7 Types of Taxes for Businesses in Kenya | 2025

For businesses operating in Kenya, understanding the various types of taxes is essential for ensuring compliance with tax laws and improving financial performance. With its diverse tax laws, Kenya imposes a range of taxes on businesses of all sizes.

This comprehensive guide will delve into the primary types of taxes that businesses in Kenya need to be aware of:

• Income Tax
• Rental Income Tax
• Value Added Tax (VAT)
• Excise Duty
• Capital Gains Tax
• Agency Revenue
• Turnover Tax

By understanding these taxes and their implications, businesses can effectively manage their tax obligations and make informed financial decisions.

The Importance of Tax and Compliance Services

Given the complexities of the Kenyan tax system, seeking professional guidance from tax advisory and compliance services is highly recommended. Experienced tax consultants can help businesses:

• Ensure compliance with tax laws and regulations
• Optimize tax planning strategies
• Resolve tax disputes and audits
• Provide expert advice on tax-related matters

In the following sections, we will explore each of the seven types of taxes in detail, providing insights into their calculation, filing requirements, and potential implications for businesses.

1. Income Tax

Income tax is a tax levied on individuals and businesses in Kenya. It is calculated based on the income earned within or derived from the country during a specific tax year. This tax is designed to contribute to the government’s revenue and fund public services.

Who Pays Income Tax in Kenya?

Income tax applies to a wide range of individuals and businesses, including:

• Businesses: Companies, partnerships, and sole proprietors engaged in various trades or professions.
• Employees: Individuals earning salaries or wages from their employers.
• Landlords: Those receiving rental income from properties located in Kenya.
• Investors: People earning dividends or interest from investments.
• Pensioners: Individuals receiving pension payments.
• Digital Marketplaces: Online platforms facilitating the sale of goods or services within Kenya.
• Natural Resource Extractors: Companies involved in mining, oil and gas exploration, or other natural resource extraction activities.

Understanding Income Tax

Income tax is generally calculated based on a progressive tax system, meaning that the tax rate increases as the income level rises. This ensures that those with higher incomes contribute a larger portion of their earnings to the government.

The Kenyan government employs various methods to collect income tax from companies and partnerships, depending on their primary sources of income.

a. Corporation Tax

Corporation tax is a type of income tax imposed on corporate entities, including limited companies, trusts, and cooperatives. It is levied on their annual income, ensuring that these businesses contribute their fair share to the government’s revenue.

Foreign Companies and Corporation Tax in Kenya

Companies that operate in Kenya (i.e. Have a branch in Kenya) but are based outside the country are also subject to corporation tax. However, these companies only pay taxes on the income they earn within Kenyan borders. This means that profits generated from operations outside of Kenya are not subject to Kenyan corporation tax.

b. Pay As You Earn (PAYE)

Pay As You Earn (PAYE) is a common method of collecting income tax directly from individuals earning salaries or wages. It involves employers deducting a portion of their employees’ earnings on each payday and remitting the collected tax to the Kenya Revenue Authority (KRA).

How PAYE Works in Kenya:

1. Tax Rate Determination: Employers are required to determine the applicable tax rate for each employee based on their income level. This rate is determined using the prevailing tax tables published by the KRA.
2. Deduction and Remittance: On every payday, employers deduct the calculated tax amount from their employees’ salaries or wages. The deducted amount is then remitted to the KRA on or before the 9th of the following month.
3. Employee Records: Employers must maintain accurate records of their employees’ earnings, tax deductions, and remittances to comply with PAYE regulations.

c. Withholding Tax (WHT)

Withholding tax (WHT) is a type of income tax that is deducted from certain types of income before the payment is made to the recipient. It is a tax collection method that ensures that the government receives its share of income from non-employees.

Common Sources of Withholding Tax:

• Interest: Interest earned on bank deposits, bonds, or other investments.
• Dividends: Payments made to shareholders of a company.
• Royalties: Payments for the use of intellectual property, such as patents or copyrights.
• Management or Professional Fees: Fees paid to consultants, agencies, or contractors for services rendered.
• Commissions: Payments made to sales representatives or agents.
• Pensions: Retirement payments made to individuals.
• Rent Received by Non-Residents: Rental income earned by individuals or entities not residing in Kenya.

Withholding Tax Responsibilities:

Companies and partnerships making these payments are responsible for deducting the appropriate withholding tax amount and remitting it to the Commissioner of Domestic Taxes. The tax rate for withholding tax varies depending on the type of income and the recipient’s tax residency.

d. Advance Tax

Advance tax is a type of tax that is paid in advance by owners of public service vehicles or commercial vehicles before their vehicles undergo annual inspection. This tax is designed to ensure that the government receives revenue from these vehicles, which often generate significant income.

Advance Tax Calculation and Payment:

The amount of advance tax payable varies based on factors such as the vehicle’s type, size, and operating license. The tax is calculated and paid before the vehicle’s annual inspection.

e. Installment Tax

Installment tax is a payment option available to individuals or businesses with a tax liability exceeding KES. 40,000 for a specific year. It allows taxpayers to spread their tax payments over several installments, making it easier to manage their tax obligations.

Installment Tax Structure:

The number of installments and the amount of each installment are determined based on the total tax liability. Typically, taxpayers can choose to pay their tax liability in quarterly installments.

2. Rental Income Tax

Rental income tax is a type of tax levied on individuals, partnerships, and companies that earn income from renting out properties to others. The taxation of rental income depends on whether the property is used for residential or commercial purposes.

Residential Rental Income

Individuals who rent out residential properties are generally subject to a flat tax rate on their rental income. This rate is typically lower than the progressive tax rates applied to other types of income. However, certain deductions, such as property expenses and mortgage interest, may be claimed to reduce the taxable rental income.

Commercial Rental Income

Businesses renting out commercial properties are subject to the same progressive tax rates as other business income. This means that the tax rate on commercial rental income increases as the income level rises. Deductions for expenses related to the property, such as repairs, maintenance, and depreciation, can be claimed to reduce the taxable income.

Withholding Tax on Rental Income

To facilitate tax compliance, the Kenya Revenue Authority (KRA) appoints agents to withhold a portion of the gross rental income as tax before making payments to landlords. These agents are responsible for remitting the withheld tax to the KRA. Landlords can verify the authenticity of these agents using the agent checker on the iTax platform.

3. Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax levied on the supply of goods and services within Kenya, as well as on the importation of goods and services into the country. It is a multi-stage tax, meaning that it is charged at each stage of the production and distribution process, from the manufacturer to the final consumer.

VAT Registration Threshold:

While companies and partnerships can voluntarily register for VAT, they are required to do so if their annual revenue exceeds KES. 5,000,000. This threshold ensures that businesses with a significant economic presence contribute to the government’s revenue through VAT.

VAT Withholding Agents:

To simplify the process of collecting VAT, the Kenya Revenue Authority (KRA) has appointed agents to withhold and pay VAT on supplies made. These agents are typically large businesses or government entities that make significant purchases of goods and services. By withholding VAT at the source, the government can ensure timely collection of tax revenue.

4. Excise Duty

Excise duty is a tax imposed on specific goods and services that are manufactured or imported into Kenya. It is a form of indirect tax that is typically included in the price of the product. The goods and services subject to excise duty are listed in the First Schedule of the Excise Duty Act, 2015.

Excise Duty for Businesses:

Companies and partnerships dealing in excisable goods and services are required to pay excise duty on their products or services. This includes manufacturers, importers, wholesalers, and retailers involved in the distribution and sale of excisable goods.

Excisable Goods and Services:

The list of excisable goods and services is specified in the Fifth Schedule of the Customs and Excise Act, 2015, as read together with Section 117(1)(d). This list includes a wide range of products, including:

• Mineral water
• Juices and soft drinks
• Cosmetics and hair products
• Beer (including malt beer and opaque beer)
• Mobile cellular phone services
• Money transfer fees

5. Capital Gains Tax (CGT)

Capital gains tax (CGT) is a tax imposed on the profit realized from the sale or disposal of property located in Kenya. This tax applies regardless of whether the property was acquired before or after January 1, 2015.

Understanding Capital Gains Tax:

When an individual or company sells a property for a higher price than they paid for it, the difference between the selling price and the purchase price is considered a capital gain. This capital gain is subject to capital gains tax.

6. Agency Revenue

Agency revenue is a category of taxes collected by the Kenya Revenue Authority (KRA) on behalf of other government agencies. This type of tax is designed to streamline tax collection and ensure that government agencies receive their due revenue.

There are two main types of agency revenue in Kenya:

a. Stamp Duty

Stamp duty is a tax imposed on the transfer of properties, shares, and stock. It is a form of transaction tax that is designed to generate revenue for the government.

Collection of Stamp Duty:

Stamp duty is collected by the Ministry of Lands, but the function of collecting the tax has been delegated to the KRA. This arrangement ensures that stamp duty is collected efficiently and effectively.

b. Betting Tax

Betting tax is a tax levied on the gross gaming revenue (GGR) generated by bookmakers. The tax rate is 15% as specified in Section 29A of the Betting, Lotteries, and Gaming Act, 1966.

Withholding Tax on Winnings:

Betting, gaming, and lottery businesses are required to withhold 20% of winnings paid out to winners as tax and remit it to the KRA. This withholding tax helps to ensure that the government receives its share of revenue from the gaming industry.

Excise Duty on Betting:

In addition to betting tax, there is also an excise duty imposed on betting activities. The excise duty rate is 20% of the amount wagered or staked, effective November 7, 2019.

7. Turnover Tax (TOT)

Turnover tax (TOT) is a simplified tax regime designed for small and medium-sized businesses in Kenya. It is a tax charged on the gross sales of a business, as per Section 12(c) of the Income Tax Act. TOT was first introduced in the Finance Act 2006, replaced by Presumptive Income Tax in the Finance Act 2018, and then reintroduced in the Finance Act 2019.

Who Should Pay TOT?

TOT is applicable to resident persons whose gross turnover from their business exceeds Kshs. 1,000,000 but does not exceed or is not expected to exceed Kshs. 50,000,000 in any given year. This makes TOT a suitable option for businesses within this turnover range.

Exemptions from TOT:

TOT does not apply to:

• Businesses with annual turnover below Kshs. 1,000,000 or above Kshs. 50,000,000.
• Businesses primarily engaged in rental income.
• Businesses primarily engaged in management, professional, or training services.
• Businesses whose income is subject to final withholding tax under the Income Tax Act.

TOT Tax Rate and Filing Requirements:

• Tax Rate: TOT is charged at a rate of 1% on gross monthly sales. This means that businesses must pay 1% of their total monthly sales as TOT.
• No Deductions: Unlike other income tax regimes, expenses are not deductible for TOT purposes. This simplifies the tax calculation process.
• Final Tax: TOT is considered a final tax, meaning that it is the only tax payable on the income covered by TOT. There is no need to file additional income tax returns.

Filing and Payment: TOT returns must be filed and paid on a monthly basis. The due date is on or before the 20th of the following month.

Professional Tax Advisory & Compliance Services in Kenya

Understanding the various types of taxes applicable to businesses in Kenya is crucial for ensuring compliance with tax laws and boosting financial performance. By familiarizing yourself with income tax, VAT, excise duty, stamp duty, turnover tax, agency revenue, and capital gains tax, you can effectively manage your business’s tax obligations.

However, navigating the complexities of the Kenyan tax system can be challenging. Hiring a professional tax expert can provide invaluable guidance and support. A qualified tax consultant can help you:

• Ensure compliance with tax laws: Stay up-to-date with the latest tax regulations and avoid penalties.
• Optimize tax planning: Identify opportunities to reduce your tax liability and maximize your business’s profitability.
• Resolve tax disputes: Address any tax-related issues or disputes with the tax authorities.
• Provide expert advice: Receive personalized guidance on tax matters tailored to your specific business needs.

Jeremy Mkay Advocates is a renowned Tax Advisory & Compliance company in Kenya. With a team of experienced tax professionals, they offer comprehensive tax services to businesses of all sizes. Their expertise and commitment to client satisfaction make them a trusted partner for businesses seeking reliable tax advice.