Running a business in Kenya comes with various tax obligations. Understanding these taxes is essential for maintaining compliance with the law and avoiding penalties. Here’s an overview of the key types of taxes that businesses in Kenya incur:
1. Corporate Income Tax
Corporate Income Tax is levied on the profits made by businesses operating in Kenya. This tax applies to both resident and non-resident companies:
Resident Companies: These companies are taxed on income derived from Kenya and other countries at a rate of 30%.
Non-Resident Companies: These companies are only taxed on income sourced from Kenya at a rate of 37.5%.
Corporate Income Tax is calculated after deducting allowable expenses from the company’s gross income.
2. Value Added Tax (VAT)
Value Added Tax (VAT) is charged on the sale of goods and services. In Kenya, the VAT rates include:
16% for standard-rated goods and services.
0% for zero-rated goods, which include exports and specific essential goods such as unprocessed foodstuffs and medical supplies.
Exempt Goods and Services: Certain services such as financial services, education, and healthcare are exempt from VAT.
Businesses are required to register for VAT if their annual turnover exceeds Ksh 5 million.
3. Pay-As-You-Earn (PAYE)
PAYE is a tax on income earned by employees. Employers are required to deduct and remit this tax to the Kenya Revenue Authority (KRA) on behalf of their employees. The rates are graduated based on income brackets, with rates ranging from 10% to 30%.
PAYE applies to all forms of employment income, including salaries, bonuses, allowances, and benefits in kind.
4. Excise Duty
Excise Duty is charged on specific goods and services, primarily those considered harmful or luxury items. In Kenya, excise duty applies to products such as:
Alcoholic beverages,Tobacco products, Fuel, Motor vehicles,Telecommunications services
The rates for excise duty vary depending on the product and are either specific (a set amount per unit) or ad valorem (a percentage of the value).
5. Turnover Tax (TOT)
Turnover Tax is applicable to small businesses whose annual income is below Ksh 50 million but above Ksh 1 million. The TOT rate is 1% of the gross sales and is meant to simplify tax compliance for micro, small, and medium enterprises (MSMEs).
Businesses under TOT are exempt from paying VAT and are required to file their returns on a monthly basis.
6. Withholding Tax
Withholding Tax is deducted at source by a payer when making payments for specified services or income. Common instances where withholding tax applies include:
Professional services such as consultancy, legal, and accounting.
Interest and dividends paid to shareholders.
Rent payments.
Withholding tax rates vary depending on the nature of the payment and whether the recipient is a resident or non-resident. For example, consultancy fees are subject to a 5% withholding tax for residents and 20% for non-residents.
7. Customs Duty
Customs Duty is levied on goods imported into Kenya. This tax is regulated by the East African Community (EAC) Customs Management Act and applies to a wide range of goods. The rates vary based on the type of goods and the country of origin, with preferential rates given to goods from within the EAC.
8. Capital Gains Tax (CGT)
Capital Gains Tax is charged on the gain realized from the sale of property or shares. The current rate of CGT in Kenya is 15% of the net gain. This tax applies to both individuals and businesses and must be paid within 30 days of the transaction.
9. Stamp Duty
Stamp Duty is payable on various legal documents, such as property transfers, leases, and share certificates. The rates vary depending on the type of document:
Property transfers: 4% in urban areas and 2% in rural areas.
Leases: Between 1% and 2% of the lease value.
Conclusion
In summary, businesses in Kenya are required to comply with a range of tax obligations, including corporate income tax, VAT, PAYE, excise duty, and others. Staying informed about these taxes and filing returns on time is essential for avoiding penalties and ensuring smooth operations. Engaging a tax professional or accountant can help businesses navigate the complex tax landscape in Kenya.
By understanding the various taxes, businesses can not only maintain compliance but also optimize their tax obligations for better financial management.