How To Calculate Withholding Tax In Kenya
What Is Withholding VAT?
It is a system that involves the declaration of VAT by both the supplier and his customer who has been appointed as a withholding VAT Agent. Institutions appointed as withholding VAT Agents are Government institutions, parastatals, banks, financial institutions, Co-operative Societies, Insurance companies, and regular exporters.
In this article Keweb. co tries to answer the question by publishing the ways one can calculate withholding tax in Kenya
Below are the most helpful ways to calculate withholding tax in Kenya
When a taxpayer (trader) supplies and invoices an appointed withholding VAT Agent the payment for
supply is made less VAT charged or that which ought to have been charged.
The Agent withholds VAT irrespective of whether the supplier is registered for VAT or not.
The Agent issues a withholding VAT certificate to the supplier indicating the VAT withheld.
This certificate entitles the trader to claim back the withheld VAT to avoid double taxation since the same tax is declared and paid by the trader through a VAT 3 return.
Withholding VAT on taxable supplies not charged VAT is computed using the formula X – X/1.16 where X is the total value of the invoice or taxable supplies.
Notes
- This will vary depending on the payments paid out.
- For EAC citizens, the rate shall not apply to the transportation of goods.
- Shall not apply to insurance or reinsurance premiums paid for aviation that covers aircraft, cargo, and passengers.
Oil and gas sector WHT rates
WHT rates applicable on payments to non-residents in the oil and gas sector are shown in the table below:
| Payments | Non-resident (oil and gas) WHT rate (%) |
| Dividends | 10 |
| Interest | 15 |
| Natural resource income | 20 |
| Management or professional fees | 10 |
Double tax treaties (DTTs)
Lower rates may apply to non-residents where there is a DTT in force. The table below shows the maximum rates of tax that recipients in those countries with a DTT with Kenya can be charged on dividends, interest, royalties, and management and professional fees. The table only includes agreements that are currently in force.
| Recipient | WHT (%) | |||
| Dividends | Interest | Royalties | Management/ Professional fee | |
| Canada | 15 | 15 | 15 | 15 |
| Denmark | 20 | 20 (1) | 20 | 20 |
| France | 10 | 12 | 10 | (5) |
| Germany | 15 | 15 (1) | 15 | 15 |
| India | 10 | 10 | 10 | 10 |
| Iran | 5 | 10 | 10 | (5) |
| Norway | 15 | 20 (1) | 20 | 20 |
| Qatar | 5 (4) | 10 | 10 | (5) |
| Seychelles | 5 | 10 | 10 | 10 |
| South Africa | 10 | 10 | 10 | (5) |
| South Korea | 10 (3) | 12 | 10 | (5) |
| Sweden | 15 | 15 | 20 | 20 |
| United Arab Emirates | 5 | 10 | 10 | (5) |
| United Kingdom | 15 | 15 (1) | 15 | 12.5 |
| Zambia | 0 (2) | 0 (2) | 0 (2) | 20 |
Notes
- Interest paid by the government and the Central Bank of Kenya is tax-exempt.
- No Kenya tax is due if subject to tax in Zambia.
- 8% if the beneficiary holds at least 25% of the capital of the company paying the dividends.
- A rate of 10% is applicable where the beneficial owner is a company (other than a partnership) that directly or indirectly holds less than 10% of the capital of the company paying the dividends.
- The treaties do not contain separate Articles on ‘management or professional services’. Under the OECD model tax agreement guidelines, such income from such services should be taxed only in the country of residence of the recipient of the income unless the source country has taxing rights in accordance with the Article dealing with ‘business profits’ (i.e. where there is a PE in the other state). However, the KRA has in the past taken the position that the ‘management or professional fees’ would fall under the Article on ‘other income’ and should therefore be subject to WHT at 20%.
Where the treaty rate is higher than the non-treaty rate, the lower rate applies.