ADVOKS GLOBAL · KENYA
Income Tax Act
19. Ascertainment of income of insurance companies
Edition: 2026-07-01 · In force
19. Ascertainment of income of insurance companies
(1)Notwithstanding anything in this Act, this section shall apply for the purpose of computing the gains or profits of insurance companies from insurance business which is chargeable to tax; and for the purposes of this Act a mutual insurance company shall be deemed to carry on an insurance business the surplus from which shall be ascertained in the manner provided for in this section for ascertaining gains or profits and which shall be deemed to be gains or profits which are charged to tax under this Act.(2)Where an insurance company carries on life insurance business in conjunction with insurance business of any other class, the life insurance business of the company shall be treated as a separate business from any other class of insurance business carried on by the company.(3)The gains or profits for any year of income from the insurance business, other than life insurance business, of a resident insurance company, whether mutual or proprietary, shall be the amount arrived at after–(a)taking, for such year of income, the sum of–(i)the amount of the gross premiums from such business (less such premiums returned to the insured and such premiums paid on reinsurance as relate to such business); and(ii)the amount of other income from such business, including any commission or expense allowance received or receivable from re-insurers and any income derived from investments held in connexion with that business; and(b)deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks referable to that business at the percentage adopted by the company at the end of that year of income and adding thereto the reserve deducted for unexpired risks at the end of the previous year of income:Provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and(c)deducting from the figure arrived at under paragraphs (a) and (b) of this subsection–(i)the amount of the claims admitted in such year of income in connexion with such business (provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and(ii)the amount of agency expenses incurred in such year of income in connection with such business; and(iii)the amount of any other expenses allowable as a deduction (excluding costs and expenses attributable to earning exempt income) as determined by the ratio of exempt investment income to the sum of investment and exempt investment income in that year of income in computing the gains or profits of that business under this Act.(4)The gains or profits for any year of income from the insurance business, other than life insurance business, of a non-resident insurance company, whether mutual or proprietary, shall be the amount arrived at after–(a)taking, for such year of income, the sum of–(i)the amount received or receivable in Kenya of the gross premiums from such business (less such premiums returned to the insured and such premiums paid on reinsurance, other than to the head office of such company, as relates to such business); and(ii)the amount of other income from such business, not being income from investments, received or receivable in Kenya including any commission or expense allowance received or receivable from reinsurance, other than from the head office of such company, of risks accepted in Kenya; and(iii)such amount of income from investments as the Commissioner may determine to be just and reasonable as representing income from investment of the reserves referable to such business done in Kenya; and(b)deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks outstanding at the end of that year of income in respect of policies for which the premiums are received or receivable in Kenya at the percentage adopted by the company in relation to its insurance business as a whole, other than life insurance, but adding to that sum the reserve deducted for similar unexpired risks at the end of the previous year of income:Provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and(c)deducting from the figure arrived at under paragraphs (a) and (b)–(i)the amount of the claims admitted in that year of income in connection with that business (Provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and(ii)the amount of agency expenses incurred in such year of income in connexion with such business; and(iii)an amount being such proportion as the Commissioner may determine to be just and reasonable of those expenses of the head office of that company as would have been allowable as a deduction in that year of income in computing its gains or profits if the company had been a resident company in so far as those amounts relate to policies the premiums in respect of which are received or receivable in Kenya.(5)The gains or profits for a year of income from the long term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following–(a)the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the statutory fund for the benefit of shareholders;(b)any other amounts transferred from the statutory fund for the benefit of shareholders; and(c)thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act (Cap. 487).(5A)Where the actuarial valuation of the statutory fund results in a deficit for a year of income and the shareholders are required to inject money into the statutory fund, the amount of money so transferred shall be treated as a negative transfer for the purposes of subsection (5)(a):Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the statutory fund for the benefit of shareholders in previous years of income.(6)The gains or profits for a year of income from the long term insurance business of a non-resident insurance company, whether mutual or proprietory, shall be the sum of the following–(a)the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and(b)the same proportion of any other amounts transferred from the statutory fund for the benefit of shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and(c)the same proportion of thirty per cent of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurances Act (Cap. 487) as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business.(6A)Where the actuarial valuation of the statutory fund results in a deficit for a year of income and the shareholders are required to inject money into the statutory fund, the proportionate amount of the money so transferred shall be treated as a negative transfer for the purposes of subsection (6)(a):Provided that the amount of negative transfers shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the statutory fund for the benefit of the shareholders in previous years on income.(6B)For the avoidance of doubt, the gains arising from the transfer of property by an insurance company other than property connected to life insurance business shall be taxed in accordance with the provisions of the Eighth Schedule.(7)In this section–"annuity fund" means, where an annuity fund is not kept separately from the statutory fund of the company such part of the statutory fund as represents the liability of the company under its annuity contracts;"company" includes a body of persons;"exempt investment income" means dividends chargeable to tax under section 3(2)(a)(i) plus income from disposal of investment shares traded in any securities exchange operating in Kenya;"investment income" does not include–(a)dividends chargeable to tax under section 3(2)(a)(i); and(b)income from the disposal of investment shares traded in any securities exchange operating in Kenya;"life insurance fund" deleted by Act No. 19 of 2026, s. 14(e)(ii);"life insurance premiums" means premiums referable to the life insurance business other than annuity business;"life insurance expenses" means expenses referable to the life insurance business other than annuity business;"statutory fund" means a fund established under section 45 of the Insurance Act (Cap. 487).(8)The amount of the gains or profits from insurance business, both from life insurance and from other classes of insurance business, arrived at under this section shall be taken into account together with any other income of the company charged to tax in ascertaining the total income of that company.