What Is Withholding Tax?
Withholding tax (WHT) is a tax deducted at the source of income by the payer on behalf of the recipient. Instead of the income earner paying tax on the full amount later, a portion is held back and remitted directly to the Kenya Revenue Authority. The recipient then claims credit for the tax already withheld when filing their annual returns.
In Kenya, WHT applies to a wide range of payments including professional fees, consultancy charges, management fees, dividends, interest, rent, and payments to non-residents. As a business owner, you are legally obligated to deduct WHT from qualifying payments, remit it to KRA, and issue a withholding tax certificate to the payee.
Who Must Deduct Withholding Tax?
Any person or entity making a payment that is subject to WHT is required to deduct and remit the tax. This includes companies, partnerships, sole proprietors, government agencies, and non-governmental organizations. The obligation falls on the payer, not the recipient. If you fail to deduct WHT where required, KRA will hold you responsible for the unpaid tax plus penalties.
There are a few situations where WHT does not apply. Payments below KES 24,000 per month to a single payee for certain categories are exempt. Payments between related companies may also have different treatment. When in doubt, check the KRA guidelines or consult a tax advisor before making the payment.
Withholding Tax Rates in Kenya
The rates vary depending on the type of payment and whether the recipient is a resident or non-resident. Below is a comprehensive table of the most common WHT rates applicable in Kenya.
| Payment Type | Resident Rate | Non-Resident Rate |
|---|---|---|
| Dividends | 5% | 15% |
| Interest (Bearer instruments) | 15% | 15% |
| Interest (Other) | 15% | 15% |
| Royalties | 5% | 20% |
| Management / Professional / Training fees | 5% | 20% |
| Contractual fees (Building, civil, etc.) | 3% | 20% |
| Consultancy fees | 5% | 20% |
| Rent (Immovable property) | 10% | 30% |
| Insurance commission | 10% | 20% |
| Appearance / Performance fees | 5% | 20% |
| Telecommunications services | 5% | 20% |
| Pension / Retirement payments | Variable | Variable |
These rates may be reduced under Double Taxation Agreements (DTAs) that Kenya has signed with various countries. Always check whether a DTA applies before deducting WHT on payments to non-residents.
How to Calculate and Deduct WHT
Calculating WHT is a matter of applying the correct rate to the gross payment amount before any other deductions. For example, if you owe a consultant KES 100,000 for professional services, you deduct 5% (KES 5,000) as WHT. You pay the consultant KES 95,000 and remit KES 5,000 to KRA.
If the payment includes VAT, the WHT is calculated on the amount before VAT. So if the consultant invoices KES 100,000 plus 16% VAT (KES 16,000), the total invoice is KES 116,000. You calculate WHT as 5% of KES 100,000 (which is KES 5,000), then pay the consultant KES 111,000 (KES 116,000 minus KES 5,000) and remit KES 5,000 to KRA.
Filing and Remitting WHT on iTax
WHT must be remitted to KRA by the 20th day of the month following the month in which the deduction was made. If you deducted WHT in January, the payment and return are due by February 20th. Late remittance attracts a penalty of 10% of the tax due plus interest at the prevailing rate set by the Commissioner.
- 1Log in to your iTax account at itax.kra.go.ke.
- 2Navigate to the Returns menu and select Withholding Tax.
- 3Fill in the return for the applicable period, listing each payee, their PIN, the payment amount, and the tax deducted.
- 4Generate the payment slip and pay via bank, M-Pesa, or other approved channels.
- 5Download and issue a WHT certificate to each payee. This is a legal requirement, not optional.
Withholding Tax Certificates
After deducting and remitting WHT, you must provide the payee with a withholding tax certificate. This certificate serves as proof that tax was deducted and remitted on their behalf. The payee uses this certificate to claim credit against their own income tax liability when filing annual returns.
The certificate should include the payer's name and KRA PIN, the payee's name and KRA PIN, the gross amount paid, the WHT rate applied, the amount deducted, the date of payment, and the KRA acknowledgement receipt number. Failure to issue certificates can result in disputes and penalties for both parties.
Penalties for Non-Compliance
- Failure to deduct WHT: The payer becomes personally liable for the tax amount that should have been deducted, plus penalties.
- Late remittance: A penalty of 10% of the amount due, plus interest at the prevailing Central Bank rate.
- Failure to file the WHT return: A penalty of KES 10,000 or 5% of the tax due, whichever is higher.
- Failure to issue WHT certificates: KRA may disallow the payee's tax credit claim and pursue the payer for the unissued certificates.
Practical Tips for Managing WHT
- Maintain a WHT register: Track all qualifying payments, the rates applied, amounts deducted, and remittance dates in a single register.
- Calendar your deadlines: Set reminders for the 20th of each month to ensure timely remittance.
- Verify supplier PINs: Always confirm the KRA PIN of your suppliers before making the first payment. Incorrect PINs on WHT returns cause processing delays.
- Review DTA treaties: For international payments, check whether a double taxation agreement reduces the applicable rate before deducting the standard non-resident rate.
