Everything You Need to Know about Withholding Tax Regulations in Kenya

Article Summary:

• Withholding tax is an essential part of tax compliance in Kenya, requiring businesses and individuals to deduct a portion of certain payments and remit it directly to KRA.
• The rates of withholding tax vary depending on the type of payment and whether the payee is a resident or non-resident.
• Always ensure that tax is remitted to KRA on time and maintain records of all withholding tax certificates issued.
• If you are making payments to non-residents, be aware of the higher tax rates and how Double Taxation Agreements may impact these payments.
• Late payments or non-remittance will result in penalties and interest charges.

For a lot of small businesses and freelancers in Kenya, Withholding Tax (WHT) is often viewed as a phantom deduction – revenue that vanishes before hitting your bank account. Most people don’t understand the purpose of this deduction and how to factor it in their annual tax returns, often viewing it as an unwarranted cut of their income.

Yet, in 2026, it is a crucial part of Kenya’s fiscal strategy. Income tax accounts for over 40% of the government’s total revenue, and with the KRA recording domestic collections as high as KES 221.287 billion in December 2025 alone, the focus on precision has never been sharper.

Whether you’re a small business owner, a financial manager at a multinational, or a service provider in Kenya, withholding tax is something that you should take time to understand keenly as it may have stronger implications on your bottom line than you may think.

Withholding tax plays a vital role in that broader tax system. It ensures that the government receives a steady flow of revenue throughout the year by requiring businesses to deduct and remit tax at the point of payment for specific services and transactions. Rather than relying on end-of-year settlements alone, this mechanism helps stabilise public finances and minimises the risk of tax avoidance. 

As such, you can appreciate why the KRA is so keen on withholding tax remittances and compliance.

Despite its importance, a lot of SMEs struggle with its implementation or understanding why certain clients withhold a part of their invoice.

In this article, you will learn everything you need to know about withholding tax in 2026: from key definitions and rates to practical applications and compliance tips that can protect your business and strengthen your financial controls.

What exactly is Withholding Tax?

In simple terms, withholding tax is a method of tax collection where a portion of the payment you make to a supplier, contractor, or service provider is deducted at the source and sent directly to KRA.

This means that, instead of the service provider or supplier paying their full tax at the end of the financial year, a part of their tax is already taken care of as part of the payment you make to them. You, as the payer, are responsible for deducting the tax and remitting it to KRA.

This system helps streamline tax collection and ensures the government receives a steady stream of revenue throughout the year rather than waiting for a single lump sum every June. It also reduces the chances of tax evasion, making the process more transparent for everyone involved.

The Agent’s Responsibility

The responsibility lies squarely with the person making the payment. If you hire a professional, be it a lawyer, consultant, contractor, etc., you are the one responsible for deducting the tax and remitting it. Under the current 2026 guidelines, this must be done within 5 working days of the deduction, or by the 20th of the following monthfor specific categories.

Failure to do so doesn’t just hurt the person you’re paying; it puts your own business in the crosshairs. The KRA can deem that tax to be due from you as the payer if you fail to withhold it, meaning you could end up paying their tax out of your own pocket, plus a 5% penalty and monthly interest.

Who Should Withhold Tax?

Many people assume that withholding tax is an obligation only for registered companies or large corporations. However, Kenyan tax law applies this responsibility to any person making a payment subject to the tax. This includes you as an individual.

Example: Imagine Joyce is buying land in Kitengela. She receives a fee note of KES 100,000 from her lawyer. Joyce should not pay the full KES 100,000. Instead, she pays the lawyer KES 95,000 and remits KES 5,000 (5%) directly to KRA via iTax.

How Withholding Tax Works in Kenya

In 2026, the KRA maintains a distinct line between resident entities (local Kenyan businesses and individuals) and non-resident entities (foreign companies or specialists without a permanent office in Kenya) with withholding tax rates for non-residents being higher than those paid by residents.

The logic behind the higher non-resident rates is simple: because foreign entities are harder for the KRA to track once they leave the country, the government collects a larger final tax upfront. For residents, the tax is usually an advance payment that you reconcile later.

Types of Payments Subject to Withholding Tax

Withholding tax applies to payments made in several common scenarios. Here’s a closer look at each:

• Management and Professional Fees: This is the bread and butter of WHT in Kenya. It covers payments for specialized services such as legal counsel, accounting, audit fees, and general business consultancy.
• Contractual Fees: Applies to payments made for building, civil, and engineering works, typically in the construction and infrastructure sectors.
• Training and Consultancy: Involves payments for technical or specialized training sessions, as well as advisory services provided by experts.
• Royalties and Natural Resource Income: Entails payments made for the use of intellectual property, patents, copyrights, or the extraction of natural resources.
• Dividends and Interest: Includes the distribution of company profits to shareholders or interest earned on bank deposits and other investment instruments.
• Rent and Leasing: Specifically targets payments made to non-residents for the use of immovable property (land and buildings) or movable equipment.
• Digital Content Monetization: A modern category involving payments to influencers and creators for content distributed via digital platforms.
• Insurance Commissions: Covers the fees paid by insurance companies to brokers or agents for facilitating policy sales.
• Winnings and Appearance Fees: Applies to prize money from betting and gaming, as well as payments to artists or sportsmen for performances.

Withholding Tax for Non-Residents

For businesses involved in international transactions, withholding tax is particularly important when making payments to non-resident individuals or entities. 

For example, if you hire a foreign consultant or make payments to a foreign supplier, you must apply withholding tax on the payment before sending it abroad. The tax rate for non-residents typically varies depending on the type of payment, but it is often higher than for local transactions.

Factoring Double Taxation Agreements

Kenya has entered into several Double Taxation Agreements (DTAs) with other countries to avoid double taxation.

This means that if a non-resident is already paying tax in their home country, the withholding tax rate in Kenya may be reduced. 

However, businesses must provide evidence of these agreements to KRA to qualify for any tax rate reductions.

Kenya’s Withholding Tax Rates in 2026

Withholding Tax rates vary significantly based on whether the payee is a local resident, a citizen of an East African Community (EAC) Partner State, or a non-resident.

The EAC rates are particularly unique as they represent Kenya’s commitment to regional integration by offering lower rates to citizens of Uganda, Tanzania, Rwanda, Burundi, South Sudan, DR Congo, and Somalia for specific services like consultancy.

Here’s a table summarizing the rates for each payment type:

Category	Resident Rate	EAC Citizen Rate	Non-Resident Rate
Management & Professional Fees	5%	15% (Consultancy)	20%
Training Fees	5%	5%	20%
Contractual Fees (Building/Engineering)	3%	3%	20%
Dividends	5%	5%	15%
Royalties	5%	5%	20%
Interest (Bank/General)	15%	15%	15%
Rent: Immovable Property (Buildings)	10%	10%	30%
Rent: Other Property (e.g. Equipment)	N/A	N/A	15%
Insurance Commissions (Brokers)	5%	5%	20%
Insurance Commissions (Others)	10%	10%	20%
Digital Content Monetization	5%	5%	20%
Winnings from Betting/Gaming	20%	20%	20%
Appearance/Performance (Artists/Sports)	5%	5%	20%
Supply of Goods to Public Entities	0.5%	0.5%	5%

Important Notes for 2026 Compliance

• EAC Citizen Qualification: The preferential 15% rate for consultancy fees and 5% for dividends/royalties applies specifically to individuals who are citizens of EAC Partner States. Corporate entities registered in those countries generally fall under the standard “Non-Resident” rates unless a specific Double Tax Agreement (DTA) is in place.
• The KSh 24,000 Threshold: For residents, WHT on professional, management, and training fees is only applicable if the aggregate payment in a month exceeds KSh 24,000.
• Final Tax vs. Advance Tax: For non-residents, WHT is usually a final tax. For residents, it is an advance tax (except for winnings and certain dividends), meaning you must declare it in your annual return to claim the credit.
• eTIMS Validation: Ensure all payments to resident providers are backed by an eTIMS-compliant invoice. Without this, the KRA may disallow the expense even if you have remitted the WHT correctly.

Withholding VAT

Withholding VAT is a mechanism used to collect Value Added Tax at the source. It ensures that a portion of the VAT charged on an invoice is remitted directly to the KRA by the purchaser, rather than being paid in full to the supplier.

How Withholding VAT Works

When an appointed withholding VAT (WHVAT) agent receives a taxable supply, they do not pay the full 16% VAT to the supplier. Instead, they withhold a fixed percentage (currently 2%) of the taxable value.

The agent must remit this 2% directly to the KRA. The supplier then receives the remaining 14% of the VAT (if the standard 16% rate applies) along with the base cost of the goods or services.

Once the tax is remitted, the iTax system generates a WHVAT certificate for the supplier, which they use to claim a credit when filing their monthly VAT returns.

Withholding VAT Exclusions

WHVAT is a mechanism designed to collect VAT on taxable supplies made by VAT-registered suppliers. Since a non-VAT registered person does not (and legally cannot) charge VAT on their invoices, there is no VAT to withhold.

The KRA specifies that Withholding VAT shall not apply to payments for taxable supplies made to:

• Non-VAT registered persons.
• Zero-rated supplies.
• Exempt goods and services.
• Official aid-funded projects.

Key Differences: WHT vs. WHVAT

Feature	Withholding Tax (WHT)	Withholding VAT (WHVAT)
Tax Nature	An advance payment of Income Tax.	A collection mechanism for Value Added Tax (VAT).
Standard Rates	Varies by category (e.g., 3% for contracts, 5% for professional fees).	Fixed at 2% of the taxable value.
Applicable To	Specific services like management, legal, and consultancy fees.	All taxable supplies (goods and services) that attract VAT.
Agents	Any person making a payment subject to WHT (including individuals paying legal fees).	Only KRA-appointed agents, such as government bodies and specific large taxpayers.
Timing	Must be remitted within 5 working days of deduction for many categories.	Generally remitted by the 20th day of the following month.
Finality	Can be a final tax for non-residents or an advance tax for residents.	Always a credit to be used against the supplier’s monthly VAT liability.

Please note: there are times that an Agent can withhold both income tax and VAT. This is in cases where the supply is a VATable service that is also subject to withholding tax.

READ MORE:THE ULTIMATE GUIDE TO VAT REGULATIONS IN KENYA IN 2026 

Withholding Tax Compliance Measures & Consequences

In the eyes of the Kenya Revenue Authority (KRA), the withholding tax process is a delegated statutory duty. When you fail to comply, you aren’t just making an accounting error; you are failing to perform a legal obligation as a tax agent.

Under the Tax Procedures Act and the latest 2026 validation framework, the consequences for non-compliance are structured to be both immediate and financially punitive.

1. Failure to Deduct or Withhold

If you pay a service provider the full invoice amount without deducting the applicable tax, the KRA treats this as a serious breach.

The consequence: The tax you failed to withhold is deemed due from you. Essentially, the KRA will demand that you pay that tax out of your own pocket, even though you’ve already paid the supplier in full. 

Under recent rules, however, if you can prove the recipient already paid the tax through their own annual return, you may avoid the principal tax but the penalties and interest will still apply.

2. Late Remittance of Tax

The law is clear: withheld tax must be remitted by the 20th day of the month following the deduction (or within 5 working days for certain categories).

The consequence: An automatic penalty of 5% of the tax due is charged. Furthermore, late payment interest of 1% per month is levied on the unpaid amount until it is settled in full. These charges are system-generated on iTax and are difficult to waive.

3. Incorrect WHT Calculations

Calculation errors often arise from misclassifying a service (e.g., applying the 3% contractual rate to a 5% professional service) or ignoring the residency status of the provider.

The consequence of under-calculation: If you withhold 5% instead of the 20% required for a non-resident, the KRA holds you liable for the 15% shortfall. This shortfall attracts the same interest and penalties as late payments.

eTIMS mismatch:KRA’s automated systems cross-verify the WHT remitted against the eTIMS-compliant invoice. If the figures do not align perfectly, the system may flag your return for a manual audit, potentially stalling your Tax Compliance Certificate.

4. Failure to Maintain Proper Records

Under the 2026 mandate, all expenses must be backed by eTIMS-compliant invoices.

The consequence: If you withhold tax but cannot provide a valid eTIMS invoice for the underlying expense, the KRA will disallow the entire expense in your annual return. This artificially inflates your taxable profit, leading to a much higher Corporate Income Tax bill.

How KRA Monitors Withholding Tax Compliance

The KRA closely monitors withholding tax compliance, as it is one of the most efficient ways for the government to collect tax revenue. 

They regularly audit businesses, especially those with significant withholding tax obligations, to ensure that taxes are being deducted and remitted correctly.

What KRA Looks For

• Correct application of withholding tax rates: KRA will check if the correct rates were applied to payments made to local and foreign contractors, consultants, and service providers.
• Timely remittance: Late payments or non-remittance will result in penalties and interest charges.
• Accurate records: KRA will want to see proper documentation of all withholding tax transactions, including receipts, WHT certificates, and remittance slips.

Conclusion

Withholding Tax doesn’t have to be a black hole in your finances. 

As you scale your business keeping this compliance health check in mind is vital:

1. Verify PINs: Always confirm your supplier’s KRA PIN is active before transacting.
2. eTIMS check: Never pay an invoice that isn’t eTIMS-compliant.
3. 5-Day rule: Aim to remit WHT within 5 days of payment to stay ahead of the 20th day bottleneck.
4. Certificate audit: Monthly, check that all WHT certificates issued to you match your internal ledger.

Work With a Professional Accountant

You didn’t start your business to become a tax expert. Outsourcing these functions allows you to focus on your core operations while we handle the digital reconciliation and KRA queries.

Professional accountants like Alphacap ensure your ledgers and withholding certificates are reconciled monthly. We don’t wait for June to find a missing certificate; we track it in real-time.Contact Alphacap today.

Frequently Asked Questions on Withholding Tax