝘥𝘪𝘤𝘢𝘭 𝘢𝘪𝘥 𝘵𝘢𝘹𝘢𝘣𝘭𝘦?
Each country has its own laws regarding taxation of employer-paid medical aid. The answer for Kenya actually depends on the insurance provider of the medical aid.
The benefit is not taxable, provided it is offered through an insurance provider approved by the Commissioner of Insurance.
According to Section 3(2)(a)(ii) of the Income Tax Act (CAP 470), income subject to tax includes gains or profits from employment or services rendered.
However, Section 5(4)(b) specifically excludes:
“𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 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.”
An important caveat applies to directors:
For directors other than whole-time service directors, the value of such medical insurance is taxable, 𝘀𝘂𝗯𝗷𝗲𝗰𝘁 𝘁𝗼 𝗹𝗶𝗺𝗶𝘁𝘀 𝗽𝗿𝗲𝘀𝗰𝗿𝗶𝗯𝗲𝗱 𝗯𝘆 𝘁𝗵𝗲 𝗖𝗮𝗯𝗶𝗻𝗲𝘁 𝗦𝗲𝗰𝗿𝗲𝘁𝗮𝗿𝘆 𝗳𝗿𝗼𝗺 𝘁𝗶𝗺𝗲 𝘁𝗼 𝘁𝗶𝗺𝗲.
Employer-paid medical cover in Kenya is therefore generally a 𝗻𝗼𝗻-𝘁𝗮𝘅𝗮𝗯𝗹𝗲 𝗯𝗲𝗻𝗲𝗳𝗶𝘁 for full-time employees, provided it complies with the statutory requirements.
If this article raised questions or highlighted areas you’d like to understand better, let’s talk.Our team can walk through the details, implications, and practical considerations for your business.
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