13.2 KRA & Taxation on Forex Profits
As online forex trading has grown in popularity, the Kenya Revenue Authority (KRA) has increased its scrutiny of offshore income. Under the Income Tax Act, the definition of taxable income is broad enough to encompass speculative trading profits.
Capital Gains Tax (CGT) vs. Income Tax
There is often debate among Kenyan accountants regarding whether forex profits should be classified under Capital Gains Tax (currently 15%) or as ordinary business/trading income subject to the graduated personal income tax bands (up to 35% for individuals, or 30% flat for incorporated companies).
Generally, if you are trading actively (buying and selling daily or weekly), KRA is likely to view this as an active trade or business. Therefore, net profits would be taxed as ordinary income rather than capital gains. If you trade under a registered Limited Company, the corporate tax rate applies.
Calculating Taxable Income: A Mathematical Example
Tax is calculated on your *net profit*, not your deposit or withdrawal amount. Furthermore, you are allowed to deduct legitimate business expenses incurred wholly and exclusively in the production of that income.
NetTaxableProfit=(TotalRealizedTradingProfits)ā(TotalRealizedTradingLosses)ā(AllowableDeductibleExpenses)
Let's assume the following scenario for a retail trader operating as a sole proprietor over one financial year:
| Item | Amount (KES) | Notes |
|---|---|---|
| Total Realized Profits | 1,500,000 | Gross gains from winning trades. |
| Total Realized Losses | - 600,000 | Gross losses from losing trades. |
| Gross Trading Profit | 900,000 | Profits minus losses. |
| VPS & Software Costs | - 30,000 | TradingView Pro, VPS hosting. |
| Internet & Office | - 50,000 | Pro-rated internet and equipment costs. |
| Net Taxable Income | 820,000 | The amount subject to KRA taxation. |
In this scenario, you would declare KES 820,000 as your trading income on your annual iTax return. Assuming you have no other sources of income, this amount would be subjected to the standard graduated PAYE bands.
Repatriation and the Withholding Tax Myth
A common misconception is that offshore brokers automatically deduct KRA taxes when you withdraw via Skrill, Neteller, or direct wire transfer. This is false. Offshore brokers do not act as withholding agents for the KRA. The onus of self-declaration rests entirely on you, the taxpayer. Failure to declare regular, large inflows from known financial processors (like Skrill) into your Kenyan bank account can trigger automated KRA compliance audits.
Self-Evaluation Check
1. Are offshore brokers responsible for deducting and remitting your KRA taxes automatically?
2. When calculating your Net Taxable Profit, which of the following is true?