Withholding tax is income tax collected at the point of payment. When a business pays certain kinds of income, it keeps back a percentage and sends it to KRA, and the recipient receives the rest. The recipient then claims the amount as a credit when they file their own return.
Who must withhold
Withholding applies to payments made by a withholding agent. In practice that means companies, many sole proprietors and anyone appointed by KRA. You must withhold when you pay certain categories of income above the stated minimum.
Common categories and rates
The rates below are typical for payments to residents; non-residents are usually taxed at higher rates.
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| Payment | Resident rate | Non-resident rate |
|---|---|---|
| Management or professional fees | 5% | 20% |
| Contractual fees | 3% | 20% |
| Dividends | 5% | 15% |
| Royalties | 5% | 20% |
| Rent on residential property through appointed agents | 7.5% | n/a |
Treaty rates can lower the non-resident figures. Use the withholding tax calculator to choose the category and see both the tax and the net payment.
An example
A company pays a consultant KES 200,000 for management services. It withholds 5%, which is KES 10,000, and pays the consultant KES 190,000. The consultant keeps the withholding certificate, and the company pays the KES 10,000 to KRA.
When and how to pay
The tax withheld must be paid to KRA by the 20th of the following month, with a return filed on iTax. If you pay late, penalties and interest apply; check the cost with the KRA penalty calculator. The withholding tax schedule workbook records each payment, calculates the tax and lists what is due for the month.
The recipient's side
A supplier whose payments are taxed should receive a certificate showing the amount held. The tax appears in their iTax account as a credit, which reduces what they owe. If your credit is not showing, ask the payer to file and pay.
Withholding VAT
Separate from income tax withholding, appointed agents also keep back 2% VAT on payments to suppliers. Learn how it works in the withholding VAT calculator and read VAT for small businesses in Kenya.
Withholding on rent
Tenants who are businesses and managing agents may be required to withhold on rent. The withholding tax on rent calculator and our guide to monthly rental income tax or annual tax explain how the credit works for landlords.
Project and contract work
Contractors and project managers often handle many withholding payments across suppliers. The project budget and cost tracker keeps the budget, actual costs and tax withheld for each project in one sheet, and the supplier bills and accounts payable tracker shows what you still owe suppliers after withholding.
Common mistakes
- Paying the supplier in full and forgetting to withhold. The agent can be held liable.
- Using the wrong category. A professional service is not a contract.
- Filing the return but not paying, or the other way round.
Rates differ by payment type and are amended by Finance Acts, so confirm the current rate with KRA before you pay.
Common questions
Is withholding tax an extra tax on top of income tax? No. For most payments it is an advance payment of the recipient's own tax. The payer deducts it, pays it to KRA and gives a certificate, and the recipient sets that certificate against the income tax due on the annual return.
When must the tax be paid to KRA? The payer must pay what it deducted to KRA by the 20th of the month after the payment was made, and file the withholding return on iTax for the same month. Late payment brings a penalty and monthly interest, so many payers diarise it with the monthly VAT date.
What should a supplier do if a customer deducts too much? Ask the customer for the correct certificate and check the rate against the Third Schedule to the Income Tax Act or KRA's published table. If the customer has already paid KRA, the supplier claims the full certificate on the return and raises the over-deduction with the customer in writing.