Nonprofit Law in Kenya

Current as of July 2023

This section describes the legal framework governing nonprofit

organizations (also known as non-governmental organizations or NGOs)
in Kenya and includes translations of legislative provisions relevant to a
foundation or advisor undertaking an equivalency determination of a
foreign grantee under IRS Revenue Procedure 92-94.

These reports have been prepared by the International Center for Not-
for-Profit Law (ICNL). Please direct corrections and comments to Lily
Liu.

We include hyperlinks to the following information, to the extent

available:

• Longer country reports analyzing various aspects of local

legislation; and
• Texts of local laws that affect the decision whether or not to
qualify a grantee (generally in translation, although ICNL and the
Council cannot warrant the accuracy of any translation; in addition,
legislative excerpts were selected by in-country contacts, and ICNL
and the Council cannot warrant that all relevant provisions have
been translated).

Table of Contents

I. Summary
A. Types of Organizations
B. Tax Laws
II. Applicable Laws
III. Relevant Legal Forms
 A. General Legal Forms
B. Public Benefit Status
IV. Specific Questions Regarding Local Law

A. Inurement
B. Proprietary Interest
C. Dissolution
D. Activities
E. Political Activities
F. Discrimination
G. Control of Organization
V. Tax Laws

A. Tax Exemptions
B. Deductibility of Charitable Contributions
C. Value Added Taxes
D. Import/Customs Duties
E. Double Tax Treaties
VI. Finance Act No. 4 of 2012

I. Summary

A. Types of Organizations
Kenya is a Commonwealth country with a common law system. There
are various types of not-for-profit organizations (“NPOs”):

• Non-Governmental Organizations (NGOs) (which will become

Public Benefit Organizations (PBOs) if the Government implements
the PBO Act).
• Companies Limited by Guarantee;
• Societies; and
• Trusts.

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Other not-for-profit legal forms, which are outside the scope of this
Note due to their limited interaction with U.S. grant makers, include
churches, political parties, and trade unions.

B. Tax Laws
Kenya exempts from corporate income tax the income of certain NPOs
that carry out specific types of activities. Unrelated business income is
subject to tax under certain circumstances. Kenya also subjects certain
sales of goods and services to VAT, with a fairly broad range of exempt
activities. The tax laws confer only limited tax benefits on corporate
donors and individual donors.

II. Applicable Laws [1]

• The Constitution of Kenya [2010]
• Constitution of Kenya (Supervisory Jurisdiction and Protection of
Fundamental Rights and Freedoms of the Individual) High Court
Practice and Procedure Rules [2006] [2]
• The Constitution of Kenya (Protection of Rights and Fundamental
Freedoms) Practice and Procedure Rules [2013]
• The Non-Governmental Organizations Coordination Act [1990] [3]
• The Non-Governmental Organizations Coordination
Regulations [1992]
• The Non-Governmental Organizations Council Code of Conduct
[1995]
• The Public Benefit Organizations Act [2013] (not implemented)
• The Companies Act [2015]
• The Insolvency Act [2015]
• The Societies Act, Chapter 108 of the Laws of Kenya [1998]
• The Trustees (Perpetual Succession) Act, Chapter 164 of the Laws
of Kenya [1981]
• The Trustee Act, Chapter 167 of the Laws of Kenya [1929]
• The Value Added Tax Act (Act No. 35 of 2013)

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 • The Income Tax Act, Chapter 470 of the Laws of Kenya [1989]
• East African Customs Management Act [2004]
• Excise Duty Act [2015]
• The Employment Act [2007]
• The Basic Education Act [2013]
• The HIV and AIDS Prevention and Control Act [2006]
• The Political Parties Act [2011]
• The Universities Act, Act No. 42 [2012]

III. Relevant Legal Forms

A. General Legal Forms

Kenyan law provides for various types of NPOs, including public benefit
organizations (PBOs), non-governmental organizations (NGOs),
companies limited by guarantee, societies, and trusts.

PBOS

Ratification of the Public Benefits Organizations Act 2013 (“PBO Act”)

represented a significant potential change in the legal framework for
NGOs. Upon commencement, the PBO Act will repeal the Non-
Governmental Organizations Coordination Act (“NGO Act”), and create
a new legal, regulatory, and institutional framework for non-profit
organizations doing public benefit work in Kenya, under a single law.
Kenya’s Parliament passed the PBO Act in December 2012 and the
President approved it in January 2013. Yet, despite two High Court
judgements ordering the Government to gazette and implement the
Act, the Government has failed to do so. [4] The failure to set a
commencement date for the Act, along with the ongoing possibility of
its amendment, poses considerable challenges in determining the
applicable law. [5] With the two reported High Court decisions having
relied on the provisions of the PBO Act, this matter becomes even more
complicated. [6]

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The PBO Act defines a PBO as a voluntary membership or non-
membership group of individuals or organizations, which is
autonomous, non-partisan, and non-profit. It is locally, nationally, or
internationally organized and engages in public benefit activities. The
Act defines a “public benefit activity” as one that supports or promotes
the public benefit by enhancing or promoting legitimate economic,
environmental, social, or cultural development; protecting the
environment; or lobbying or advocating on issues of general public
interest or the well-being of a group of individuals or organizations (PBO
Act Sections 5(1) and 2(1)). PBOs do not include:

• Trade unions within the meaning of the Labour Relations Act of

2007;
• Public bodies established by or under any written law;
• Political parties within the meaning of the Political Parties Act
No.11 of 2011;
• Religious organizations primarily devoted to religious worship or
propagation of religious beliefs;
• Societies within the meaning of the Societies Act;
• Co-operative societies within the meaning of the Co-operative
Societies Act;
• Sacco societies within the meaning of the Sacco Societies Act;
• Micro-finance institutions within the meaning of the Micro-Finance
Act, 2006 (No. 19 of 2006); or
• Community-based organizations whose objectives include the
direct benefit of their members.

Finally, the PBO Act defines an international NGO as an NGO originally

registered outside of Kenya which operates within Kenya, under a
certificate of registration issued under Section 10 of the Act.

NGOS

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The NGO Act, which will remain in effect until the PBO Act’s official
commencement, defines an “NGO” as “a private voluntary grouping of
individuals or associations, not operated for profit or for other
commercial purposes but which have organized themselves nationally
or internationally for the benefit of the public at large and for the
promotion of social welfare, development, charity, or research in the
areas inclusive of – but not restricted to – health, relief, agriculture,
education, industry, and the supply of amenities and services” (NGO Act
Section 2).

Under the NGO Act, it is an offence for any person to operate an NGO in
Kenya for welfare, research, health relief, agriculture, education,
industry, the supply of amenities, or any other similar purposes without
being duly registered as an NGO. Once an NGO is registered, it will be a
body corporate with perpetual succession capable in its own name of:
suing and being sued; taking, purchasing, or otherwise acquiring,
holding, charging, or disposing of moveable and immovable property;
entering into contracts; and doing or performing all such other things or
acts necessary for the proper performance of its functions under the
NGO Act, which may lawfully be done or performed by a body
corporate. Designation as an NGO confers certain tax benefits and
imposes a series of regulations that are relevant to an equivalency
determination.

Companies Limited by Guarantee

A number of NPOs are registered as companies whose liability is limited

by the guarantee of the members. A company limited by guarantee
under the Kenyan Companies Act [2015] must be incorporated without
a share capital; the liability of its members must be limited by the
company’s articles to a specific amount (usually a nominal amount) that
the members undertake to contribute to the assets of the company in
the event of a liquidation; and its certificate of incorporation must state
that it is a company limited by guarantee. A company limited by

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guarantee cannot be a private company (Kenyan Companies Act Section
9). Because a company limited by guarantee cannot have share capital,
it also does not meet the definition of a “public company” under Section
10 of the Companies Act.

The Act also requires that a company limited by guarantee must attach
a statement of guarantee containing the prescribed information to
enable the memorandum of association’s subscribers to be identified
(Companies Act Section 15).

Societies

Under the Societies Act, a society is “any club, company, partnership or

other association of ten or more persons, whatever its nature or object,
established in Kenya or having its headquarters or chief place of
business in Kenya” (Societies Act Section 2). A branch of a society also
qualifies as a society. The definition specifically excludes companies;
trade unions and their branches; cooperatives; corporations; firms,
associations, or partnerships carrying on business for profit; schools;
building societies; banks or international organizations of which Kenya is
a member. Societies are registered and regulated by the Registrar of
Societies.

Trusts

A trust is an entity created to hold and manage assets for the benefit of
others. While trusts could previously be established only for religious,
educational, literary, scientific, social, athletic, or charitable purposes,
the Trustees (Perpetual Succession) (Amendment) Act, which came into
force in December 2021, allows any person or body of persons who
have lawfully constituted themselves for purposes of forming a trust to
apply to the Principal Registrar for a certificate of incorporation. The
amendments also permits the formation of a trust for non-charitable
purposes with or without beneficiaries provided the objects are capable

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of being fulfilled and valid. Donors providing grants to trusts may need
to confirm that such grantees are established for charitable purpose.

The amendments also introduce and define categories of trusts that can
be registered under the Trustees Act. Most relevant to equivalency
determinations, the Amendment establishes the “charitable trust.”
These are trusts formed for the exclusive purpose of the relief of
poverty, the advancement of education, religion or human rights and
fundamental freedoms, or the protection of the environment or any
other purpose beneficial to the general public. A trust is deemed to be
charitable if (i) the charitable objects may be pursued in Kenya or
elsewhere;(ii) the objects are beneficial to the general public or a section
of the public; (iii) the trust is discretionary; and (iv) the trustee has the
power to defer distribution of the assets of the trust to any charity or
other beneficiary of the trust for a period not exceeding the duration of
the trust (Trustees Act Cap 164 section 3B).

The trustees of a pension fund or provident fund may also apply to be

registered as a body corporate.

B. Public Benefit Status

“Public Benefit Activity” is “an activity that supports or promotes public
benefit by enhancing or promoting the economic, environmental, social
or cultural development or protecting the environment, or lobbying or
advocating on issues of general public interest or the interest or well-
being of the general public or a category of individual or organizations”
(PBO Act Section 2).

An organization may be registered as a PBO by the Public Benefit

Organizations Regulatory Authority if its objective is the promotion of
public benefit in any of the following areas listed in the Sixth Schedule of
the PBO Act: legal aid; agriculture; children; culture; disability; energy;
education; environment and conservation generally; gender;

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governance; poverty eradication; health; housing and settlement;
human rights; HIV/AIDS; information; informal sector; old age; peace
building; population and reproductive health; refugees; disaster
prevention, preparedness and mitigation; relief; pastoralism and the
marginalized communities; sports; water and sanitation; animal welfare;
and youth.

The PBO Act permits an organization to register under any of a variety

of legal forms, but only an organization registered as a “Public Benefit
Organization” under the PBO Act would receive tax exemptions and
other benefits derived from registration under the PBO Act. An
organization registered under both the PBO Act and any other law , shall
be deemed to be registered under the PBO Act and the registration
under the other law will be invalid (PBO Act Section 6; see also PBO Act
Second Schedule, setting forth in detail some of the “Benefits of
Registration” as a PBO).

Specific Questions Regarding Local Law

The regulatory scheme for NPOs in Kenya is complex, combining
substantive and procedural statutes, common law rules embodied in
case law, and administrative practices. [7] In addition, Kenyan legislation
provides for organizations to be substantially regulated through the
enforcement of their founding or constitutional documents. Within this
context, the Note examines issues of local law relevant to equivalency
determinations.

A. Inurement

PBOs

A “public benefit organization” is by definition “non-profit making.”

Strictly speaking, the PBO Act permits organizations to raise “profits”
(earnings, less expenses) through donations of cash, securities, and in-
kind contributions; bequests; membership fees; gifts; grants; real or

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personal property; and income generated from any lawful activities
undertaken by the public benefit organization with its property and
resources which must be used solely for the public benefit purposes of
the organization (PBO Act Section 65).

NGOs

An NGO's constitution must prohibit the organization from distributing

funds to members and officials other than for legitimate reimbursement
of expenses incurred in carrying out the organization's objectives (NGO
Coordination Regulations Second Schedule Section 4(a) and 4(b)). The
documents must also stipulate rules for awarding contracts to members
or officials (NGO Coordination Regulations Second Schedule Section
4(c)).

Other NPOs

The rules of a society must stipulate the purpose for which funds can be
used, and must prohibit the distribution of funds to members (Societies
Act First Schedule Para. 11). However, Kenyan law does not specify
particular language for these clauses.

Kenyan law does not require trusts or companies to prohibit inurement.

B. Proprietary Interest

PBOs

A PBO’s constitution must state that “the organization’s income and

property are not distributable to any person, except as reimbursement
of reasonable expenses or payment of reasonable compensation for
services rendered” (PBO Act Section 8(4)(a)(iv)).

NGOs

An NGO's constitution must prohibit the distribution of assets to

members and officials (NGO Coordination Regulations 1992 Second

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Schedule Paras. 4(a)-(b)). However, the law does not otherwise address
whether donors can retain a proprietary interest in their donations.

Other NPOs

Kenyan law does not explicitly require companies, societies, or trusts to

prohibit proprietary interest.

C. Dissolution

PBOs

Under the PBO Act, when an organization is deregistered, wound up, or

dissolved, any assets remaining after all its liabilities have been met
shall be transferred to another PBO having similar objectives, which
shall be identified through a resolution of the governing body of the
organization being deregistered, wound up, or dissolved; otherwise, the
PBO Authority shall determine the recipient PBO (PBO Act Section
8(4)(m)).

NGOs

In the event of dissolution, whether voluntary or involuntary, the NGO

constitution must provide for the manner of dissolution of the NGO and
disposal of its property upon dissolution (NGO Coordination
Regulations 1992 Second Schedule paragraph 12). An NGO shall not
dissolve itself except with the prior consent in writing of the board
obtained upon written application addressed to the director and signed
by three officers of the organization (NGO Coordination Regulations
1992 Paras. 21(1)(b)-(c)).

Companies Limited by Guarantee

The Insolvency Act 2015 has repealed the provisions of Chapter 486, the
Companies Act chapter on insolvency. The Insolvency Act amends and
consolidates the laws relating to the insolvency of incorporated and

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unincorporated bodies which were previously provided for under
Chapter 486.

Under the Insolvency Act, companies limited by guarantee may be

liquidated either voluntarily or by order of the High Court. At liquidation,
the following debts must be paid out in priority to all unsecured debts
(Insolvency Act Second Schedule):

1. First, all the expenses of the liquidation including the

remuneration of the liquidator and the reasonable costs incurred
by the person who applied to the Court to place the company into
liquidation. In the case of a creditor who protects or preserves
assets of the company for the benefit of the company’s creditors
by payment of money or giving an indemnity, expenses are to
include the amount received by the liquidator by the realization of
those assets up to the value of that creditor’s unsecured debt and
the amount of the costs incurred by that creditor in protecting,
preserving the value of, or recovering those assets;

2. Second, (1) any employees' (excluding directors or their

nominees, relatives, or trustees) wages or salary in respect of the
four months prior to the commencement of the liquidation; any
holiday pay; any compensation for redundancy that accrues before
or because of the commencement of the liquidation; any amounts
deducted from wages or salaries by the company to satisfy
obligations to other persons (including tax); any reimbursement or
payment provided for or ordered by the Employment and Labour
Relations Court, together not exceeding KES 200,000 per
individual claimant or such other amount as may be prescribed
from time to time; and all amounts held by a bank on behalf of the
Kenya Revenue Authority (KRA), though this situation is less likely
for a non-profit organization formed as a company limited by
guarantee; and (2) all amounts that are by any law required to be

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 paid in accordance with this priority by a buyer to a seller on
account of the purchase price of goods;

3. Third, unpaid tax deductions under the pay-as-you-earn rules of

the Income Tax Act, unpaid non-resident and resident withholding
tax deducted under the Income Tax Act, and unpaid duty payable
under the Customs and Excise Act.

In the following circumstances, the following debts must be paid out in

priority to certain secured debts:

1. The expenses of liquidating a company (including the

remuneration of the liquidator) have priority over any claim to
assets comprised in or subject to any floating charge so far as the
assets of the company available for payment of general creditors
are insufficient (Insolvency Act, Section 473).

2. In the event of a company under liquidation or administration or

if a provisional liquidator is appointed in respect of the company,
the liquidator, administrator or provisional liquidator must set
aside 20 percent of the assets of the company available to satisfy
the claims of any floating charge holders (net assets) for the
satisfaction of unsecured debts unless the net assets are less than
KES 500,000 and the liquidator administrator or provisional
liquidator (as applicable) believes that the cost of making a
distribution to unsecured creditors would be disproportionate to
the benefits (Insolvency Act Section 474).

Societies

Under the Societies Act, a receiver is appointed to handle the

dissolution of a society (Societies Act Section 33(a)). The receiver will
propose a scheme for distributing any surplus assets remaining after the
satisfaction of the society’s debts and liabilities and covering the cost of
liquidation. This scheme must be approved by the Cabinet Secretary

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(Societies Act Section 34(1)). The Societies Act does not explicitly
prohibit distribution of assets to members upon the society's
dissolution. The priority in which debts are to be paid is the same as the
priority of payment of debts for companies being dissolved, as provided
under the Insolvency Act.

Trusts

The Principal Registrar can order an incorporated trust to be dissolved if

it has ceased to exist or if its objectives have become incapable of
fulfillment.).Each trust provides for the method of distribution of surplus
assets after dissolution.

Trusts not incorporated under the Trustees (Perpetual Succession) Act

Cap. 164 are dissolved in accordance with the law of equity.

D. Activities

1. General Activities

Generally, a legal entity, upon its establishment and (where required)

registration, can undertake any legal activity.

2. Economic Activities

The PBO Act allows PBOs to engage in lawful economic activities, either
directly or through subsidiary entities, as long as the income is used
solely to support the public benefit purposes for which the organization
was established (PBO Act Section 65(1)). The income of a PBO may
include donations of cash, securities, and in-kind contributions;
bequests; membership fees; gifts; grants; real or personal property; and
income generated from any lawful activities undertaken by the public
benefit organization with its property and resources (PBO Act Section
65(2)(a)-(g)). A PBO may own and manage property and assets for the
accomplishment of its not-for-profit purposes (PBO Act Section 65(3)).

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NGOs by definition are “not operated for profit or other commercial
purposes" (NGO Act Section 2). However, the Act and accompanying
regulations do not bar an NGO from undertaking substantial economic
activities in pursuit of its purposes.

Other NPOs can engage in economic activities consistent with their

governing documents.

E. Political Activities

PBOs

A PBO may not engage in fundraising or campaigning to support or

oppose any political party or candidate for appointed or elected public
office, nor may it propose or register candidates for elected public office
(PBO Act Section 66(3)).

NGOs

An NGO cannot become a branch of, be affiliated with, or be connected

to any organization or group of a political nature established outside
Kenya (NGO Regulation 21 (b). An NGO can affiliate with a political
organization inside Kenya, though the Government discourages this
practice.

Companies Limited by Guarantee

The Companies Act does not restrict the objects of a company, hence
companies are free to engage in political or legislative activities unless
restricted by their constitutional documents. It is increasingly common
for companies limited by guarantee to state the scope and nature of
their charitable activities in their Articles of Association.

Societies

Most political parties are registered as societies. Other types of

societies can engage in political activities if their governing documents

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permit it. However, a society cannot function as a political party until it
is registered in accordance with the provisions of the Political Parties
Act and meets the requirements set out under Article 91 of the
Constitution (Political Parties Act 2011 Section 4). Additionally, a society
in Kenya cannot affiliate with any political organization or group outside
Kenya (Societies Act Section 11(1)(a)).

Trusts

The trust deed stipulates the activities that the trust can engage in.

F. Discrimination
Kenya’s Constitution guarantees freedom of expression, association,
assembly, and movement, and bars discrimination on the grounds of
gender, race, sex, pregnancy, marital status, ethnic or social origin,
color, age, disability, religion, conscience, belief, culture, dress,
language or birth (Constitution of Kenya Articles 26-51). Furthermore,
an NGO's activities must "ensure equality of opportunity for all
regardless of nationality, ethnic background, gender, religion or creed"
(NGO Council Code of Conduct Section 10(c)). [8]

With regard to institutions of higher education, Kenyan public and

private universities are established under Section 13 of the Universities
Act 2012 and individual university charters. The Universities Act 2012
and its implementing rules do not expressly bar acts of discrimination,
though Section 3(2)(f) of the Act requires the universities to
institutionalize non-discriminatory practices. Protection from
discrimination is extended by virtue of the Constitution, as described
above.

Similarly, Section 4(e) of the Basic Education Act 2013 prohibits

discriminatory practices in primary and secondary educational
institutions.

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The Employment Act of 2007 addresses discrimination in employment
by espousing (i) the promotion of equality of opportunity in
employment; (ii) the elimination of discrimination in any employment
policy or practice (including against prospective employees: race, color,
sex, ethnic origin, HIV status, disability, pregnancy); (iii) equality in
recruitment, training, promotion, terms and conditions of employment,
termination of employment, or other matters arising out of the
employment and (iv) the payment of equal remuneration for work of
equal value (Employment Act 2007 Section 5).

The HIV and AIDS Prevention and Control Act prohibits discrimination
on the grounds of actual, perceived, or suspected HIV status of a person
in the workplace or in schools, or in access to loans and credit facilities
(HIV and AIDS Prevention and Control Act Section 31-32).

G. Control of Organization
Kenyan law does not restrict other organizations or persons from
controlling a Kenyan not-for-profit organization beyond stating that an
NGO must be private and voluntary. Accordingly, a for-profit entity
might establish an NPO and continue to control it. Likewise, a Kenyan
NPO could be controlled or owned by an American grantor charity,
which would have to be disclosed in the affidavit.

V. Tax Laws

A. Tax Exemptions

PBOs

PBOs are exempt from (i) income tax on income received from
membership subscriptions and any donations or grants; (ii) income tax
on income acquired from the active conduct of income-producing
activities if the income is wholly used to support public benefit purposes
for which the organization was established; (iii) tax on interest and

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dividends on investments and gains earned on assets or the sale of
assets; (iv) stamp duty; and (v) court fees (This is pursuant to the PBO
Act Second Schedule Para 1(a)).

Other NPOs

For its income to be exempt from income tax, an organization must

have been established solely to relieve poverty or distress of the public,
or to advance religion or education. In addition, the Commissioner of
Income Tax (“Commissioner”) must conclude that the income is
expended either wholly within Kenya or in ways that benefit the
residents of Kenya (Income Tax Act First Schedule Cap. 470 Para. 10).

Income consisting of profits from a business is subject to an additional

restriction. Such income is exempt from tax only if it meets the criteria
in the previous paragraph and if one of the following is true:

(a) The business is carried on in the course of advancing the

organization's stipulated purposes; or

(b) The work in connection with the business is mainly conducted by

beneficiaries of those purposes; or

(c) The gains or profits consist of rents (including premiums or similar

consideration in the nature of rent) received from leasing or letting of
land and attendant chattels (Income Tax Act First Schedule Cap. 470).

Once issued, tax exemption certificates are valid for a period of five
years and are subject to renewal. The renewal certificate is to be issued
within 60 days of lodging the application. The Cabinet Secretary may
also revoke an exemption on the basis of any just cause (Income Tax Act
First Schedule Para. 10 as amended by Section 23 of Finance Act,
2012). [9]

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Such tax exempt bodies may charge fees for services rendered without
being deemed as carrying out business activities provided that the
income generated is exclusively for carrying out its activities that
benefits the public.

These rules affect trusts, NGOs, churches, and other charitable

organizations involved in relief, education, and religious activities.

As indicated, the PBO Act has yet to come into force. It is unclear how
the various tax benefits will be implemented in light of existing tax laws.
In addition, while there are significant tax incentives available to
organizations registered as NGOs in Kenya under the NGO Act (as set
out below), they tend to be illusory in practice.

B. Deductibility of Charitable Contributions

A person can deduct from their taxable income any donations to (1) a
charitable organization whose income is exempt from tax under
paragraph 10 of the First Schedule to the Income Tax Act, or (2) any
project approved by the Cabinet Secretary responsible for matters
relating to finance (Amendment to Income Tax Act Section 15(2)
(w) under the Finance Act 2022). Previously, a person could only claim
this deduction for a cash donation made to a charitable organization
that is registered or exempt from registration under the Societies Act or
the NGO Act 1990, or the PBO Act. Therefore, donations made to any
exempt charitable organization can be deducted when computing the
income tax payable.

Expenditures of a capital nature by a person on the construction of a

public school, hospital, road, or any similar kind of social infrastructure
can be deducted as well, with prior approval of the Cabinet Secretary
(Income Tax Act Section 15(2)(x)).

Furthermore, deductibility is permitted for expenditures on scientific

research to advance a business, including sums paid to approved

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scientific research institutes or universities, provided that certain
conditions are satisfied (Income Tax Act Section 15(2)(n)).

C. Value Added Taxes

The PBO Act provides for preferential treatment under VAT and
customs duties for imported goods or services that are used to further
an organization’s public benefit purposes (PBO Act Second Schedule
Para. (1)(b)).

Under Regulation 30 of the NGO Coordination Regulations 1992, if an

organization requires an exemption from VAT on a) goods and services
required to meet its objectives, b) income-generating activities, or c)
income for expatriate employees, an application must be made through
the NGO’s Board to the Cabinet Secretary of Finance.

“Social welfare services” provided by a charitable organization are

exempt from VAT, provided that the organization satisfies two criteria:

(a) It must be registered under the Societies Act or NGO Act, or

exempted from registration by the Registrar of Societies or the NGO
Coordination Board; and

(b) Its income must be exempt from tax under the Income Tax Act and
approved by the Commissioner of Social Services.

Such services are not treated as taxable supplies, and no VAT is charged
on them (VAT Act First Schedule, Part 2 Para. 11(b)).

The VAT Act also exempts the supply of services rendered by

educational, political, religious, welfare, and other philanthropic
associations to their members, provided that this shall not apply where
any such services are rendered by way of business (VAT Act First
Schedule, Part 2 Para. 11(a)). Certain foods are also VAT exempt (VAT
Act First Schedule Part 1).

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D. Import Duties
Customs duties are levied on imported goods. While most industrial
plant and machinery is zero-rated, it is necessary to consider each item
on a case by case basis. The application and management of customs
duties is governed by the East African Customs Management Act 2004.

NGOs are not automatically entitled to exemptions on import custom

duties. To obtain such exemptions, an application must be made to the
Cabinet Secretary for National Treasury through the NGO Board.

E. Double Tax Treaties

There are no double tax treaties between the United States and Kenya.

Footnotes
[1] As discussed further below, the commencement of the PBO Act and
its potential amendment, as well as the status of several other bills
pending in the Kenyan Parliament, remain uncertain as of the writing of
this Note. We recommend that readers check the status of the PBO Act
and other pending legislation to determine if there are any pertinent
changes in the current legal framework for NPOs in Kenya.

[2] The status of these rules is yet to be determined in the light of the
2010 Constitution. However, Part III of this statute is revoked by the
Constitution of Kenya (Protection of Rights and Fundamental Freedoms
and Enforcement of the Constitution) Practice and Procedure Rules,
2013 under Rule 33. Parts I and II of this statute have not been
specifically revoked but may not be functional from a practical
standpoint, because some provisions still reference sections of the
repealed Constitution.

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[3] The Non-Governmental Organizations Coordination Act 1990 will be
repealed by the PBO Act once the commencement date for the PBO Act
is set.

[4] The two cases in which the High Court issued these orders were
Trusted Society of Human Rights Alliance v. Cabinet Secretary
Devolution and Planning & 3 others [2016] eKLR and Trusted Society of
Human Rights Alliance v. Cabinet Secretary for Devolution and Planning
& 3 others [2017] eKLR.

An Act is not considered in force until such a date is set and published in
the Kenya Gazette. Accordingly, the PBO Act (Section 70) will repeal the
NGO Act once the former’s commencement date is published; until
then, however, the NGO Act remains the applicable law governing the
registration of NGOs.

In addition, since the passage of the PBO Act, the Government has
made several unsuccessful attempts to amend it, including by
proposing new restrictions on PBOs’ access to foreign funding. As such,
the provisions of the PBO Act may be subject to change before its
commencement.

[5] The NGO Board continues to register NGOs under the NGO Act, on
the grounds that a commencement date for the PBO Act has not yet
been published. If the PBO Act is eventually deemed to have
commenced, then the current registration of NGOs under the NGO Act
may be subject to challenge. The PBO Act is meant to repeal the NGO
Act so that all NGOs which are registered in Kenya under the NGO Act
shall be deemed to be provisionally registered as PBOs and have up to
one year from the appointed date to seek registration as a PBO under
the new Act.

[6] See Republic v. Non-Governmental Organisations Co-ordinations

Board & 4 others Ex-parte International NGO Safety Organisation (INSO)

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[2017] eKLR and Republic v. County Government of Nairobi & 3 others
Ex parte Complimentary Schools Association of Kenya (Dagoretti Sub-
County Branch) [2017] eKLR.

[7] See Sihanya, The Regulatory Regime Governing NGOs in

Kenya (1996).

[8] This code is written and enforced by a statutorily established council

of voluntary agencies (NGO Act Sections 23-24). The council can
recommend the suspension or cancellation of an NGO's registration
certificate (Code of Conduct Section 20(4)(b); NGO Act Section 16
(1)(c)).

[9] The amendment of the Income Tax Act, under the Finance Act 2012,
also appears to provide for measures to ensure that the Kenya Revenue
Authority (KRA) can monitor and review the activities of charitable
organizations not only to determine whether they should continue to
enjoy exemptions, but also to follow up on their compliance with other
taxes such as income (PAYE) and withholding tax.

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