Tax Regime in Kenya
Withholding Income Tax Regime in Kenya
Withholding income tax is a tax deducted by a person making specific payments prior to paying the amount due and then remits the tax so deducted to the Kenya Revenue Authority within 5 working days after the deduction is made.
As the deduction is on making payment, Is Withholding Tax therefore due on Payment or on Accrual?
Following the Court of Appeal’s judgment on the KRA vs Republic Of Kenya (Ex-Parte Fintel Limited), taxpeyers are required to subject eligible amounts to WHT at the point of making an accrual in the books of account, even though actual payment has not been made to the payee.
The underlying premise of the Court of Appeal’s ruling is that the Income Tax Act is based on an accrual concept.
The payer is required to generate a withholding tax certificate on iTax which is automatically sent to the payee once the payer remits the withholding tax to KRA.
Withholding tax is claimable by the payee when filing their annual tax returns and is not an additional tax.
Is Withholding Tax a Final Tax?
There are a few instances where withholding tax is a final tax. Withholding tax is final when deducted in relation to a payment made to a non-resident person with no permanent establishment in Kenya. With regard to payments to resident persons, withholding tax is a final tax when it relates to winnings, qualifying interest, qualifying dividend and pensions.
In every other case, withholding tax is NOT a final tax. The taxpayer (payee) is required to declare their income(s) and the withholding tax details when filing their annual tax returns and to pay any balance of tax due.
Withholding Tax Deduction Rates
The rate of deduction varies depending on the type of payment and the residency status of the payee as provided in the table below
| Type of Income | Resident | Non-resident |
|---|---|---|
| Artists and entertainers | - | 20% |
| Management fees | 5% | 20% |
| Professional fees | 5% | 20% |
| Training fees (inclusive of incidental costs) | 5% | 20% |
| Winnings from betting, gaming, prize competition, gambling) | 20% | 20% |
| Royalties or natural resource income | 5% | 20% |
| Dividends (nil for resident companies with shareholding>12.5%), (5% resident qualifying dividend and citizens of EAC) | 10% | 20% |
| Equipment (movable) Leasing | N/A | 5% |
| Interest (Bank) | 15% | 15% |
| Interest (Housing Bond HBI) | 10% | 10% |
| Interest on at least two year government bearer bonds, (issued outside KE- 7.5%) | 15% | 15% |
| Other bearer bonds interest | 25% | 25% |
| Bearer bonds with maturity of ten years or more | 10% | - |
| Rent - buildings (immovable) | 10% | 30% |
| Rent - others (except aircraft) | N/A | 15% |
| Pensions/provident schemes (withdrawal) | 10 - 30% | 5% |
| Insurance Commissions - Brokers Insurance Commissions - Others |
5% 10% |
20% |
| Consultancy and agency(from 1 July 2003) (Consultancy fees to EAC citizen – 15%) |
5% | 20% |
| Contractual | 3% | 20% |
| Telecommunication services/Message transmission | - | 5% |
| Natural Resource Income (w.e.f. 1st January 2015) | 5% | 20% |
| Digital content monetization | 5% | 20% |
| Sales promotion, marketing and advertising services | 5% | 20% |
| Withholding on rental income tax by tax agents | 7.5% | N/A |
| Gains from financial derivatives | N/A | 15% |
Oil and Gas Sector WHT Rates
WHT rates applicable on payments to non-residents in the oil and gas sector are shown in the table below:
| Payment | Non-resident(Oil & Gas) WHT Rate % |
|---|---|
| Dividends | 10% |
| Interest | 15% |
| Natural resource income | 20% |
| Management or professional fees | 10% |
Withholding Tax Rates Where Double Tax Treaties Exist
Lower rates may apply to non-residents where Double tax treaties (DTT) are in force. The table below shows the rates of WHT that recipients in respective countries with a DTT with Kenya can be charged
| Country(recipient) | Dividends % | Interest % | Royalties % | Management fees % & Professional fees % |
|---|---|---|---|---|
| Canada | 5% | 5% | 5% | 5% |
| Denmark | 20% | 20% (1) | 20% | 20% |
| France | 10% | 12% | 10% | (5)% |
| Germany | 15% | 15% (1) | 15% | 15% |
| India | 10% | 10% | 10% | 10% |
| Iran | 5% | 10% | 10% | 5% |
| Norway | 15% | 20% (1) | 20% | 20% |
| Qatar | 5% (4) | 10% | 10% | (5%) |
| Seychelles | 5% | 10% | 10% | 10% |
| South Africa | 10% | 10% | 10% | 5% |
| South Korea | 15%(3) | 12% | 10% | (5%) |
| Sweden | 15% | 15% | 20% | 20% |
| United Arab Emirates | 5% | 10% | 10% | (5%) |
| United Kingdom | 15% | 15% (1) | 15% | 12.5% |
| Zambia | 0% (2) | 0% (2) | 0% (2) | 20% |
Withholding Tax Exemptions in Kenya
Dividends received by a company resident in Kenya from a local subsidiary or associated company in which it controls (directly or indirectly) 12.5% or more of the voting power.
- Royalties, interest, management fees, professional fees, training fees, consultancy fees, agency or contractual fees paid by a Special Economic Zone developer, operator or enterprise, in the first ten (10) years of its establishment, to a non-resident person with effect from 1st July, 2023.
- Marketing commissions and residue audit fees paid to non-resident agents in respect of export of flowers, fruits and vegetables.
- Interest payments to financial institutions stated in the fourth schedule of the Income Tax Act.
- Payments made to tax-exempt bodies.
- Resident management, professional, training and contractual fees whose aggregate value is Ksh 24,000 and below in a month.
- Air travel commissions paid by local air operators to non-resident agents.
Withholding Tax Non- Compliance
- Failure to deduct or withhold and remit to KRA is an offence which attracts penalty and interest.
- The penalty for late payment is 5% of the tax due
Please note in many instances, withholding tax is usually not a final tax on resident payees. One is required to declare the income and the withholding tax certificates upon filing individual tax returns and pay any tax due.