Withholding tax and Withholding VAT in Kenya
Rates for professional services, rent and royalties, how WVAT works for appointed agents and the monthly remittance discipline on iTax.
Kenya operates two parallel withholding regimes that often confuse newcomers: Withholding Income Tax (WHT) under the Income Tax Act Cap 470, and Withholding VAT (WVAT) under section 25A of the VAT Act 2013. WHT is withheld by the payer from a service supplier's invoice and remitted to KRA as an advance against the supplier's income tax. WVAT is withheld by a KRA-appointed agent (typically large taxpayers, banks and government bodies) from the VAT component of an invoice and remitted directly to KRA. Both regimes interact with eTIMS, both produce certificates that the supplier uses to credit their own iTax ledger, and both are due by the 20th of the month following deduction.
- WHT 3%: professional/management fees and contractual fees (residents).
- WHT 5%: rent paid to a resident landlord (commercial and residential).
- WHT 10%: royalties, certain consultancy fees to non-residents.
- WVAT 2%: VAT withheld by appointed agents on standard-rated supplies.
How it works
Identify whether the payment is in scope of WHT. The Third Schedule of the Income Tax Act lists withholdable categories and rates: professional fees (3% resident, 20% non-resident), management fees (5% resident, 20% non-resident), rent (5% on residents, 30% on non-residents for buildings), royalties (5% resident, 20% non-resident), dividends (5% resident, 15% non-resident), interest (15% resident, 15% non-resident — with exceptions for bearer bonds).
Calculate WHT on the gross fee (VAT exclusive) and reduce the cash paid to the supplier accordingly. Example: a KES 100,000 + 16% VAT consultancy invoice (total KES 116,000) attracts 3% WHT on KES 100,000 = KES 3,000 withheld; the supplier receives KES 113,000 cash. The KES 3,000 is remitted to KRA by the 20th of the following month.
Determine WVAT applicability. KRA designates specific taxpayers as Withholding VAT Agents — typically government entities, parastatals, banks, telcos and large corporates. When an appointed agent buys a standard-rated supply, they withhold 2% of the VAT and pay only 14% to the supplier; the 2% goes directly to KRA. The eTIMS invoice still shows the full 16% VAT and the WVAT amount as a separate line.
Issue withholding certificates on iTax. After remitting both WHT and WVAT, the payer files the monthly Withholding Tax Return and iTax generates certificates for each supplier. The certificates appear in the supplier's iTax ledger automatically and reduce the supplier's monthly VAT or income tax payable. No paper certificates are exchanged anymore.
File and pay by the 20th of the following month. Late payment attracts 5% penalty plus 1% monthly interest. Late filing attracts an additional KES 10,000 or 5% of tax due penalty. iTax exposes a 'Withholding Certificates' menu for both payer (issuer) and supplier (receiver) views — reconcile monthly to avoid double-deductions or missed credits.
Legal framework
- Income Tax Act Cap 470 (Third Schedule rates and section 35).
- VAT Act 2013, section 25A (Withholding VAT).
- Tax Procedures Act 2015 (penalties and interest).
- Finance Act 2023 (rate adjustments and agent designations).
Frequently asked questions
Who decides which businesses are Withholding VAT Agents?
The Commissioner-General of KRA designates WVAT agents in writing — typically government ministries, county governments, parastatals, banks, listed companies, large telcos and major retailers. The list is published on the KRA website and updated periodically. A supplier can confirm whether a customer is a WVAT agent by entering the customer's PIN in the iTax public verification tool. Becoming an agent is not optional once designated.
Does WHT apply to invoices below a threshold?
Yes, but with a de minimis: most resident WHT categories have no minimum. The historical KES 24,000 per supplier per month threshold for professional fees was removed by the Finance Act 2017 — every shilling of qualifying fee is now within scope. WVAT applies to every standard-rated invoice issued to an appointed agent regardless of amount. Some non-resident WHT categories (e.g. management fees) also have no minimum, while dividend withholding only applies above small de-minimis amounts set in shareholders' agreements.
How does WVAT interact with input VAT on the supplier side?
The supplier still records the full 16% output VAT on the eTIMS invoice and claims all related input VAT as normal. The 2% WVAT withheld appears on the supplier's iTax ledger as a credit against the next VAT3 liability. In practice, suppliers who deal mostly with WVAT agents (e.g. consultancies billing government) often run a permanent VAT refund position, since their output VAT is largely pre-paid by the agents.
What is the WHT rate on payments to non-residents?
Non-resident WHT rates are higher and final (not creditable in Kenya). The headline rates are: 20% on management, professional and consultancy fees; 20% on royalties; 30% on rent for buildings and 15% on rent for movable property; 15% on interest; 15% on dividends; 5% on insurance premiums. Double tax treaties (with the UK, India, France, Germany, Canada, Iran, Zambia, South Africa and others) often reduce these rates — claim the treaty rate on the iTax non-resident WHT return with supporting tax residency certificates.
Is WHT remitted gross or net of VAT?
Gross of VAT but net of the WHT itself — withholding is calculated on the VAT-exclusive fee. The supplier's eTIMS invoice shows: net fee KES 100,000, VAT 16% KES 16,000, WHT (3%) KES 3,000, total payable KES 113,000. KRA receives KES 3,000 WHT from the payer (by the 20th) and KES 16,000 VAT from the supplier on the monthly VAT3 (also by the 20th, less any input VAT credits).