Understanding Taxation in Kenya for Businesses and Employees

Taxation in Kenya plays a crucial role in business operations and employee earnings. Both businesses and employees must comply with tax regulations set by the Kenya Revenue Authority (KRA) to ensure smooth operations and avoid penalties.

1. Business Taxes in Kenya

Businesses in Kenya are subject to various taxes depending on their size, structure, and revenue. These include:

a) Corporate Income Tax

• Resident companies pay 30% on their net profits.
• Non-resident companies are also  taxed at 30%.

b) Turnover Tax (TOT)

• Applies to small businesses earning Ksh 1M–50M annually.
• Charged at 1% of total sales.

c) Value Added Tax (VAT)

• Businesses earning over Ksh 5M annually must register for VAT.
• Standard VAT rate is 16%, while some goods/services have an 8% or 0% rate.

d) Withholding Tax

• Deducted at various rates (5%-20%) on payments for services such as consultancy, rent, and dividends.

e) Pay As You Earn (PAYE)

• Employers must deduct PAYE from employees’ salaries and remit it to KRA.

2. Employee Taxation

a) Pay As You Earn (PAYE)

Employees are taxed based on their monthly income under a progressive tax system:

• Up to Ksh 24,000 – 10%
• Ksh 24,001 - 32,333 – 25%
• Above Ksh 32,333 – 30%

b) National Social Security Fund (NSSF) & Social Health Insurance Fund (SHIF)

• Employers and employees contribute to NSSF for pension benefits.
• SHIF deductions provide employees with affordable healthcare.

c) Housing Levy

• A 1.5% deduction from both employer and employee towards the Affordable Housing Fund.

Conclusion

Businesses in Kenya must ensure compliance with all tax requirements, from corporate taxes to employee deductions. Regular filing and adherence to KRA regulations prevent penalties and keep operations running smoothly.