Understanding depreciation rates in Kenya is important for businesses that purchase vehicles, computers, machinery, furniture, buildings and other assets. These purchases support business operations, but their cost is generally not treated in the same way as ordinary daily operating expenses when calculating taxable profits.
For tax purposes, businesses may claim capital allowances on qualifying assets under the Income Tax Act. These deductions reduce taxable business profits according to the applicable asset category and statutory rate.
However, depreciation rates in Kenya have changed over time. Older online guides may still show the traditional Class I, Class II, Class III and Class IV wear-and-tear rates. Those historical classifications should not automatically be used for current tax computations. Kenya introduced a revised Second Schedule with different capital deduction rules, including straight-line rates for various assets.
This guide explains the current depreciation rates in Kenya, how capital allowances work, which assets qualify and how businesses can calculate their deductions accurately.
What Are Depreciation Rates in Kenya?
Depreciation is the reduction in the value of an asset over time due to use, ageing or obsolescence. For accounting purposes, a business normally records depreciation to spread the cost of a qualifying asset over its useful life.
For tax purposes, however, the rules are different. The Kenya Revenue Authority (KRA) allows qualifying businesses to claim capital allowances as provided under the Income Tax Act.
This means that accounting depreciation and tax depreciation are not necessarily the same.
When people search for depreciation rates in Kenya, they are often looking for the percentage of an asset’s cost that can be deducted when calculating taxable business income. The applicable rate depends on the type of asset and the relevant tax provision.
The current system uses specified capital allowance rates for different asset categories. Businesses should therefore identify each asset correctly before claiming a deduction.
Current Depreciation Rates in Kenya for Different Asset Classes
The current capital allowance framework provides different rates depending on the nature and use of an asset. The following table summarises commonly relevant categories under the revised Second Schedule.
| Asset category | Applicable capital allowance |
|---|---|
| Motor vehicles and heavy earth-moving equipment | 25% per year |
| Computers and peripheral hardware | 25% per year |
| Computer software purchased as a capital asset | 25% per year |
| Calculators, copiers and duplicating machines | 25% per year |
| Furniture and fittings | 10% per year |
| Telecommunications equipment | 10% per year |
| Other machinery | 10% per year |
| Commercial buildings | 10% per year |
| Industrial buildings | 10% per year |
| Educational buildings and student hostels | 10% per year |
| Qualifying manufacturing machinery | 50% in the first year, followed by 25% per year on the remaining qualifying expenditure |
| Qualifying hotel, manufacturing and hospital buildings | 50% in the first year, followed by 25% per year on the remaining qualifying expenditure |
| Qualifying farm works | 50% in the first year, followed by 25% per year on the remaining qualifying expenditure |
These rates are based on the revised Second Schedule and current tax summaries. The precise treatment depends on the asset’s description, use, acquisition date and applicable statutory provisions. Income Tax Act, Second Schedule.
Businesses should not assume that every asset qualifies for the same deduction simply because it is used for commercial purposes.
KRA Depreciation Rates for Motor Vehicles
Motor vehicles are significant investments for many Kenyan businesses. Companies purchase cars, vans, pickups, trucks and other vehicles for transportation, deliveries and business operations.
Under the current capital allowance framework, motor vehicles and heavy earth-moving equipment generally qualify for a deduction at 25% per year in equal instalments.
For example, assume a business purchases a qualifying commercial vehicle for KSh 4,000,000.
A simplified annual allowance calculation would be:
- Asset cost: KSh 4,000,000
- Applicable rate: 25%
- Annual capital allowance: KSh 1,000,000
The business may therefore claim KSh 1,000,000 annually over the relevant four-year deduction period, subject to the applicable tax rules.
The calculation must be supported by proper purchase documentation and evidence that the vehicle is used to generate business income.
Where a vehicle is used for both private and business purposes, the business should not automatically claim the entire amount without considering the applicable restrictions and apportionment requirements.
For more details on vehicle-specific tax treatment, read our guide on vehicle depreciation calculation and KRA rules.
Depreciation Rates in Kenya for Computers and Office Equipment
Computers and electronic equipment are essential business assets. Companies use them for accounting, communication, record management, customer service and daily administration.
Under the current rules, qualifying computers, peripheral computer hardware and software, calculators, copiers and duplicating machines generally attract a 25% capital allowance per year.
Consider a company that purchases computers and related qualifying equipment worth KSh 500,000.
The calculation is:
- Purchase cost: KSh 500,000
- Capital allowance rate: 25%
- Annual allowance: KSh 125,000
The company can use the applicable allowance when computing taxable profits, subject to the asset qualifying under the relevant provisions.
It is important to distinguish purchased software treated as a capital asset from ordinary software subscriptions. A recurring subscription or service fee may require different tax treatment from the purchase of a capital asset.
Businesses should retain invoices, payment records and asset descriptions to support their claims.
Capital Allowances for Furniture, Fittings and Other Machinery
Businesses also invest in furniture, fittings, equipment and machinery to support their operations.
Examples include:
- Office desks and chairs
- Filing cabinets and shelves
- Shop fittings
- Production equipment
- Factory machinery
- Certain telecommunications equipment
Furniture and fittings generally qualify for a 10% annual allowance under the current framework. Telecommunications equipment and other machinery also generally attract a 10% annual allowance, subject to the applicable classification.
For example, a business purchases qualifying furniture worth KSh 300,000.
At 10%, the annual allowance is:
KSh 300,000 × 10% = KSh 30,000.
The business should maintain a fixed asset register showing the purchase date, cost, description, location and use of each item.
This helps prevent errors when preparing tax computations and reviewing capital expenditure.
Building Allowances in Kenya
Buildings used for business activities may qualify for capital deductions, depending on their purpose and classification.
The current framework provides different treatments for qualifying commercial, industrial, educational, hotel, manufacturing and hospital buildings.
Examples include:
Commercial buildings: Qualifying commercial buildings generally attract a 10% annual allowance in equal instalments.
Industrial buildings: Qualifying industrial buildings generally attract a 10% annual allowance in equal instalments.
Educational buildings and student hostels: Qualifying educational buildings and student hostels generally attract a 10% annual allowance in equal instalments.
Hotel, manufacturing and hospital buildings: Certain qualifying expenditure attracts a 50% allowance in the first year, with the remaining qualifying amount deducted at 25% per year in equal instalments.
The treatment depends on the statutory definition and conditions attached to each category. A building should not be classified as an industrial or commercial building simply because a business owns or occupies it.
Land should also be distinguished from qualifying building expenditure. The cost of land does not automatically qualify for the same capital allowances as a building constructed on it.
How to Calculate Depreciation Rates in Kenya
Calculating the applicable tax allowance starts with identifying the asset and determining its qualifying cost.
A business should follow these steps:
Identify the asset category. Determine whether the purchase is a vehicle, computer, machine, building, furniture or another qualifying asset.
Confirm the qualifying cost. Review the purchase invoice and supporting documents. The tax treatment of costs associated with acquiring an asset should be assessed under the relevant rules.
Identify the applicable statutory rate. Use the current Second Schedule rather than relying on an old wear-and-tear table.
Calculate the allowance. Apply the correct percentage and method to the qualifying expenditure.
Record the deduction. Include the allowance in the relevant tax computation and update the fixed asset register.
Example of a Capital Allowance Calculation
Assume a business purchases the following qualifying assets:
| Asset | Cost | Rate | Annual allowance |
|---|---|---|---|
| Computers | KSh 400,000 | 25% | KSh 100,000 |
| Motor vehicle | KSh 2,000,000 | 25% | KSh 500,000 |
| Office furniture | KSh 200,000 | 10% | KSh 20,000 |
| Other qualifying machinery | KSh 600,000 | 10% | KSh 60,000 |
| Total | KSh 3,200,000 | KSh 680,000 |
In this simplified example, the business has KSh 680,000 in annual capital allowances.
The actual tax computation must still consider the applicable commencement rules, qualifying expenditure, private use, asset disposals and any special conditions.
Old Wear and Tear Classes vs Current Depreciation Rates in Kenya
Some online resources still publish the traditional wear-and-tear classes:
- Class I: 37.5%
- Class II: 30%
- Class III: 25%
- Class IV: 12.5%
These rates are frequently repeated in older tax guides. However, businesses should not use them automatically for current tax computations.
The Tax Laws (Amendment) Act, 2020 introduced a revised Second Schedule, replacing the previous capital allowance structure for relevant accounting periods. KRA issued a public notice explaining that the new rates apply to companies whose accounting periods end after 31 March 2020.
The revised system specifies deductions for particular asset categories rather than relying on the old four-class structure.
This distinction matters because using outdated depreciation rates in Kenya can result in incorrect tax computations, inaccurate financial forecasts and avoidable compliance problems.
Businesses with assets acquired under earlier rules should also review the relevant transition and historical treatment rather than simply applying current rates retrospectively.
What Records Should Businesses Keep When Claiming Capital Allowances?
Proper documentation is essential when claiming capital allowances.
Businesses should maintain:
- Purchase invoices and receipts
- Proof of payment
- Asset acquisition dates
- Asset descriptions and serial numbers where applicable
- Details of the asset’s business use
- Fixed asset registers
- Previous tax computations
- Records of asset disposals
- Supporting documents for construction or installation costs
These records help demonstrate that the expenditure was incurred, the asset qualifies and the deduction has been calculated correctly.
A properly maintained asset register also makes it easier to reconcile accounting depreciation with tax capital allowances.
Common Mistakes When Applying Depreciation Rates in Kenya
Businesses can make mistakes when calculating capital allowances, particularly when they rely on outdated information or incomplete records.
Using old wear-and-tear rates: Applying the traditional Class I–IV percentages without checking the current law can lead to incorrect deductions.
Confusing accounting depreciation with tax allowances: Accounting depreciation is not automatically deductible when calculating taxable income. The business must apply the relevant capital allowance provisions.
Misclassifying assets: Different asset categories attract different rates. A computer, motor vehicle and office desk should not be treated as one category.
Claiming private expenditure: Assets used partly for personal purposes may require an adjustment. Businesses should not assume that all expenditure is fully deductible.
Ignoring asset disposals: Selling or disposing of an asset can affect the tax treatment and should be reflected in the relevant records and computation.
Failing to maintain supporting documents: Without invoices, payment evidence and asset records, it may be difficult to substantiate a claim during a tax review.
Reviewing the applicable depreciation rates in Kenya before submitting a return can help businesses avoid these errors.
How Adamjee Auditors Can Help With Capital Allowance Computations
Capital allowance calculations affect taxable profits and the accuracy of a business’s tax records. Incorrect asset classification, outdated rates or missing documentation can create unnecessary compliance risks.
Adamjee Auditors can assist businesses with reviewing fixed asset registers, checking qualifying expenditure, reconciling accounting depreciation with tax allowances and preparing tax computations in line with applicable Kenyan tax legislation.
Professional support is particularly useful for businesses with multiple assets, significant capital expenditure, vehicles, manufacturing equipment or commercial property.
If your business is unsure about the correct depreciation rates in Kenya, seek a review before finalising its tax computation. Accurate records and correct application of the law help support better financial planning and tax compliance.
Frequently Asked Questions About Depreciation Rates in Kenya
What are the current depreciation rates in Kenya?
The current tax capital allowance rates vary by asset category. Common rates include 25% per year for qualifying motor vehicles, computers and certain equipment, and 10% per year for furniture, fittings, commercial buildings, industrial buildings and other qualifying machinery.
What is the KRA depreciation rate for motor vehicles?
Qualifying motor vehicles and heavy earth-moving equipment generally attract a capital allowance of 25% per year in equal instalments under the current Second Schedule.
What is the depreciation rate for computers in Kenya?
Qualifying computers, peripheral hardware, software purchased as a capital asset, calculators, copiers and duplicating machines generally attract a 25% annual capital allowance.
Are the old Class I, II, III and IV wear-and-tear rates still applicable?
The traditional wear-and-tear classes are historical rates and should not automatically be used for current tax computations. The revised Second Schedule introduced a different capital allowance framework for relevant periods.
Is accounting depreciation tax deductible in Kenya?
Accounting depreciation is not automatically deductible when calculating taxable profits. Businesses generally claim the capital allowances permitted under the Income Tax Act instead.
Can a business claim capital allowances on office furniture?
Qualifying furniture and fittings generally attract a 10% annual capital allowance. The business should retain purchase records and include the assets in its fixed asset register.
How do I calculate capital allowances for my business?
Identify each qualifying asset, establish its qualifying cost, confirm the applicable statutory rate and calculate the allowance. The result should then be included in the relevant tax computation, subject to any applicable restrictions.
Does KRA allow capital allowances on assets used for personal purposes?
Assets used partly for private purposes may require an adjustment to the claim. The business should establish the extent of qualifying business use and apply the relevant tax rules.
Where can I find the official depreciation rates in Kenya?
The relevant provisions are contained in the Second Schedule of the Income Tax Act. Businesses should consult the current legislation and KRA guidance when preparing their tax computations.
