10th-Nov-2025 • Mohamed Hassan • SME Taxation
As a small business owner in Kenya, understanding the complexities of taxation is crucial to staying compliant and avoiding penalties. This guide provides an overview of SME taxation in Kenya, offering practical insights to help you navigate this essential aspect of running your business.
First and foremost, it's important to know which taxes apply to your small business. In Kenya, SMEs are subject to Value Added Tax (VAT), corporate tax, withholding tax, and pay-as-you-earn (PAYE) among others.
If your business exceeds a turnover of KES 500,000 per month or KES 6,000,000 annually, you're required to register for VAT. The standard rate is currently set at 16%, but certain goods and services may qualify for a reduced rate of 8%.
All Kenyan companies pay corporate tax, with the rate depending on their taxable income. For example, businesses earning up to KES 500,000 are subject to a flat rate of 0%, while those earning between KES 1,500,000 and KES 3,000,000 pay a rate of 30%.
Withholding tax applies when you make payments to third parties for services. The rates vary depending on the type of payment and recipient, with common examples being rent (8%), interest (15%) and royalties (20%).
If you employ staff, you'll need to deduct PAYE from their salaries and remit it to the Kenya Revenue Authority (KRA) on a monthly basis. The rates range between 0% and 30%, based on the employee's annual taxable income.
Managing your SME's taxes can be complex, but there are solutions available to help. Business management platforms like Lipabiz Technologies offer integrated payments and accounting features that can streamline the process, ensuring you stay compliant while minimizing time spent on paperwork.