Over the years, I have seen many businesses struggle with understanding and complying with tax obligations. In this post, I aim to demystify the different types of taxes that businesses in Kenya must pay, which companies are responsible for each type of tax, and when these taxes are due. Whether you are a seasoned business owner or just starting, I hope you find this guide helpful.
1. Corporate Income Tax
What is it? Corporate income tax is levied on the profits of companies.
Who pays it?
- Resident Companies: Taxed at a rate of 30% on their profits.
- Non-Resident Companies: Taxed at a rate of 37.5% on their profits.
When is it paid? Corporate income tax is paid in instalments. Companies estimate their annual tax liability and pay in four equal instalments on the 20th day of the 4th, 6th, 9th, and 12th months of the company’s financial year. A final tax return is filed, and any balance is paid by the last day of the 4th month following the end of the financial year. This helps businesses manage their cash flow throughout the year, avoiding the burden of a large tax bill all at once.
2. Value Added Tax (VAT)
What is it? VAT is a consumption tax levied on the sale of goods and services.
Who pays it? All businesses with an annual turnover of Ksh 5 million and above are required to register for VAT and charge it on their taxable supplies. This includes retail businesses, service providers, and manufacturers.
When is it paid? VAT is filed monthly. Businesses must submit their VAT returns and remit the tax by the 20th of the following month. Keeping accurate records of sales and purchases is crucial for filing accurate VAT returns and claiming input VAT deductions.
3. Pay As You Earn (PAYE)
What is it? PAYE is an income tax collected from employees’ salaries by the employer.
Who pays it? All employers are required to deduct PAYE from their employees’ salaries and remit it to the Kenya Revenue Authority (KRA). This applies to businesses of all sizes, including small enterprises and large corporations.
When is it paid? PAYE is filed and paid monthly, with the due date being the 9th of the following month. Timely remittance of PAYE ensures that employees’ tax obligations are met, and it avoids penalties for the employer.
4. Withholding Tax
What is it? Withholding tax is deducted at source from certain types of income such as interest, dividends, royalties, and management fees.
Who pays it? Both resident and non-resident individuals and companies receiving specified types of income are subject to withholding tax. This tax helps the government collect revenue in advance and ensures compliance.
When is it paid? Withholding tax must be remitted to the KRA by the 20th day of the month following the month in which the payment was made. It is crucial for businesses to keep track of these payments to avoid penalties and interest charges.
5. Excise Duty
What is it? Excise duty is levied on specific goods such as alcohol, tobacco, and petroleum products, as well as certain services like mobile phone airtime.
Who pays it? Manufacturers and importers of excisable goods and providers of excisable services. This tax is included in the price of the product or service and passed on to the consumer.
When is it paid? Excise duty returns and payments are due monthly, by the 20th of the following month. Compliance with excise duty regulations is crucial for businesses dealing in excisable goods to avoid severe penalties.
6. Turnover Tax (TOT)
What is it? TOT is a tax for small businesses with an annual turnover of up to Ksh 5 million.
Who pays it? Small businesses that meet the turnover threshold. This tax is designed to simplify tax compliance for small enterprises by charging a low rate on gross sales.
When is it paid? TOT is filed and paid quarterly, by the 20th of the month following the end of the quarter. This makes it easier for small businesses to manage their tax obligations without the need for complex accounting.
7. Advance Tax
What is it? Advance tax is charged on public service vehicles and commercial vehicles.
Who pays it? Owners of public service and commercial vehicles. This tax is based on the vehicle’s weight or carrying capacity.
When is it paid? Advance tax is paid annually, before the renewal of the vehicle’s road licence. This ensures that vehicle owners contribute to the maintenance of public infrastructure.
8. Capital Gains Tax (CGT)
What is it? CGT is levied at a rate of 5% on the gains made from the transfer of property.
Who pays it? Individuals and companies selling property. This tax ensures that the government shares in the profits made from property transactions.
When is it paid? CGT must be paid within 30 days of the transfer of the property. It is essential to file the correct documentation and make timely payments to avoid penalties.
9. Customs Duty
What is it? Customs duty is imposed on imported goods based on the value of the goods, the country of origin, and the type of goods.
Who pays it? Importers of goods. This tax protects local industries and generates revenue for the government.
When is it paid? Customs duty is paid at the time of importation. Importers must ensure compliance with customs regulations to avoid delays and additional charges.
10. Stamp Duty
What is it? Stamp duty is charged on the transfer of properties, leases, and securities.
Who pays it? Individuals and companies involved in transactions that require stamping. This tax formalises the transaction and provides legal proof of ownership.
When is it paid? Stamp duty is paid at the time of executing the transaction. Proper stamping of documents ensures their legality and enforceability in court.
11. Installment Tax
What is it? Installment tax is paid in advance based on estimated annual income.
Who pays it? Companies and businesses that expect to have a tax liability for the year. This helps spread the tax burden over the year.
When is it paid? Instalment tax is paid in four equal instalments on the 20th day of the 4th, 6th, 9th, and 12th months of the financial year. Proper estimation and timely payments help avoid interest and penalties on underpaid taxes.
Conclusion
Understanding and complying with tax obligations is vital for any business operating in Kenya. Staying compliant not only keeps you on the right side of the law but also contributes to the development of our beloved country. Each tax has its own specific regulations, and it’s crucial to adhere to them to avoid penalties and interest.
If you find the tax landscape overwhelming, you’re not alone. That’s where Finewise comes in. We offer expert consultation and tax filing services to help you navigate these complexities with ease. Whether you need assistance with tax planning, filing returns, or understanding specific tax obligations, our team is here to support you.
Feel free to reach out to us at Finewise for any questions or further clarification. Happy accounting!
