Sole Trader vs Limited Company Tax Calculator Kenya 2026

Two ways to run the same business

A person starting or growing a business in Kenya usually chooses between operating as a sole proprietor (trading in their own name or a registered business name) and forming a limited company. Tax is only one of the factors, but it is one that surprises people, because the two structures are taxed on different bases and at different points.

How a sole trader is taxed

A sole trader is not separate from the business. The profit is the owner's personal income, taxed at the individual rates, which rise in bands. A resident individual also receives the annual personal relief. If the owner has other income, such as a salary, the business profit adds to it and is taxed at the higher bands. There is no second layer of tax when the owner takes money out of the business.

How a company is taxed

A company is a separate legal person. It pays corporation tax on its profit at 30% for a resident company. When the company pays dividends to its owners, the owners are taxed again through withholding tax on the dividend, currently 5% for residents, which is usually final tax on that income. Profit that stays in the company is not taxed again until it is paid out. A company can also pay its owner-director a salary, which is deductible for the company and taxed through PAYE, and that route is not modelled here.

What the calculator compares

You enter the annual profit and any other income of your own, and choose whether the company pays all after-tax profit out as dividends or keeps it. The calculator reports:

• the sole trader's income tax on the business profit;
• the company's corporation tax and the dividend tax on any payout;
• the total tax under each structure and which is lower;
• the profit left after tax under each.

A worked example

On a profit of KES 1,000,000 and no other income, the sole trader pays KES 208,600.20 of income tax. A company paying out all the profit pays KES 335,000.00 in total across corporation tax and dividend tax. At lower profits the sole trader route is often cheaper, because the first bands of personal tax are low and the personal relief applies. At higher profits the company's flat rate can win if profit is retained.

What is not in the numbers

Tax is only part of the decision. The comparison leaves out registration and annual compliance costs, audit and accounting fees, the limited liability a company gives its owners, the ease of raising finance, perception with clients and the cost of paying yourself a salary. It also leaves out SHIF, NSSF and the Housing Levy, which apply differently to sole traders and directors. Turnover tax may also be available to a small sole trader, which the freelancer and turnover tax calculators show.

Practical advice

Run the comparison with realistic profit, not the best case, and with and without a dividend payout. If you expect to reinvest most of the profit, a company's retained earnings may be taxed less than the owner's personal tax. If you expect to draw most of the profit, the combined tax can be higher. Speak to an accountant before you register, and revisit the decision as profit grows.

This is an estimate for information only and not advice on structuring your business.

Moving from one structure to the other

Many businesses start as sole traders and incorporate later. The change is not tax-free: transferring assets and stock into a company can create tax events, and contracts, licences and bank accounts must be moved. Plan the timing, ideally at a financial year end, and ask an accountant to look at the capital gains, VAT and stamp duty consequences. The comparison on this page is a starting point for the conversation, not a replacement for it.

Guides, tools and templates for this topic

Read next: Turnover tax for small businesses in Kenya: rate, limits and when to use it, VAT for small businesses in Kenya: when to register and what to charge, The KRA filing calendar for small businesses: every monthly and yearly deadline

Related calculators: Corporation Tax Calculator, Freelancer and Digital Creator Tax Calculator, Tax on Dividends and Interest Calculator

Excel templates: Monthly profit and loss statement

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