IT 7
Withholding tax
1Scope and legal basis
Section 35 of the Income Tax Act requires a person making certain payments to deduct tax at the rate in the Third Schedule and remit it to the Commissioner. Withholding tax (WHT) is not a separate tax: it is income tax collected at source. For a resident payee it is either a final tax (qualifying dividends and interest, winnings, rental income collected by an appointed agent) or an advance payment credited against the payee's assessed tax; for a non-resident without a permanent establishment it is the final Kenyan tax on the payment. The Finance Act 2026 widened the base again, reintroducing WHT on winnings and scrap metal, extending management fees and royalties to card-payment interchange and digital payment network fees, and repealing the 5% dividend rate for East African Community citizens. Double taxation agreements (DTAs) can reduce the non-resident rates.
2Key definitions
3Charge, computation and rates
The rate table in force
| Payment | Resident payee | Non-resident payee | Final? |
|---|---|---|---|
| Dividends: shareholder holding 12.5% or more of voting power | Exempt | 15% | Final for non-residents |
| Dividends: shareholder holding under 12.5% | 5% | 15% | Final for both (qualifying dividend) |
| Dividends from an SEZ enterprise; dividends paid by an NIFC-certified company in its holiday | Exempt | Exempt | |
| Interest: banks, financial institutions, government securities (general) | 15% | 15% | Final for resident individuals (qualifying interest); credit for companies |
| Interest: housing bonds (up to KES 300,000 a year to an individual) | 10% | N/A | Final |
| Interest: bearer instruments | 25% | 25% | |
| Interest: infrastructure bonds of at least three years; green bonds | Exempt | Exempt | |
| Interest: treasury bonds of ten years or more | 10% | 10% | Final for individuals |
| Royalties (including software and payment-network rights) | 5% | 20% | Non-final for residents; final for non-residents |
| Management, professional, training and consultancy fees | 5% (above KES 24,000 a month) | 20% (15% for EAC citizens on consultancy) | Credit for residents; final for non-residents |
| Contractual fees (building, civil, engineering) | 3% | 20% | |
| Rent for immovable property (commercial) | 10% where paid through an appointed agent; 7.5% residential rent through an agent | 30% | Final for non-residents; the Finance Act 2026 adds a 30% self-assessment regime for non-resident landlords |
| Lease of equipment or movable property | N/A | 15% | Final |
| Pensions and retirement annuities | Graduated withdrawal rates (IT 12) | 5% | |
| Winnings from betting, gaming, lottery and prize competitions | 20% | 20% | Final (reintroduced by the Finance Act 2026; the tax point is when money is paid to the player's account) |
| Insurance and reinsurance premiums (excluding aviation) | 5% | 5% | |
| Sales promotion, marketing and advertising services | 5% | 20% | |
| Digital content monetisation (creators) | 5% | 20% | |
| Payments by a digital marketplace platform operator to sellers | 5% | 20% | Tax Laws (Amendment) Act 2024 |
| Supply of goods to a public entity (government, county, parastatal) | 0.5% | 5% | Credit |
| Sale of scrap metal | 1.5% | 1.5% | Reintroduced by the Finance Act 2026 |
| Natural resource income; oil and gas subcontractors | 20% (10% mining and petroleum services to residents) | 20% (12.5% for extractive subcontractors under the Ninth Schedule) | |
| Transmission of messages; ship and aircraft receipts of non-residents | N/A | 5%; 2.5% | Gross-basis charges |
| Significant economic presence: digital marketplace income of non-residents | N/A | 3% effective (30% of a 10% deemed profit) | Final |
Treaty rates
Kenya has double taxation agreements in force with Canada, Denmark, France, Germany, India, Iran, Norway, Qatar, Seychelles, South Africa, South Korea, Sweden, the United Arab Emirates, the United Kingdom and Zambia (with others signed but not yet ratified, including the East African Community agreement). A treaty caps the Kenyan withholding rate on dividends, interest, royalties and, in some, management fees paid to a resident of the other state: India at 10% on all four; the UK at 15% on dividends, interest and royalties and 12.5% on management fees; the UAE at 5% on dividends and 10% on interest and royalties; South Africa at 10% on dividends, interest and royalties; France at 10% on dividends and royalties and 12% on interest. The payee must be the beneficial owner and tax resident of the treaty state, and the Commissioner's limitation-of-benefits rule in section 41 denies treaty relief where the payee is owned 50% or more by persons who are not residents of the treaty state (unless it is listed on a stock exchange there). Where a treaty has no management fee article, the fee falls under business profits and is not taxable in Kenya without a permanent establishment.
One month's payments by Ziwa Ltd (resident company)
Audit fee to a Nairobi firm, KES 500,000: WHT 5% = 25,000, remitted within five working days; the firm claims a credit. Net paid 475,000.
Software licence to a US vendor (no treaty), KES 2,000,000: royalty, WHT 20% = 400,000, final. If the contract is 'net of tax', the payment is grossed up: 2,000,000 / 0.8 = 2,500,000 gross, WHT 500,000, and the grossed-up cost is the deductible expense.
Management fee to the UK parent, KES 3,000,000: 20% would apply, but the UK treaty caps management fees at 12.5% = 375,000, provided the parent is the beneficial owner and section 41's ownership test is met.
Dividend to a resident individual holding 2%, KES 100,000: 5% = 5,000, final. Dividend to the UK parent holding 60%: 15% domestic rate capped at 15% by the treaty; the resident 12.5% exemption applies only to resident companies.
Interest to a Kenyan bank on a loan, KES 800,000: no WHT is deducted by the payer on interest paid to a bank; the bank is taxed on it directly. Interest to a non-resident lender: 15% (10% under some treaties), and the 30% EBITDA cap governs deductibility.
Building contractor (resident), KES 4,000,000 certificate: contractual fee, 3% = 120,000; the contractor claims the credit.
Rules that catch candidates out
- The resident threshold: WHT on management and professional fees applies only where the aggregate payment to a person in a month is KES 24,000 or more; there is no threshold for non-residents.
- Gross-up: where the payer bears the tax, the payment is grossed up and WHT computed on the gross; the gross amount is the deductible expense, and the tax borne is not itself a further deduction.
- No deduction without withholding: an expense on which WHT should have been deducted and was not is disallowed to the payer under section 16(2)(c) until the tax is accounted for; and the payer is liable for the tax, penalty and interest.
- VAT and WHT: WHT is computed on the amount exclusive of VAT; withholding VAT (2%) is a separate mechanism under the VAT Act.
- Timing: WHT is deducted when the amount is paid or credited to the payee's account, whichever is earlier; an accrual in the accounts without payment or crediting does not trigger it.
- Employment versus services: fees to an individual who is in substance an employee are subject to PAYE, not 5% WHT; the Commissioner reclassifies 'consultants' on the payroll.
4Compliance: returns, payment and penalties
- The payer deducts the tax on payment or crediting, generates a withholding certificate on iTax for the payee (which is the payee's evidence for the credit), files the withholding return and pays the tax within five working days after the deduction (the Tax Procedures Act's general rule is the 20th of the following month, but section 35 sets the five-day rule for income tax withholding, and iTax enforces it).
- Failure to withhold, or to remit tax withheld, is penalised at 10% of the tax under section 42A of the Tax Procedures Act (introduced by the Tax Laws (Amendment) Act 2024 for withholding VAT and applied to income tax withholding), plus late payment interest at 1% a month, and the payer is liable for the tax itself; the expense is disallowed until the tax is paid.
- The payee declares the gross income in their return and claims the credit for non-final WHT against the tax on total income; an excess is refunded within five years of application or carried forward. Final-tax income is not declared as income, only reported.
- Treaty relief is claimed by the payer applying the treaty rate with evidence of the payee's tax residence certificate and beneficial ownership on file; the Commissioner may require an application for a treaty rate certificate for large or recurring payments.
5Examinable focus
What KASNEB tests
A withholding tax question lists a month of payments (fees, rent, interest, dividends, royalties, a contractor, a non-resident consultant, winnings) and asks for the tax to withhold, whether it is final, the net paid, the remittance date and, for non-residents, the treaty position. Use the table above and state for each payment the rate, the base (gross-up where the payer bears the tax), the deadline (five working days) and whether the payee gets a credit. Theory parts ask for the purpose and advantages of withholding, the consequences of failing to withhold (10% penalty, interest, disallowance, personal liability), the meaning of qualifying dividends and interest, and the section 41 limitation on treaty benefits. The 2026 reintroduction of WHT on winnings and scrap, and the payment-network additions to fees and royalties, are current.