Withholding Tax - Resident
Tax deducted at source from payments to resident persons in Kenya. Comprehensive guide to rates, exemptions, and compliance requirements.
What is Withholding Tax (Resident)?
Understanding domestic withholding tax in Kenya
Withholding Tax on resident persons is tax deducted at source from various payments made to Kenyan residents. It's a mechanism for collecting income tax in advance and ensuring tax compliance on specific types of income including interest, dividends, professional fees, and commissions.
Who is Subject to WHT?
All resident persons (individuals and companies) receiving specific types of income are subject to withholding tax. The payer is responsible for deducting and remitting the tax.
Types of Payments
Includes interest, dividends, professional fees, commissions, rent, management fees, royalties, and payments to contractors not registered for VAT.
Filing Requirements
Monthly returns must be filed by the 20th of the following month via iTax portal. Annual withholding tax certificates must be issued to payees.
Credit Against Tax
WHT deducted serves as a credit against the payee's final income tax liability and may result in refunds if excess tax was withheld.
WHT Rates for Residents 2024
Current withholding tax rates for different payment types
| Type of Payment | WHT Rate | Minimum Threshold | Notes |
|---|---|---|---|
| Interest (Individual) | 5% | No threshold | Applies to all interest payments |
| Interest (Corporate) | 5% | No threshold | Standard rate for companies |
| Dividends | 5% | No threshold | Subject to various exemptions |
| Professional Fees | 5% | KSh 24,000 annually | Advocates, accountants, consultants |
| Commissions | 5% | KSh 24,000 annually | Agency and brokerage commissions |
| Rent (Individual) | 10% | KSh 24,000 annually | Residential and commercial property |
| Rent (Corporate) | 10% | No threshold | All rental payments to companies |
| Management/Service Fees | 5% | KSh 24,000 annually | Professional management services |
| Royalties | 5% | No threshold | Patent, copyright, trademark royalties |
| Pension/Retirement Benefits | 5% | KSh 20,000 monthly | Lump sum and monthly payments |
| Payments to Contractors | 3% | KSh 24,000 annually | Non-VAT registered persons only |
| Winnings from Gaming | 20% | KSh 10,000 | Betting, lottery, gaming winnings |
| Bonus Issues (Shares) | 5% | No threshold | Bonus shares treated as dividends |
Important Rate Information
- Annual Thresholds: Thresholds apply to total annual payments to the same person
- Rate Changes: WHT rates are subject to annual budget reviews and amendments
- Exemption Certificates: KRA may issue exemption certificates for specific circumstances
- Treaty Benefits: Double taxation treaties may provide reduced rates for qualifying payments
Exemptions from WHT
Payments and entities exempt from withholding tax
Government & Public Entities
- Government ministries and departments
- Local authorities and county governments
- Parastatals and state corporations
- Public universities and research institutions
- Diplomatic missions and international organizations
Charitable Organizations
- Registered religious organizations
- Educational institutions (non-profit)
- Charitable organizations with tax exemption
- NGOs with valid exemption certificates
- Community-based organizations (CBOs)
Investment Exemptions
- Interest on government securities
- Dividends from companies listed on NSE
- Interest from infrastructure bonds
- Dividends between resident companies (80% exemption)
- Interest on deposits in financial institutions (individuals)
Special Cases
- Payments below prescribed thresholds
- Reimbursements of actual expenses
- Insurance claim payments
- Pension contributions by employers
- Gratuity payments within legal limits
Exemption Application Process
To claim exemptions, taxpayers must apply to KRA with supporting documentation. Exemption certificates are valid for specific periods and must be renewed. Improper claims may result in penalties and interest charges.
Compliance Requirements
Step-by-step guide for withholding tax compliance
For Withholding Agents (Payers)
Register with KRA
Obtain a KRA PIN and register as a withholding tax agent if making payments subject to WHT.
Identify Taxable Payments
Determine which payments are subject to WHT and verify the payee's resident status and KRA PIN.
Deduct Correct WHT
Apply the appropriate WHT rate and deduct tax at source before making payments to residents.
File Monthly Returns
Submit WHT returns via iTax portal by the 20th of the following month and remit the tax collected.
Issue WHT Certificates
Provide annual WHT certificates to payees by 31st January showing total payments and tax deducted.
For Payees (Recipients)
Provide Valid KRA PIN
Ensure your KRA PIN is valid and provide it to all payers for proper tax compliance.
Monitor WHT Deductions
Verify that correct WHT rates are applied and track all tax deducted from your payments.
Collect WHT Certificates
Obtain WHT certificates from all payers by 31st January for the previous tax year.
Claim Credit in Returns
Include WHT deducted as a credit against your income tax liability when filing annual returns.
Apply for Refunds
If excess WHT was deducted, claim refunds through your annual income tax return filing.
Common WHT Issues & Solutions
Avoid these common mistakes and penalties
Incorrect Rate Application
Using wrong WHT rates for different payment types or failing to consider exemptions leads to over or under-deduction of tax.
Solution: Use our WHT calculator and refer to current rate schedules for accuracy.
Late Filing & Payment
Filing WHT returns after the 20th deadline attracts penalties of 25% of tax due or KSh 10,000, whichever is higher, plus interest.
Solution: Set up automatic reminders and file by the 15th to allow processing time.
Missing WHT Certificates
Failure to issue WHT certificates by 31st January prevents payees from claiming tax credits and may result in penalties for withholding agents.
Solution: Generate certificates automatically through accounting systems by mid-January.
Invalid Payee Information
Using invalid or inactive KRA PINs for payees creates compliance issues and may result in rejected WHT returns.
Solution: Verify KRA PIN status through iTax portal before processing payments.
Frequently Asked Questions
Expert answers to common WHT questions
When is withholding tax required for payments to residents?
WHT is required when making specific types of payments to resident persons including interest, dividends, professional fees, commissions, rent, management fees, and royalties. The requirement applies regardless of the payment amount for most categories, though some have minimum thresholds.
Can I claim a refund if excess withholding tax was deducted?
Yes, excess WHT can be claimed as a refund through your annual income tax return. You'll need WHT certificates from all payers showing tax deducted. KRA will process refunds after verification, typically within 30-90 days depending on the amount and supporting documentation.
What happens if I don't deduct WHT when required as a payer?
Failure to deduct WHT when required makes you personally liable for the tax amount plus penalties of 25% and interest. You cannot recover this from the payee and must pay from your own resources. KRA may also pursue criminal charges for deliberate non-compliance.
How do I determine if a payment is subject to withholding tax?
Check the nature of the payment against the list of taxable payments in the Income Tax Act. Consider the payee's residence status, amount thresholds, and any applicable exemptions. When in doubt, consult KRA guidelines or seek professional advice to avoid compliance issues.
Are there any exemptions for small payments below certain thresholds?
Yes, several payment types have annual thresholds. For example, professional fees and commissions have a KSh 24,000 annual threshold, while rent for individuals has the same threshold. However, interest and dividends generally have no minimum thresholds for residents.
How long should I keep withholding tax records and certificates?
Maintain WHT records for at least 5 years from the end of the tax year they relate to. This includes payment vouchers, WHT certificates, correspondence with KRA, and supporting documentation. Both withholding agents and payees should keep complete records for audit purposes.