Withholding Tax Services

Withholding tax is paid by anyone who pays money to another person for services, consulting fees, professional work, dividends, interest, or rental income. You (the payer) withhold a percentage of the payment and send it to KRA on behalf of the person receiving the money (the recipient). The person receiving the money doesn't directly pay withholding tax — you withhold it from their payment. So if you pay a consultant KES 100,000, you withhold 5% (KES 5,000) and only give them KES 95,000. You send the KES 5,000 to KRA. Common payers include: employers (withholding employee PAYE), companies paying contractors, landlords receiving rent, anyone paying professional fees to accountants/lawyers/engineers, and anyone receiving dividend payments. The recipient's responsibility is to declare this withheld amount in their tax return and potentially claim it as a credit. If too much was withheld, they get a refund.

Withholding tax is a tax on income that's collected at source. Instead of waiting for someone to file a tax return and pay at year-end, KRA gets the tax upfront when the payment is made. The calculation is simple: Payment Amount × Withholding Tax Rate = Amount to Withhold The rate depends on the type of income and the recipient's status (resident vs non-resident). Withholding tax rates in Kenya range from 5% to 20%. Example: You pay a non-resident consultant KES 500,000 for professional services. Withholding tax on professional fees for non-residents is 20%. You withhold KES 100,000 (20% × 500,000) and remit it to KRA. The consultant receives KES 400,000 net. The withheld amount isn't lost — it's credited against the consultant's annual tax liability. If the consultant's total tax for the year is less than the withheld amount, they get a refund.

Withholding tax rates vary by income type and whether the recipient is resident or non-resident: Professional Fees & Consultancy:

• Resident: 5% of fees

• Non-resident: 20% of fees Interest on Bank Deposits/Treasury Bills:

• Resident: 15% (15% is final tax, no further tax due)

• Non-resident: 20% Dividend Payments:

• Resident: 15% (final tax)

• Non-resident: 15% (or higher per tax treaty) Rental Income (MRI):

• Withholding: 10% (from tenant to landlord) — landlord then files monthly MRI returns Commission & Sales Income:

• Withholding: 5% (on gross commission) Contractual Services & Supply of Goods:

• Withholding: 3–5% (depending on contract type) VAT Withholding Tax:

• Rate: 6% of VAT-exclusive amount (applies when goods/services are supplied but VAT is withheld)

• Who withholds: Government agencies, large corporations buying from VAT-registered suppliers

• Different from income WHT: This is VAT, not income tax Key point: Rates are fixed by KRA. Some are final taxes (interest, dividends for residents), meaning no further tax is owed. Others (professional fees, commissions) are provisional — the recipient still files an annual return and pays additional tax if their total income exceeds their tax band.

Professional Fees & Consultancy (5% resident, 20% non-resident) If you pay an accountant, lawyer, engineer, or consultant, you must withhold 5% (if they're Kenyan resident) or 20% (if non-resident). The rate applies to the gross fee before any deductions. A consultant earning KES 100,000 for a project has KES 5,000 withheld (resident) or KES 20,000 (non-resident). Dividends & Investment Income (15% final tax) When a company pays dividends to shareholders, 15% withholding tax is applied. This is a final tax — shareholders don't pay additional income tax on dividends. If a company distributes KES 1 million in dividends, it withholds KES 150,000 and shareholders receive KES 850,000. That's the end of it. Interest Income (15% resident, 20% non-resident — final tax) Banks and treasury bill issuers withhold tax on interest earned. For residents, it's 15% final tax. For non-residents, it's 20%. Example: You earn KES 50,000 in bank interest, KES 7,500 is withheld, you keep KES 42,500. Rental Income (10% withholding) Landlords file monthly Residential Rental Income (MRI) returns. When a tenant pays rent, 10% withholding tax applies. If rent is KES 10,000/month, KES 1,000 is withheld and the landlord receives KES 9,000. The landlord then files a monthly MRI return claiming the WHT as a credit. Commission & Contractor Payments (5% typical) Anyone paying commission or contract labor withholds 5%. A company paying sales reps KES 500,000 in commissions withholds KES 25,000.

Step 1: Identify the Income Type Is it professional fees, interest, dividends, rental, commission, or something else? Different types have different rates. Step 2: Determine if Recipient is Resident or Non-Resident A resident pays lower rates (5–15%) than a non-resident (15–20%). Step 3: Apply the Rate Multiply the payment amount by the withholding tax rate. For professional fees to a resident consultant: Payment × 5%. Step 4: Withhold and Remit Calculate the WHT, deduct it from the payment to the recipient, and remit the withheld amount to KRA by the due date (usually within 30 days). Example 1: Professional Fees

• You pay a resident accountant KES 50,000

• Withholding tax rate: 5%

• Withholding tax due: 50,000 × 5% = KES 2,500

• You pay the accountant: KES 47,500

• You remit to KRA: KES 2,500 Example 2: Non-Resident Consultant

• You pay a non-resident software developer KES 200,000

• Withholding tax rate: 20%

• Withholding tax due: 200,000 × 20% = KES 40,000

• You pay the developer: KES 160,000

• You remit to KRA: KES 40,000 Example 3: Dividend Payment

• A company distributes KES 500,000 in dividends

• Withholding tax rate: 15% (final tax)

• Withholding tax due: 500,000 × 15% = KES 75,000

• Shareholders receive: KES 425,000

• Company remits to KRA: KES 75,000

You must withhold tax if:

• You pay anyone for professional services (accountants, lawyers, consultants, engineers)

• You pay commission or contractor fees

• You're a landlord receiving rent

• You're a company paying dividends to shareholders

• You pay interest on loans or investments

• You're a government agency or large corporation buying from suppliers (VAT withholding) You must NOT withhold if:

• The payment is for goods (not services) from a normal supplier

• The recipient is exempt from tax (some NGOs, religious organizations, government agencies)

• The payment is salary to an employee (PAYE is withheld separately, not WHT)

• The payment is less than the minimum threshold (though most income has no minimum) Key distinction: Withholding tax is different from PAYE. PAYE is withheld from employee salaries by employers. Withholding tax is withheld from payments to independent contractors, consultants, and other income. A company pays both: PAYE on employee salaries and WHT on contractor payments.

Sometimes yes, sometimes no. It depends on the income type. Withholding tax IS final for:

• Dividend income (15%) — shareholders don't file returns or pay additional tax

• Interest income (15% resident, 20% non-resident) — no further tax owed

• Some rental income — if filed via MRI and tax is current Withholding tax is NOT final for:

• Professional fees (5% resident, 20% non-resident) — the recipient must file an annual tax return and may owe additional tax if their total income is high

• Commission & contract income — must file annual return; WHT is just advance payment

• Dividend income if non-resident — may be subject to additional tax under certain circumstances The key: if WHT is "final tax," the recipient doesn't file a return and doesn't owe more. If it's not final, the WHT is just advance payment and they file a return to settle the full tax liability.

Withholding tax is filed and paid monthly to KRA. For payers (those withholding the tax): 1. Maintain records — Keep documentation of all payments made and WHT withheld (invoices, contracts, payment receipts) 2. File monthly returns — Log into iTax, navigate to "Withholding Tax" section, enter all WHT withheld that month 3. Pay by due date — Submit payment to KRA by the 20th of the following month 4. Keep WHT certificates — Issue certificates to recipients confirming WHT withheld (they need these for their tax returns) For recipients (those receiving WHT): 1. Collect WHT certificates — Get documentation from payers showing amounts withheld 2. Report in annual return — Include total WHT received in your annual tax return 3. Claim as credit — The WHT reduces your final tax liability 4. Request refund if overpaid — If total WHT exceeds your tax liability, you get a refund Filing deadlines:

• Withholding tax for January is due by February 20

• Withholding tax for February is due by March 20

• Etc. — always due by 20th of following month Late payment triggers penalties: KES 5,000 + 5% of tax due per month late, plus 20% annual interest.

Withholding tax is a revenue collection mechanism. Instead of waiting for individuals to file returns and pay taxes at year-end, KRA collects tax upfront at the point of payment. It serves three purposes: 1. Revenue collection — KRA gets cash flow throughout the year, not in one lump sum at year-end 2. Compliance — It encourages people to report income (if someone withholds tax, KRA knows about it) 3. Fairness — High-earning individuals can't simply avoid tax by not filing; tax is already collected For the recipient, withholding tax is like a down payment on their annual tax bill. When they file their annual return, they declare all their income and the WHT withheld is credited against their total liability. If they owed KES 100,000 in total tax but KES 80,000 was already withheld, they only owe KES 20,000 more. If KES 120,000 was withheld, they get a KES 20,000 refund.

A withholding tax certificate is proof that someone withheld tax on your behalf. If you received payment and the payer withheld tax, they must issue you a certificate showing:

• Payer's name and PIN

• Recipient's name and PIN

• Amount paid (gross)

• Amount withheld

• WHT rate applied

• Month/period of withholding

• Date issued Why you need it: When you file your annual tax return, you need WHT certificates to prove the tax withheld. KRA cross-checks the certificates — payers report what they withheld, and recipients report what they received. Mismatches trigger audits. If you didn't receive a certificate: You have a problem. You can't claim WHT credit in your return without proof. You must request the certificate from the payer immediately. If they refuse, you can file a complaint with KRA or claim the WHT was never issued (though this raises audit risk).

These are often confused because both are "withheld at source," but they're completely different taxes: Withholding Tax (WHT):

• Tax on income (fees, commissions, dividends, interest)

• Collected by the payer from the recipient

• Credited against the recipient's annual income tax liability

• Rates: 5–20% depending on income type

• Example: You pay a consultant KES 100,000; withhold 5% (KES 5,000); remit to KRA VAT Withholding Tax (VWT):

• Tax on supplies of goods/services (17% VAT becomes subject to withholding)

• Collected by the buyer from the supplier

• Reduces the supplier's VAT liability

• Rate: 6% of VAT-exclusive amount

• Example: Government buys KES 100,000 in supplies; withholds 6% (KES 6,000); supplier's VAT liability reduces Key difference: WHT is income tax. VAT withholding is VAT tax. They're calculated differently, paid differently, and credited differently. A supplier might have both WHT (on their fee) and VAT withholding (on their supply) applied to the same invoice.

Withholding tax is due by the 20th of the month following the payment.

• Payment made January 15

Non-residents pay higher withholding tax rates than residents. Professional Fees:

• Resident: 5%

• Non-resident: 20% Interest:

• Resident: 15% (final)

• Non-resident: 20% Dividends:

• Usually 15% (same for both; may vary by tax treaty) Commission:

• Resident: 5%

• Non-resident: Typically 20% A non-resident is someone who doesn't have a permanent home in Kenya, isn't working in Kenya, and doesn't have the center of economic interests in Kenya. If you're paying a foreigner for services, you withhold at the higher rate. Tax treaties can change rates. Kenya has tax treaties with several countries that may reduce withholding tax rates. For example, if you're paying someone from a treaty country, the rate might be lower than the standard 20%.

Certain payments are exempt:

• Government payments — Some government agencies don't withhold WHT on specified payments

• Exempt organizations — NGOs, charities, religious institutions with tax exemption certificates don't have WHT applied

• Intra-company payments — Sometimes payments between related companies aren't subject to WHT (but this is complex; check with KRA)

• Goods (not services) — Buying physical goods from suppliers doesn't trigger WHT (regular VAT/tax applies instead) Most payments ARE subject to WHT — if there's any doubt, withhold. It's better to withhold and get clarification than to withhold incorrectly or not withhold when you should have.