Understanding Car Import Duty Financing In Kenya: Steps and Money- Saving Tips

Every day, countless Kenyans miss out on better vehicle deals because they are intimidated by customs procedures or surrender their decision-making power to costly middlemen

Mastering the tax and duty system can transform importing a car to Kenya from a daunting financial hurdle into an achievable goal.

This guide cuts through the confusion, revealing straightforward steps to navigate Kenya's import regulations, secure affordable financing options, and avoid the expensive pitfalls that trap first-time importers.

So, let’s break it down.

Who’s Involved in Car Import Duty Financing, and How Does This All Work?

When it comes to importing a car, there are a few key players in the process, and it is good to know who they are and what role they play. Once you understand that, you’ll be in a better position to make informed decisions about financing and clearing your car.

• You, the Car Importer: It all starts with you, the person or business importing the car. You will be the one responsible for handling the duties and taxes, making sure everything is cleared through the Kenya Revenue Authority (KRA), and, most importantly, paying the import duties so your car can be released from the port.
• Kenya Revenue Authority (KRA): KRA is the government body that ensures all goods entering the country comply with Kenyan laws. This includes cars. When your car arrives, KRA will calculate the import duties, taxes, and fees based on the car's value, engine size, age, and more. They use the CIF value (Cost, Insurance, and Freight) to calculate the duties. To put it simply, the CIF value includes not just the price of the car but also the cost of shipping it to Kenya and any insurance you took out during the transit.

Example: Imagine you are importing a 2.0L engine car that is 5 years old. KRA might calculate the import duty based on its CIF value, and because the engine size is above 2.0L, you may pay a higher percentage of duty. For instance, the duty might be 40% of the CIF value. If the car costs $10,000 (plus shipping and insurance), the duty could be around $4,000.

• Clearing and Forwarding Agents: Think of clearing agents as the experts who help you cut through all the red tape. They’ll handle the paperwork, calculate import duties, and make sure your car gets cleared through customs. You’ll want to choose an experienced agent to avoid any headaches down the road. In fact, finding a trusted agent is crucial, especially since there are a few scams out there. For tips on how to find a reliable agent, check out this guide.
• Banks and Financial Institutions: Import duties can be hefty, and not everyone has the cash on hand to cover them all upfront. This is where banks come in. They offer financing options—like loans or overdrafts—to help you pay for the import duties. If you're not able to cover the costs right away, banks can help you spread the payments over time, which makes things a little easier.
• Microfinance Institutions: For those looking at smaller loans or looking to finance their cars using a logbook loan, microfinance institutions are another option. These institutions can offer 50-80% financing, depending on the car’s value. However, keep in mind that the financial institution retains sole ownership of the car until the loan is fully cleared. This means that if you repay early, you might get a discount or eliminate future payments.

The Steps to Get Your Car to Kenya (and Pay for It)

Now that you know who is involved, let’s walk through the process. Each step is important because it gets you closer to owning that car without any surprises.

1. Choose Your Car: The first thing you will do is pick your car. Whether you’re importing a brand-new model or a used one, you will need to ensure the car meets Kenyan safety and emissions standards. The make and model will impact the final cost of the import duties, so it’s good to have an idea of what you want before you start.

Example: Let’s say you’re eyeing a 2016 Toyota Corolla. Because it’s newer, it will likely attract a lower import duty than, say, a 2010 model, which will be taxed at a higher rate due to depreciation. So, if you are looking to save on taxes, consider the age of the car and its engine size when choosing.

2. Place Your Order and Ship the Car: Once you have settled on the car, you will place your order, often with a dealer abroad. After the deal is done, your car will be shipped to Kenya. Keep in mind, shipping by sea takes longer than by air, but it is often cheaper. Shipping costs should be factored into your final budget.
3. Customs Declaration and Duty Assessment: When the car reaches Kenya, your clearing agent will file the customs declaration. This is a formal statement of what your car is worth, and it helps KRA determine how much you owe in import duties. KRA assesses duties based on several factors: the value of the car, engine capacity, age of the vehicle, and more. It’s good to understand how KRA arrives at their duty amounts so there are no surprises when it’s time to pay.

Explanation: KRA uses the CIF value (Cost, Insurance, and Freight) to calculate the total amount you owe. It’s important to know that this is the figure they will base the taxes on, not just the price of the car. You should also be aware that if the car is older, it may have a depreciation applied, which could lower its duty.

4. Pay the Import Duty: Once your car is cleared through customs, you’ll need to pay the import duties, VAT, and other taxes. Duties range from 25% to 50%, depending on factors such as the car's engine capacity and age.

Example: If the car costs KES 1,000,000, and the duty is 40%, you’ll need to pay an additional KES 400,000 in import duty.

5. Financing the Import Duty: Many people need financing to cover the import duties. This is where banks or microfinance companies can help. They’ll lend you the money you need to pay for the duties, and you can repay the loan over time. This is a crucial step if you don’t have the funds available right away.
6. Clearing the Car and Taking Ownership: After paying the duties and clearing everything, the car is officially yours! You'll need to make sure it passes inspection to meet Kenyan road safety standards. Once that’s done, it’s ready for registration, and you can finally drive it home.

Challenges You Might Face (and How to Handle Them)

Like anything worth doing, importing a car comes with its own set of challenges. Let us look at some things you might run into and how to avoid them:

• High Duty Rates: The import duties can be expensive, especially for cars with larger engines or older models. This can catch you off guard if you’re not prepared. The best way to deal with this is by researching your car’s value, so you have a good idea of what to expect.
• Customs Valuation Issues: If KRA doesn’t agree with the value you declare for your car, they may re-assess it, which can mean higher duties. To avoid surprises, make sure your vehicle's value is accurate when declared.
• Financing Costs: While financing helps cover duties, it’s important to keep an eye on the interest rates. Over time, interest can add up and increase the total cost of your car. To minimize interest, consider paying off the loan early, or, if possible, explore options that offer a discount for early repayment.
• Exchange Rate Fluctuations: When you're importing, you’ll likely be dealing with foreign currencies, and exchange rates can change. This can affect the total cost of your import, so it’s something to keep in mind.

Explanation: Exchange rate fluctuations can affect the total cost of your car, especially if you’re paying for it in foreign currency like the US Dollar. For example, if the Kenyan Shilling weakens against the Dollar, your car might end up costing more than you initially expected. It’s smart to keep an eye on exchange rates or even consider locking in a rate if possible.

Avoiding Common Mistakes in Car Import Duty Financing

1. Not Budgeting for All Costs: Many importers focus only on the car’s price and forget to account for duties, taxes, and shipping costs. It’s easy to get caught up in the excitement of the car itself, but budgeting for all the costs up front will help avoid financial stress later.
2. Ignoring Exchange Rate Risks: Since most imports are paid for in foreign currency, the exchange rate can affect the final price. If you’re paying in a currency like the US dollar, make sure to check the exchange rates to avoid paying more than expected.
3. Waiting Too Long to Secure Financing: Don’t wait until your car arrives to think about how you’ll pay for the duties. Securing financing early ensures you’re ready to clear the car as soon as it arrives, avoiding delays or additional storage fees.
4. Under-declaring the Car’s Value: It’s tempting to declare a lower value for your car to reduce duties, but this can backfire. KRA will assess the car's value, and if they find discrepancies, you could end up paying more in fines. Always declare the true value.
5. Neglecting Car Insurance: Importing a car without insurance is risky. Things can happen in transit, and you want to make sure you’re covered if anything goes wrong. Getting insurance is always a good idea.

Wrapping It Up

Importing a car into Kenya doesn’t have to be stressful, but it’s important to understand the steps, the costs, and your options for financing. By working with trusted agents, exploring financing options, and staying informed about the duty process, you can avoid common mistakes and get the best possible deal. Remember, whether you're importing for personal use or as part of a business, taking the time to plan and prepare makes all the difference. And if you need more information about importing a car or finding a trusted clearing agent, be sure to check out these resources and this guide.

Happy importing!

Remember, if you need financial assistance, contact us through our contact form, call us on +254791573231 or visit one of our branches  across Nairobi, Kiambu, Machakos, and Kajiado counties to explore your financial opportunities.