Recently, the Kenya Revenue Authority (KRA) informed the public of the implementation of the new Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024, which officially took effect on 18th June 2024.
What Does This Mean?
Ordinarily, any income earned in Kenya by an organization is subject to taxation under the Income Tax Act, Cap 470. However, organizations established specifically for charitable purposes, alleviating poverty, or advancing religion or education in Kenya may qualify for tax exemptions—because, let’s face it, making the world a better place shouldn’t come with a tax bill!
Qualifications for exemption
Before an organization enjoys tax exemption, it must apply for an Income Tax Exemption Certificate. However, this is not a free pass—organizations must meet the stringent requirements under paragraph 10 of the First Schedule to the Income Tax Act. These broadly include:
- Alleviation of poverty;
- Advancement of religion or education
The new Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024 introduce additional requirements (or, as KRA might call them, “necessary safeguards”) before an exemption certificate is issued. These include:
- Organizational Test
The organization’s governing document must clearly spell out its commitment to charity. Specifically, it must:
- Declare its primary purpose—whether alleviating poverty, advancing religion, education, or all of the above.
- Specify the charitable activities it will undertake.
- Define its target beneficiaries.
- Establish transparent criteria for identifying and selecting beneficiaries.
- Prohibit engaging in activities contrary to its primary charitable purpose—so no side hustles that benefit founders, family, shareholders, or anyone else with a personal interest.
- Operational Test
A charitable organization must strictly stick to its charitable mission—meaning no engaging in unlawful activities, no mission drift, and definitely no creative accounting loopholes.
- Public Benefit Test
An organization’s activities must genuinely benefit the public. This means:
- Its charitable purpose must have identifiable beneficiaries who can attest to the impact.
- The benefits must align with the organization’s stated purpose.
Application for the Income Tax Exemption Certificate
If an organization meets all the above requirements—under both the Income Tax Act and the new 2024 Rules—it should (in theory) receive an Income Tax Exemption Certificate, unless KRA finds compelling reasons to refuse granting one.
The certificate is valid for five years, after which the organization must renew it—because even charities need check-ups.
Required Documentation
When applying for an exemption under paragraph 10 of the First Schedule to the Income Tax Act, here’s your checklist: –
- Certified copy of the governing document (e.g., Constitution of the charitable organization).
- Certified copy of the registration documents.
- Audited financial statements for the past three years.
- Schedule of assets.
- Certified copies of bank statements.
- Introduction letter from the office of the County Commissioner.
- Impact report detailing past, present, and future activities.
- Criteria for identifying and selecting beneficiaries.
- List of office bearers.
- Physical address.
- Valid Tax Compliance Certificate
Our View
The new rules provide much-needed clarity for both KRA and organizations engaged in charitable work. They set out a clear framework for eligibility and compliance, ensuring that only genuine charities benefit from tax exemptions—because let’s be honest, nobody likes a “charity” that mysteriously funds lavish retreats.
Way Forward
Given these new requirements, charitable organizations must:
- Review their governing documents to ensure compliance.
- Streamline their operational methods to align with the exemption criteria.
- Maintain detailed documentation of their activities, beneficiaries, and financials.
- Prepare regular impact assessment reports—because KRA wants to see proof, not just good intentions.
Staying compliant will make the exemption process smoother and keep organizations focused on their noble causes—without unnecessary tax headaches. After all, charity begins at home, but compliance begins at KRA (see what we did there).
