INTRODUCTION TO WITHHOLDING TAX IN KENYA
Withholding Tax (WHT) is a tax deducted at source from payments made to individuals and businesses for specific services and income categories. The Kenya Revenue Authority (KRA) mandates the deduction and remittance of WHT to ensure tax compliance and streamline revenue collection.
WHO IS SUBJECT TO WITHHOLDING TAX?
WHT applies to both residents and non-residents who receive payments for taxable services and transactions in Kenya. It is commonly applicable to:
- Professional fees (e.g., legal, accounting, and consultancy services)
- Royalties
- Dividends
- Interest income
- Rent payments (for commercial properties)
- Commissions
- Management and training fees
WITHHOLDING TAX RATES IN KENYA
The rates vary depending on the type of payment and whether the recipient is a resident or non-resident. Some common WHT rates include:
- Dividends: 5% (residents), 10% (non-residents)
- Interest: 15%
- Royalties: 5% (residents), 20% (non-residents)
- Professional fees: 5% (residents), 20% (non-residents)
- Rent for commercial property: 10%
- Management and training fees: 5% (residents), 20% (non-residents)
HOW TO DEDUCT AND REMIT WITHHOLDING TAX
- Determine the Taxable Amount: Identify if the payment is subject to WHT and the applicable rate.
- Deduct the Tax at Source: Before making the payment, deduct the correct WHT percentage.
- Remit to KRA: Submit the deducted amount to KRA through the iTax platform before the due date (typically by the 20th of the following month).
- Issue a Withholding Tax Certificate: Provide the recipient with a WHT certificate as proof of deduction, which they can use to offset against their total tax liability.
EXEMPTIONS AND RELIEFS
Certain transactions and individuals may be exempt from WHT, such as:
- Payments to tax-exempt organizations and entities
- Some government payments
- Income subject to other direct taxes (such as employment income under PAYE)
- WHT has a threshold of Ksh 24,000
Additionally, Kenya has double taxation agreements (DTAs) with various countries, which may reduce WHT rates for non-residents based on bilateral agreements.
PENALTIES FOR NON-COMPLIANCE
Failure to deduct, remit, or file WHT returns can result in:
- Penalties for late remittance (5% of the tax due or Ksh 10,000, whichever is higher)
- Interest on unpaid WHT at 1% per month
- Possible legal consequences and audits by KRA
BENEFITS OF WITHHOLDING TAX
- Ensures continuous tax collection for the government.
- Helps businesses comply with tax obligations.
- Provides a mechanism for tracking and monitoring tax payments.
CONCLUSION
Withholding Tax in Kenya plays a crucial role in the tax system, ensuring a steady flow of revenue for the government while promoting compliance. Businesses and individuals should familiarize themselves with WHT obligations to avoid penalties and optimize their tax planning strategies.
NEED HELP WITH TAX COMPLIANCE?
At EDY CONSULTANTS, we offer expert tax advisory services to help businesses and individuals navigate WHT regulations with ease. Contact us today for professional guidance on tax compliance and planning!
