You’ve finally registered your business, maybe a tech startup in Kilimani, a salon in Kitengela, or a supply shop in Eldoret. The hustle is real and the dream is alive. But then the reality hits: what about KRA? Ignoring your tax obligations is a sure way to turn that dream into a stressful nightmare of penalties and back-and-forth with iTax.
Don’t worry, we’ve got you. This guide breaks down the top 6 tax obligations every new business owner in Kenya must understand, in plain language, so you can focus on growing your empire.
1. The Big One: Income Tax
This is the tax on your business profits. How you pay it depends on your business structure. If you’re a sole proprietor or in a partnership, you’ll file under your personal KRA PIN. For companies, it’s a separate corporate PIN.
How It Works for You
The current corporate tax rate is 30% of your taxable profit. For small and medium enterprises (SMEs) with a turnover below KES 50 million, there’s a lower rate of 15% for the first KES 15 million of profit. You must file provisional income tax estimates in April, June, September, and December, then do a final return after your accounting year ends. Missing these deadlines attracts penalties and interest.
2. The Monthly Must-Do: Pay As You Earn (PAYE)
If you have even one employee—including yourself as a director of a company drawing a salary—PAYE applies. It’s your responsibility to deduct this tax from your employees’ salaries and remit it to KRA by the 9th of the following month.
Forgetting PAYE is a serious misstep. KRA can and will hold you, the employer, personally liable for unremitted taxes, plus penalties. Use the KRA’s iTax platform to file the P10 form (for deductions) and make the payment. Set a calendar reminder for the 5th of every month to process payroll; don’t wait until the 9th when iTax might be slow.
3. The Consumer Tax: Value Added Tax (VAT)
VAT is a 16% tax charged on taxable goods and services. You must register for VAT if your annual taxable turnover is KES 5 million or more. Once registered, you charge VAT on your sales (output tax) and pay VAT on your business purchases (input tax).
You then remit the difference (output tax minus input tax) to KRA every month by the 20th. If your input tax is higher, you can claim a refund. Keep all your invoices and ETR receipts meticulously. A pro tip: even if you’re below the threshold, voluntary registration can be smart if your clients are other VAT-registered businesses, as it allows them to claim input tax.
4. The Trading License: Business Permit & Turnover Tax
This is where county government meets national tax. Your business permit from the county (like Nairobi City County or Mombasa County) is an annual fee to operate legally. The cost varies by location, business type, and size.
Turnover Tax (TOT) – For The Small Hustles
If your annual turnover is between KES 1 million and KES 25 million, you can opt for the simplified Turnover Tax. It’s a flat 3% of your gross sales, payable monthly. It replaces income tax and VAT for your business. It’s less paperwork, but you cannot claim input VAT. File it via iTax under the “TOT” module.
5. The Withholding Taxes (WHT)
This isn’t a separate tax, but a prepayment mechanism. When you make certain payments (like for professional services, commissions, or rent), you are required to deduct a small percentage and remit it to KRA on behalf of your supplier. Common rates are 5% for services and 12% for rent.
You must issue the supplier with a withholding tax certificate. They use this to offset their own final tax liability. Failing to deduct and remit WHT means you, the business owner, will bear that cost during an audit. Always ask for a KRA PIN certificate before paying any supplier or contractor.
6. The Digital Tax: Digital Service Tax (DST)
This is crucial if your business operates online. If you provide services through a digital marketplace (like an app, website, or platform), you are liable to charge and remit a 1.5% Digital Service Tax on the transaction value. This applies to both resident and non-resident entities.
For example, if you run an e-commerce site, a subscription-based content platform, or an online booking system, you need to factor in DST. It’s filed monthly via iTax. Keep digital records of all transactions, as KRA is increasingly monitoring the digital space.
Navigating KRA iTax: A Kenyan Reality Check
Let’s be real, the theory is one thing, but dealing with iTax during the last week of the month is a whole different struggle. The site can be slower than a matatu in Nairobi’s 5pm CBD traffic. Here’s a local survival tip: Do not wait for the deadline. Aim to file and make payments by the 25th of each month for monthly returns (VAT, PAYE). For annual returns, start the process weeks in advance.
If you get stuck, don’t just queue for hours at Times Tower. Use the official KRA support channels: call the KRA Contact Centre or visit your nearest Tax Service Office (like the one on Likoni Road in Nairobi). Better yet, budget for a good, affordable tax consultant in your area—their fee (starting from around KES 5,000 per month for small businesses) is worth the peace of mind and can save you from costly penalties.
Wrapping Up: Your Tax Health is Business Health
Understanding these six tax obligations—Income Tax, PAYE, VAT, Business Permit/TOT, Withholding Tax, and Digital Service Tax—isn’t about loving KRA. It’s about protecting your business, your peace of mind, and your reputation. Treat tax as a regular operational cost, not a yearly surprise. Set aside a portion of your revenue monthly, keep clean records (even a simple Excel sheet or a local app like Uhasibu can start you off), and when in doubt, seek professional help early.
Get compliant, stay updated, and build your empire on a solid foundation. Got a specific tax headache? Drop a comment below and let’s discuss. For more on managing your new business finances, check out our next article on opening a business bank account in Kenya.