In this post, we will discuss how to file and pay withholding taxes in Kenya. What it is, to whom it applies, how to file for withholding tax, the applicable withholding tax rates, and finally how to pay for withholding tax.
What is Withholding Tax
Withholding tax is income withheld by a person making payment and remitted to the taxman. The payer, rather than the recipient, pays it as tax to the taxman.
An example is when marketing companies pay commissions to their marketers, the company will withhold some of the commissions and pay to Kenya Revenue Authority as a tax on behalf of the marketers.
To whom does Withholding tax Apply?
To begin with, there are two parties, the Withholder and the withholdee. The Withholder is the person who is making payment and withholds some money to remit to the taxman; on the other hand, the withholdee is the recipient of the income being withheld.
One can, therefore, be in either position. You could be one making a payment for income that is subject to Withholding tax, or you could be receiving income that has Withholding tax.
Withholding Tax Rates
The Income Tax Act CAP 470, 3rd Schedule Section 5 stipulates on incomes that are subject to Withholding tax.
The Withholding tax is withheld at a percentage depending on the income being paid out, to both residents and even non-residents.
Whenever a payment for income that is subject to Withholding tax is being made, the payer is supposed to pay the net amount, the amount withheld is paid to Kenya Revenue Authority (KRA)
The rates for withholding taxes are as follows ; ( source KRA)
| Description of income | Resident | Non- Resident |
| Artists and entertainers | – | – |
| Management fees | 5% | 20% |
| Professional fees | 5% | 20% |
| Training fees (inclusive of incidental costs) | 5% | 20% |
| Winnings from betting and gaming (w.e.f. 1 Jan 2014) | 20% | 20% |
| Royalties | 5% | 20% |
| Dividends (nil for resident shareholders with>12.5%) | 5% | 10% |
| Equipment (movable) Leasing | N/A | 5% |
| Interest (Bank) | 15% | 15% |
| Interest (Housing Bond? HBI) | 10% | 15% |
| Interest on two-year government bearer bonds | 15% | 15% |
| Other bearer bonds interest | 25% | 25% |
| Rent- buildings (immovable) | 12% | 30% |
| Rent-others (except aircraft) | N/A | 15% |
| Pensions/provident schemes (withdrawal) | 10 -30% | 5% |
| Insurance Commissions | 10% | 20% |
| Consultancy and agency (from 1 July 2003) | 5% | 20% |
| Contractual and agency (from 1 July 2003) | 3% | 20% |
| Telecommunication services/Message transmission | – | 5% |
| Natural Resource Income (w.e.f. 01/01/2015) | 5% | 20% |
The 2019/2020 Budget- Implications on Withholding tax.
In the budget statement tabled in parliament by the treasury cabinet secretary, more services will be subject to withholding taxes.
These include;
- Security services
- Cleaning and fumigation services
- Catering services offered outside the hotel premises
- Transport of goods excluding transport services
- Sales promotion
- Marketing and advertising services
This means if you are making payments for the above services you should keep note when it comes into law so that the payment you make is net of withholding taxes.
How to file for Withholding taxes
Both the withholder (payer) and the withholdee (recipient) are required to file their returns online via the KAR itax system.
1. Filing as a Withholder
Once you withhold income that is subject to withholding taxes, you are supposed to file and remit the amount withheld to KRA by the 20th of the preceding month.
You file the withholding returns via the itax portal. To file, you will need to prepare an excel file of the Gross amount, the amount withheld, and the KRA PINs for the people you have withheld from. After filing, you can generate a payment slip to pay the amount.
You can download our guide for filing withholding taxes which includes a CSV file template to use to import details into the KRA tax filling excel form from here.
Download Withholding Tax Tutorial Guide2. Filing as a Witholdee
Withholding tax is not final, meaning the income earned is supposed to be filed at the end of the year by 3oth June amongst one’s other incomes.
If you have withholding tax credits you can not file nil returns or employment income only, the KRA itax portal will give you an error and prompt you to declare the withheld tax credits.
When you receive income that has been subjected to withholding tax you are supposed to receive a withholding certificate that shows details of the amounts and the details of the withholder. (see in the example withholding Certificate above)
You can as well reprint the withholding certificates from your KRA itax portal.
To file your income that has withholding tax, you must have prepared an income statement that shows your income and expenses that were wholly incurred in the production of that income; you are also required to have prepared a balance sheet that shows your assets, liabilities and capital.
Within the KRA excel file for filing Individual income taxes, you must first enable the field for Income from other sources other than the business income. Then you can use your income statement and balance sheet prepared in the KRA excel sheet. On the final tax computation tab, you can declare the amounts that have been withheld as withholding tax credits.
Online Video Training on Withholding TaxOffences and Penalties
It is an offence to withhold income and fail to remit the tax to the revenue authority. As a recipient, whenever you are receiving income that is subject to withholding tax, you should counter-check the details with the withholding certificate for accuracy and confirm that you were not paid the net amount and that what was deducted was not paid to KRA.
Penalties for late filing of withheld tax on to the withholder is either sh 20,000 or 5 % of the tax payable, whichever is higher.
For the withholdee if you don’t file your tax returns by 30th June of every year the penalties are either;
- five per cent of the amount of tax payable or twenty thousand shillings, whichever is the higher, in respect of a person other than an individual; or
- five per cent of the amount of tax payable under the return or two thousand shillings, whichever is the higher, for an individual.
How to Pay for Withholding Tax
To make payments for withholding taxes, you generate a payment slip from the KRA itax portal and select withholding tax as the sub-section.
You can pay for the amount at any KRA partner bank. Alternatively, you can make payment using mobile money Mpesa for amounts below sh 70,000 using Paybill business number 572572, the account number will be the unique payment slip reference number.
Wrap up
Ensure your tax complaint, if you have a problem filling or making payment for withholding taxes, you can contact us for assistance.
Tulipe ushuru, tujitegemee.
For inquiries on withholding Tax, you can contact us or comment on the post we will respond.
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