You just got that promotion letter or finally registered your business. Congrats! But then the reality hits: how much tax will you actually pay? Is it the same tax your friend who runs a small shop in Gikomba pays?
If you’re mixing up PAYE with corporate tax, you’re not alone. This confusion can cost you money or get you on the wrong side of KRA. This article breaks down Corporate Tax vs. Personal Income Tax in Kenya in plain language. We’ll cover who pays what, the rates, deadlines, and the real Kenyan context so you can plan better.
What is Personal Income Tax in Kenya?
This is the tax you pay on your personal earnings. Think of it as the government’s share from your sweat. In Kenya, it’s mostly collected through the Pay As You Earn (PAYE) system if you’re employed.
Your employer deducts it from your salary every month and sends it to KRA. But it’s not just for salaried folks. It also applies to income from your side hustle, rental properties, or if you’re a consultant.
Who Pays Personal Income Tax?
If you earn an income in Kenya, this likely applies to you. The key groups are:
- Employees: Your PAYE is handled by your employer at Equity Bank, Safaricom, or that startup in Westlands.
- Self-Employed Individuals & Sole Proprietors: The mama fua with a registered business, the freelance graphic designer in Kilimani.
- Individuals with Other Income: Anyone earning from rent, royalties, or pensions.
Personal Income Tax Rates (The Slabs)
Kenya uses a progressive tax system for individuals. This means the more you earn, the higher the percentage you pay. Here are the current rates:
- Up to KES 24,000 per month: 10%
- KES 24,001 – 32,333: 25%
- KES 32,334 and above: 30%
There’s also a Personal Relief of KES 2,400 per month, which reduces your tax bill. Remember, these rates apply to your taxable income, not your gross salary.
What is Corporate Tax in Kenya?
This is the tax paid by companies and corporations on their profits. It’s a tax on the business itself, separate from the owner’s personal income. When you hear “company tax,” this is it.
The profit is what remains after subtracting all allowable business expenses (rent, salaries, supplier costs) from the total revenue. So, if your hardware shop in Nakuru made KES 5 million in sales but spent KES 3.5 million on stock and rent, you pay tax on the KES 1.5 million profit.
Who Pays Corporate Tax?
Corporate tax is for registered business entities. The main ones are:
- Limited Liability Companies: Your private or public limited company.
- Branches of Foreign Companies: International companies operating here, like some telcos or manufacturers.
- Corporate Bodies: Certain cooperatives and associations that are incorporated.
Key Point: A sole proprietor (like a mitumba trader with a business name) does NOT pay corporate tax. They pay personal income tax on their business profits. This is a major difference.
Corporate Tax Rates in Kenya
The standard corporate tax rate in Kenya is 30% of the company’s taxable profit. However, there are special rates:
- Resident Companies (Turnover below KES 50M): Can opt for a presumptive tax regime or pay 30%.
- Branches of Foreign Companies: 37.5%
- Companies in Export Processing Zones (EPZs): 0% for the first 10 years, then 25% for the next 10 years.
Key Differences: Corporate Tax vs. Personal Income Tax
Let’s make this clear with a direct comparison. Think of it like choosing between a matatu and your personal car. Same road (KRA), different rules.
1. Who is Being Taxed?
Personal Income Tax: The individual person is taxed. It’s on you, John or Mary.
Corporate Tax: The legal entity (the company) is taxed. The company is seen as a separate “person” in the eyes of the law.
2. What is Being Taxed?
Personal Income Tax: Tax is on your total personal income (salary, business profit, rent).
Corporate Tax: Tax is strictly on the company’s net profit (revenue minus allowable expenses).
3. Tax Rates and Calculation
Personal Income Tax: Uses a sliding scale (10%, 25%, 30%). Your tax increases as your income climbs.
Corporate Tax: Mostly a flat rate of 30% on profit, regardless of how big the profit is (with some exceptions).
4. Filing and Payment Deadlines
Personal Income Tax (PAYE): Filed and paid monthly by the 9th of the following month. For other income, it’s via the annual return.
Corporate Tax: Paid in advance in quarterly instalments (based on the previous year’s tax). The final return and balance are due by the last day of the 4th month after the company’s accounting year ends.
The Kenyan Context: Navigating iTax, Penalties, and Local Nuances
Understanding the theory is one thing. Dealing with KRA’s iTax portal during the long rains when the internet is slow is another. Here’s the real deal for the Kenyan audience.
iTax is Your New Best Friend (or Foe)
All tax matters run through KRA’s iTax platform. Whether you’re a salaried employee checking your PAYE slip or a company in Industrial Area filing returns, you need an iTax pin. The registration is online, but if you get stuck, the Times Tower building or your local KRA office is your physical destination.
Pro Tip: Always download and save your payment receipts from iTax immediately. Don’t just rely on M-Pesa messages. Those iTax receipts are your proof if a discrepancy arises months later.
Penalties That Bite: Late Filing and Payment
KRA doesn’t joke with deadlines. For both personal and corporate tax:
- Late Filing: A penalty of KES 10,000 or 5% of the tax due, whichever is higher. This can wipe out profits for a small business fast.
- Late Payment: Interest at 1% per month on the unpaid amount. This compounds quickly.
Set reminders on your phone. Treat tax deadlines with the same urgency you treat beating traffic on Thika Road at 5 PM.
Choosing Your Business Structure: A Critical Decision
This is where the rubber meets the road. Are you a “sole proprietor” or a “limited company”?
- Sole Proprietor (Business Name): You and the business are one. You pay personal income tax on all profits. It’s simpler, but your personal assets (car, house) are at risk if the business has debts.
- Private Limited Company: The company is separate from you. It pays corporate tax at 30%. You then pay personal tax only on the salary or dividends you take from the company. More admin, but better liability protection.
If you’re making serious profits (consistently over KES 500,000 per year), incorporating might offer tax planning advantages and protect your personal wealth. Consult a local tax advisor in Nairobi or Mombasa for your specific case.
Practical Scenarios: Jane in Mombasa vs. Techpreneurs in Nairobi
Let’s put this in shillings and cents with two common stories.
Scenario 1: Jane, the Salon Owner in Mombasa
Jane runs “Jane’s Braiding Salon” as a sole proprietor. Last year, her revenue was KES 1.2 million. Her expenses (rent, products, utilities) were KES 700,000.
Her profit is KES 500,000. She pays personal income tax on this. After deducting personal relief, her tax will be calculated using the progressive rates. She files this income under “Business Income” on her personal iTax profile.
Scenario 2: Ahmed & Maria, Tech Startup Founders in Nairobi
Ahmed and Maria registered “Click Solutions Ltd” as a private company in Karen. The company made a profit of KES 2 million. The company first pays corporate tax at 30% (KES 600,000).
They each take a monthly salary of KES 150,000. On those salaries, their employer (their own company) deducts PAYE and remits it to KRA. Any remaining profit left in the company after tax can be reinvested or paid out as dividends (which are also taxed).
Conclusion
Understanding Corporate Tax vs. Personal Income Tax in Kenya boils down to knowing who is earning the money – you as an individual or your registered company. Personal tax uses sliding rates on your total income, while corporate tax is a flat rate on company profits.
Your choice of business structure is the biggest decision that determines your tax path. Don’t let tax complexity stop your hustle. Get your iTax in order, mark those deadlines, and when in doubt, seek advice from a certified Kenyan tax professional. Now that you know the difference, which tax journey are you on? Share your biggest tax question in the comments below!