Kenyan Taxes

Withholding tax Kenya - KRA

Withholding tax is an income tax amount that a payer withholds and deducts from the recipient's amount due and sent to the KRA.

 Also known as tax retention, withholding tax is a type of KRA income tax whereby the taxpayer gets to deduct and withhold tax at source.

The amount of money deducted in most cases comes from an employment income and varieties depending on what one earns. The tax should be sent to KRA on or not any day later than the 20th of the following month. 

In this article, we get to discuss everything withholding as follows;

  • What incomes are subjected to withholding taxes?
  • Withholding tax rate in Kenya
  • Withholding tax on rental income
  • Withholding tax on dividends in Kenya
  • Withholding tax on dividends in Kenya
  • Withholding tax waiver
  • Withholding tax payments and calculations
  • Conclusion

What incomes are subjected to withholding taxes?

Examples of payments that are subjected to withholding taxes include dividends, interests/deemed interests, legal and consultancy fees, among many others. The amount to be deducted will vary depending on whether you are a Kenyan resident or not. This kind of tax applies to both Kenyan residents and non-resident aliens individuals, who are required to register for a KRA PIN

Incomes exempted from withholding taxes. 

Not all taxes are categorized under withholding taxes, and some are excluded. The following are examples of taxes not subjected to these deductions as claimed by the KRA;

  1. Payments made to tax-excluded bodies.
  2. Interest payments to banks and insurance companies.
  3. Air travel commissions paid to overseas agents by local air operators.
  4. Dividends received by resident companies from local and international subsidiaries are also tax exempted.

Is withholding tax a final tax?

Withholding tax can be a final tax, and sometimes not. It all depends. It can only be considered final if you are a non-resident with no permanent business in Kenya. In cases whereby you are a resident, it can be final if only it relates to qualifying interests and dividends, pensions, and winnings. Other than that, it won't be considered a final tax.

Can withholding tax be reclaimed?

Most people will want to know if their withholding taxes are refundable. Well, all taxes paid on the KRA system are, given you have a valid reason for the claim. You could reclaim it if it were paid in excess within a given year. If you are a withholding taxpayer, claim your refund at the moment when you are filing your annual tax returns. 

Apply for a refund immediately after you have filed for the tax return for the expected year. When making this application, you should have a supporting document included to prove your claims and have them sent to the processing officer.

Withholding tax penalties

As required of you by the withholding tax law, you are supposed to pay your taxes on time failure to do that you are at risk of facing penalty charges. You must keep up with the filing dates to avoid a 5% payment charge on taxes due and 1% due to late interest payments. 

Withholding tax rate in Kenya

The withholding tax rate can vary depending if you are an individual or non-individual. Let's take a look at some of these rates as follows;


Withholding tax on rental income

Rent payments are also subjected to withholding tax, and the charges may vary depending on the type of income one receives. They are applied to resident and non-resident landlords/ladies at a certain tax rate.

 Residential owners will pay at a tax rate of 10% and non-residential owners 30% rate, respectively. The appointed KRA tax agents collect these taxes from the land ladies and lords. If you are a resident landowner, withholding tax is not a final tax. It can only be considered final for non-resident landowners.

Withholding tax on dividends in Kenya

Just like rental income, some dividends are also subjected to withholding taxes and can vary depending on your status, whether you are a Kenyan resident or not. The withholding rate you will face will be a 5% rate for residents and 10% for non-residents. For non-resident payers of a country whose tax rates have a doubled agreement between Kenya and their country, their tax rate will be lower on the condition that, the dividend recipient qualifies for is under the limitation of benefits provisions.

Withholding tax waiver

Like all tax rules and laws, all individuals have a right to waiver applications. In order to do that, the taxpayer is supposed to write an email addressing the commissioner with factual reasons and supportive proof for wavering. This request may be granted if it makes sense to the commissioner. If not, you will still be required to pay.

Most of the time, they will be giving out reasons as to why they need their penalty waived, either due to their late filing or non-filing. To send these applications, you must ensure you have supportive documents according to the Tax Act of 2015 under section 89(7). Read more on tax waiver process for well-entailed knowledge.

Withholding tax payments and calculations

You can make this payment by generating a withholding tax certificate to the iTax system, which will do the calculations and send it to the payee once the payer submits the withholding tax required. The tax payment should be made online on the iTax portal or via the M-Pesa app pay bill number 452572, with the account number being the "payment registration number" on the generated pay-slip.

Conclusion

As seen above, withholding taxes requires withheld money at source to be paid and submitted to the KRA on the expected date. These payments should be paid on time, and failure to do as required means the payer will face penalty charges that they must pay. As a taxpayer, you will be needed to take the necessary action by keeping your filings and payments updated as the withholding law requires of you.

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