Withholding Tax Returns: How to Easily File Withholding Tax Returns And Applicable Rates In Kenya
Learn how to file withholding tax returns and stay tax compliant in Kenya with this comprehensive guide.
Are you a business owner or individual in Kenya wondering how to navigate the intricate process of filing withholding tax returns? Do you want to ensure you comply with Kenya's tax regulations and avoid penalties? Look no further. In this comprehensive guide, we'll walk you through the essential steps of filing withholding tax returns in Kenya and the current tax rates. Whether new to tax compliance or seeking a refresher, this article will equip you with the needed knowledge.
Key Takeaways
- Withholding tax is a standard income tax paid by the income payer on behalf of the income receiver.
- Register for a PIN with KRA to become a registered taxpayer.
- Follow the step-by-step guide to file withholding tax returns on the KRA iTax portal.
- Keep your withholding tax certificate safe for individual tax return filing.
- Know the current withholding tax rates, exemptions, and late filing penalties.
- Paying taxes is a civic duty that contributes to the nation's development.
The Kenya Revenue Authority (KRA) is the government agency responsible for assessing, collecting, and accounting for all revenues by Kenyan laws. Understanding how to file withholding tax returns is crucial to maintain tax compliance and prevent penalties.
Let's delve into the details.
What Is Withholding Tax?
Withholding tax, or retention tax, is a fundamental income tax paid to the state by the income payer on behalf of the income receiver. Simply put, it's like a slice of the withheld income pie before it reaches the recipient's plate. This tax isn't just limited to employment income; it can also apply to dividends, interest, and more.
How Does Withholding Tax Work?
The concept behind withholding tax is relatively straightforward. When a payment is made, the person or entity responsible for making the payment deducts the tax amount at the applicable rate. Then, it remits this deducted tax to the Kenya Revenue Authority (KRA) on behalf of the recipient. This process ensures that taxes are collected efficiently.
Registering for Withholding Tax
Before you can embark on the journey of filing withholding tax returns, you need to register as a taxpayer with the KRA. This involves applying for a Personal Identification Number (PIN) and selecting the relevant tax obligation applicable to you. Your PIN is your ticket to becoming a registered taxpayer.
How to File Withholding Tax Returns
Filing withholding tax returns in Kenya is crucial in staying tax compliant. Here's a step-by-step guide to help you navigate this process:
Step 1: Access the KRA iTax Portal
First, access the KRA iTax portal using your company's PIN and secret password. The iTax system has revolutionized tax obligations, making it more user-friendly and efficient.
Step 2: Payment Registration
Once logged in, head to the "Payments" tab and select "Payment registration." It's important to note that you shouldn't click on the "Return" tab at this stage.
Step 3: Fill in the Details
The system will present you with an "e-Payment registration form" pre-filled with your company information. Here's what you need to do next:
- Select "Income Tax" from the "Tax Head" drop-down menu.
- Confirm that "(0105) Income Tax – Withholding" is the "Tax Sub Head."
- Choose the method for returning withholding tax using Excel for multiple transactions or the Web Form for individual entries.
- Fill in the relevant details, including the withholdee's PIN and the gross amount to be paid.
- Click "Add" to include more transactions if needed.
- Select the "Mode of Payment" and "Receiving Bank Name."
Step 4: Submission
Finally, click "Submit" to complete the process and return your withholding tax.
How to Get Your Withholding Tax Certificate
Once you've successfully remitted the deducted amount to KRA, you will receive a Withholding Certificate in your registered email address on iTax. Keep this certificate safe, as it's crucial when filing your individual tax returns.
Current Withholding Tax Rates
The withholding tax rates in Kenya vary depending on the type of income and whether the recipient is a resident or non-resident. Here's a comprehensive list of these rates:
|
Payments |
Resident WHT rate (%) |
Non-resident WHT rate (%)* |
|
Dividend** |
10 |
15*** |
|
Qualifying dividend |
5 |
N.A |
|
Interest on Bearer instruments of at least 2 years |
25 |
25 |
|
Interest on Government bearer bonds with maturity ≥ 2 years |
15 |
15 |
|
Interest on bearer bonds with maturity ≥ 10 years |
10 |
25 |
|
Interest paid by SEZ to non-resident |
|
5 |
|
Fees payable to insurance brokers |
5 |
|
|
Qualifying interest on housing bonds |
10 |
|
|
Qualifying interest on other bearer instruments |
20 |
- |
|
Qualifying interest-other |
15 |
N/A |
|
Royalty, natural resource income |
5 |
20 |
|
Royalties paid by SEZ to non-resident |
|
5 |
|
Winnings from gaming and betting |
20 |
20 |
|
Management fees, professional fees, training fees |
5 |
20**** |
|
Contractual fees |
3 |
20 |
|
Management Fees paid by SEZ to non-resident |
|
5 |
|
Rent/leasing of Immovable property |
10 |
30 |
|
Rent/leasing of property other than immovable property |
N/A |
15 |
|
Pension/retirement annuity |
Graduated scale |
5 |
|
Sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services) |
N/A |
20 |
|
Insurance or reinsurance premiums |
N/A |
5 |
|
Payments to sportsmen and entertainers |
5 |
20 |
|
Supporting, assisting or arranging an appearance or performance |
N/A |
20 |
|
Gains from business of non-resident ship-owner taxed under Section 9(1) of Income Tax Act |
|
2.5 |
|
Gains & Profits from the business of transmitting messages chargeable under Section 9(2) of Income Tax Act |
|
5 |
***The rates for non-residents may vary if there is a double tax agreement with Kenya that provides a different rate.
**Dividends paid to a resident corporate shareholder with more than 12.5% voting power are exempt from withholding tax.
***For citizens of the East African Community Partner States in respect of dividends, the rate shall be 5%.
****For consultancy fees to citizens of the East African Community Partner States, the rate shall be 15%.
What Is Exempt from Withholding Tax?
While many types of income are subject to withholding tax, there are exemptions. These include:
- Dividends received by a resident corporate shareholder with more than 12.5% voting power.
- Marketing commissions and residue audit fees are paid to foreign agents for the export of flowers, fruits, and vegetables.
- Interest payments to banks and insurance companies.
- Payments made to tax-exempt bodies.
- Local management and professional fees totaling below Ksh 24,000 in a month.
- Local air operators pay air travel commissions to overseas agents.
Late Filing Penalties
Filing your withholding tax returns late can have financial consequences. You may be penalized if you fail to withhold tax or remit it late. The penalty for late payment is 5% of the tax due, with an additional late payment interest of 1% per month for the period the tax remains unpaid.
READ ALSO: Kra Pin Certificate Download: How To Download Online And Print
Conclusion
In conclusion, understanding how to file withholding tax returns in Kenya is vital to tax compliance. It ensures that the government receives the revenue it needs to provide essential services and helps you avoid unnecessary penalties. Remember, taxation is a shared responsibility, and by adhering to the regulations, we can contribute to the growth and development of our nation. So, let's all "Tulipe Ushuru, Tujitegemee!" - Pay our taxes and be self-reliant.
FAQs
Who is responsible for withholding tax in Kenya?
The entity making the payment, known as the withholder, is responsible for withholding tax in Kenya.
Are there exemptions from withholding tax in Kenya?
Certain types of income are exempt from withholding tax, including dividends from local subsidiaries and marketing commissions.
What is the penalty for late filing of withholding tax in Kenya?
Late filing and remittance of withholding tax can result in a penalty of 5% and a late payment interest of 1% per month for the period the tax remains unpaid.
Is withholding tax a final tax in Kenya?
Withholding tax is not a final tax in most cases. The payee must declare the income and withholding tax details when filing their annual tax returns and pay any tax balance due.
How can I remit withholding tax to KRA?
Withholding tax can be remitted to KRA online via iTax, by generating a payment slip and presenting it at appointed KRA banks, or by using Mpesa with the KRA Pay bill Number 572572.
What is the deadline for remitting withholding tax to KRA?
Withholding tax must be remitted to KRA on or before the 20th day of the following month in which the tax was deducted.
