Withholding Tax - Non-Resident
Tax deducted at source from payments to non-resident persons. Comprehensive guide to rates, treaty benefits, and international tax compliance.
What is Non-Resident Withholding Tax?
Understanding international withholding tax obligations
Withholding Tax on non-resident persons is tax deducted at source from payments made to foreign individuals and entities. It ensures Kenya collects tax on income sourced within the country and may be reduced through double taxation treaties. This is a final tax unless the non-resident has other Kenyan obligations.
Who is a Non-Resident?
Individuals not ordinarily resident in Kenya and companies not incorporated in Kenya. Includes temporary residents and foreign entities earning Kenyan-sourced income.
Kenyan-Sourced Income
Income arising from Kenya including dividends, interest, royalties, management fees, professional services, and technical fees paid by Kenyan entities.
Treaty Benefits
Double taxation treaties with various countries may reduce WHT rates. Treaty benefits require proper documentation and may need KRA approval for application.
Final Tax Nature
WHT on non-residents is generally a final tax, meaning no further income tax obligations unless the non-resident has a permanent establishment in Kenya.
WHT Rates for Non-Residents 2024
Standard rates before treaty benefits
| Type of Payment | Standard WHT Rate | Minimum Threshold | Notes |
|---|---|---|---|
| Interest (General) | 15% | No threshold | Subject to treaty reductions |
| Interest (Bank & Financial Institutions) | 15% | No threshold | Standard rate for financial sector |
| Dividends | 10% | No threshold | Lower rate, often reduced by treaties |
| Professional Fees | 20% | No threshold | Consultancy, advisory, technical services |
| Management/Service Fees | 20% | No threshold | Administrative and management services |
| Royalties | 20% | No threshold | Patent, copyright, trademark, know-how |
| Technical Fees | 20% | No threshold | Technical services and expertise |
| Rent (Property) | 30% | No threshold | Immovable property in Kenya |
| Performance/Entertainment | 20% | No threshold | Artistic, sports, entertainment income |
| Insurance Premiums | 20% | No threshold | Premiums paid to non-resident insurers |
| Transportation | 2.5% | No threshold | Air/sea transport (gross receipts) |
| Digital Service Income | 20% | No threshold | Digital services provided to Kenya |
Important Rate Information
- Treaty Benefits: Rates may be reduced under double taxation treaties
- Final Tax: Generally no further income tax obligations in Kenya
- Documentation: Proper resident certificates required for treaty benefits
- Permanent Establishment: Different rules apply if PE exists in Kenya
Double Taxation Treaty Benefits
Reduced WHT rates for treaty countries
Kenya has signed double taxation treaties with numerous countries to avoid double taxation and encourage trade and investment. These treaties often provide for reduced withholding tax rates.
Treaty Benefit Requirements
- Tax Residency Certificate: Required from the competent authority of the treaty country
- Beneficial Ownership: Must prove beneficial ownership of the income
- KRA Approval: Some treaty benefits require prior KRA approval
- Annual Renewal: Tax residency certificates typically valid for one year
- Proper Documentation: Must maintain comprehensive supporting documents
Compliance Requirements
Step-by-step guide for non-resident WHT compliance
For Kenyan Payers
Verify Non-Resident Status
Confirm the payee's non-resident status and obtain necessary documentation including passport copies and address proof.
Check Treaty Benefits
Determine if the payee's country has a treaty with Kenya and obtain valid tax residency certificates if applicable.
Apply Correct WHT Rate
Use standard rates or reduced treaty rates (with proper documentation) when making payments to non-residents.
File Monthly Returns
Submit WHT returns via iTax portal by the 20th of the following month and remit tax collected.
Issue WHT Certificates
Provide annual certificates to non-resident payees showing payments made and tax withheld.
For Non-Residents
Obtain Tax Residency Certificate
Apply for tax residency certificate from your home country's tax authority if claiming treaty benefits.
Provide Documentation
Submit required documents to Kenyan payers including residency certificates, identification, and beneficial ownership declarations.
Monitor WHT Deductions
Ensure correct rates are applied based on your country's treaty with Kenya and the type of income received.
Collect WHT Certificates
Obtain certificates showing tax withheld for use in your home country for foreign tax credit claims.
Claim Foreign Tax Credits
Use Kenyan WHT certificates to claim credits against tax liability in your country of residence.
Common Non-Resident WHT Issues
Avoid these common mistakes and penalties
Invalid Treaty Claims
Applying treaty rates without valid tax residency certificates or for ineligible income types results in additional tax assessments and penalties.
Solution: Verify treaty provisions and obtain valid certificates before applying reduced rates.
Incorrect Residency Determination
Misclassifying resident vs non-resident status leads to wrong WHT rates and compliance issues with significant financial implications.
Solution: Use KRA guidelines and seek professional advice for complex residency determinations.
Expired Documentation
Using expired tax residency certificates or outdated documentation results in disallowed treaty benefits and potential penalties.
Solution: Maintain current documentation and renew certificates before expiry dates.
Inadequate Record Keeping
Poor documentation and record keeping makes it difficult to support treaty claims and may result in audits and disputes with KRA.
Solution: Maintain comprehensive files with all supporting documents and correspondence.
Frequently Asked Questions
Expert answers to non-resident WHT questions
How do I determine if someone qualifies as a non-resident for WHT purposes?
A non-resident is an individual who is not ordinarily resident in Kenya or a company not incorporated in Kenya. For individuals, consider factors like permanent home, center of vital interests, and habitual abode. For companies, look at place of incorporation and management control. When in doubt, seek professional guidance as residency determination affects WHT rates significantly.
Can non-residents claim refunds of excess withholding tax deducted?
Generally, WHT on non-residents is a final tax, so refunds are not available unless there was an error in application or the non-resident has other Kenyan tax obligations that create overpayment. However, if wrong rates were applied or treaty benefits were not properly claimed initially, corrections may be possible through KRA.
What documentation is required to claim double taxation treaty benefits?
You need a valid tax residency certificate from the competent authority of the treaty country, proof of beneficial ownership of the income, and sometimes additional documentation like company incorporation certificates. The tax residency certificate should be current (typically valid for one year) and specifically state the taxpayer's residence for treaty purposes.
Are there any exemptions from non-resident withholding tax?
Limited exemptions exist, primarily for international organizations, diplomatic missions, and specific government-to-government payments. Some investment incentives may also provide WHT exemptions. Most commercial payments to non-residents are subject to WHT unless specifically exempted by law or treaty provisions.
How do I handle WHT when a non-resident has a permanent establishment in Kenya?
If a non-resident has a permanent establishment (PE) in Kenya, income attributable to the PE is subject to regular income tax rather than WHT. Careful analysis is needed to determine which income relates to the PE versus other activities. The non-resident may need to file regular tax returns for PE income while other income remains subject to WHT.
What are the penalties for incorrect non-resident WHT compliance?
Penalties include 25% of the tax due or KSh 10,000 (whichever is higher) for late filing, plus interest charges. Incorrect treaty claims may result in additional assessments, penalties of 5% per month up to 25%, and potential prosecution for deliberate evasion. Proper documentation and timely compliance are essential to avoid these penalties.