Business & Corporate Tax

If you run a limited company in Kenya, you pay corporate tax.The rate depends on whether your company is resident or non-resident. Resident companies (incorporated in Kenya or managed/controlled from Kenya) pay 30% . Non-resident companies pay 37.5% on Kenyan-source income. Sole proprietors and self-employed traders don't pay corporate tax — they file as individuals using either PAYE (if employed) or turnover tax (if self-employed with turnover under KES 5 million). The key distinction: if you've registered your business as a limited company with the Registrar of Companies, you owe corporate tax. If you're operating as a sole proprietor, you likely qualify for the simpler turnover tax regime instead.

There are four main tax types for businesses in Kenya: Corporate Income Tax is what limited companies pay — 30% (resident) or 37.5% (non-resident) on taxable income. You file an annual return (Form IT2C) within 6 months of year-end and must have audited financial statements before filing. Turnover Tax is the simpler option for small businesses with annual turnover between KES 1–5 million. You pay just 3% of gross monthly turnover with only a daily sales record required — no complex accounting needed. This is a final tax, so you don't file monthly VAT returns or annual income tax returns. Presumptive Tax is an advance tax paid when you acquire or renew a business permit at the county. It's 15% of your permit fee and credits against your turnover tax liability (not double taxation). Instalment Tax applies to all limited companies. You pay 25% of the previous year's tax liability in four equal quarterly instalments (due by the 20th of months 4, 6, 9, and 12 of your accounting period). This is credited against your final tax bill. If your business earns over KES 5 million annually and you're registered for VAT, you'll also pay VAT at 16% on sales (with input VAT recoverable on purchases).

Corporate tax is calculated as: Gross Income − Allowable Expenses − Capital Allowances = Taxable Income × 30% (or 37.5% for non-residents) = Tax Due Start with all your business revenue for the year. Then deduct legitimate business expenses — salaries, rent, utilities, professional fees, insurance, vehicle expenses. You can also claim capital allowances (depreciation) on equipment, vehicles, and buildings over multiple years. For example: A company with KES 5 million revenue and KES 2 million in expenses has KES 3 million taxable income. At 30%, that's KES 900,000 in tax. But if you also claim KES 300,000 in capital allowances, your taxable income drops to KES 2.7 million and tax falls to KES 810,000. Common mistakes: forgetting to deduct all eligible expenses, not claiming capital allowances (which can save thousands), or mixing personal and business expenses (which KRA disallows).

All business income is taxable — revenue from sales, services, rental income, investment returns, consulting fees, even e-commerce sales. If you earned it in Kenya, it counts. The critical rule: income is taxable in the year it's earned , not when you receive payment. If you invoice a client in December but get paid in January, that income is taxable in December's year. If you're a non-resident earning Kenyan income (rental properties, consulting work, investments), only the Kenyan-source portion is taxable in Kenya. Your company must be registered as non-resident with KRA and taxed at 37.5% instead of 30%.

Small businesses have two practical choices: Turnover Tax or Corporate Tax . Turnover Tax works best if you have stable turnover between KES 1–5 million and want simplicity. You pay 3% of monthly revenue — that's it. No expense tracking, no accountant needed, no annual return filing. Just keep a daily sales record and file monthly on iTax or via mobile phone. Corporate Tax makes sense if your turnover exceeds KES 5 million, you have significant business expenses (so 30% of profit is cheaper than 3% of revenue), or you want to claim capital allowances. You file annual returns with audited accounts, but the tax calculation is more favorable for high-cost businesses. Which is cheaper for you? A retail shop with KES 200,000 monthly revenue and low expenses pays KES 72,000/year in turnover tax (3% × 12 months × 200,000). Corporate tax would cost more because you can't deduct enough to offset 30% of revenue. But a consulting firm with KES 200,000 revenue and KES 120,000 expenses pays KES 24,000 in corporate tax (30% × 80,000 profit) vs KES 72,000 in turnover tax — corporate tax is the winner. We run both scenarios for you and recommend the regime that saves the most tax.

Note: TOT only applies up to KES 5 million annual turnover. The difference is massive. A revenue business with high expenses pays under corporate tax but would pay KES 1,080,000 under turnover tax (if eligible). That's KES 180,000 saved by choosing the right regime. Companies also owe quarterly instalment tax of 25% of the previous year's tax (paid in four equal chunks). For a company that paid in tax, that's KES 225,000 per quarter. This is credited against final tax due, so you're not paying twice — just spreading payments throughout the year. If you have employees, you'll also pay PAYE (30% of their salaries), VAT if turnover exceeds KES 5 million (16% on sales), and withholding tax if you pay contractors (5–20% depending on service type).

Every limited company must file an annual tax return (Form IT2C) within 6 months after year-end. The critical requirement: your financial statements must be audited by an external auditor first. KRA won't accept unaudited accounts. Once you have audited statements, you calculate taxable income (revenue minus deductions), apply capital allowances, multiply by 30% (or 37.5% if non-resident), subtract quarterly instalment taxes already paid, and file the balance due. Late filing triggers penalties: KES 10,000 plus 5% of tax due per month late, plus 20% annual interest on unpaid tax. Filing 6+ months late adds an automatic 10% penalty. Filing deadlines by year-end:

• December 31 year-end

Turnover Tax is designed for small businesses that want simplicity. If your annual turnover is between KES 1–5 million, you can qualify for TOT instead of corporate tax. How it works: You pay 3% of gross monthly turnover by the 20th of the following month. That's the only tax filing you do — no annual return, no VAT returns, no complex accounting. You only need to keep a daily record of sales, not detailed expense records. Benefits: No accountant needed. Predictable tax (3% is fixed). Mobile phone payment available. Final tax — one-time filing, done. Drawback: No deductions allowed. If your business has high expenses, you pay 3% even though your actual profit is much lower. A high-cost business is better off filing corporate tax. Who can't use TOT: Anyone registered for VAT, persons with employment income, landlords filing rental income separately, limited companies, or professionals in management/consulting services. When you renew your business permit at the county, you'll also pay Presumptive Tax (15% of your permit fee). This isn't extra tax — it credits against your monthly TOT bills, reducing what you owe KRA.