Taxes start-up companies should know about
A tax is a compulsory contribution charged to individuals by the KRA as required by the law.
Does your start-up company have a certificate from KRA that permits you to operate it? If it does, then you must have gone through different types of taxes to know which one would be best for your start-up company.
We take you through these taxes in this article of as follows;
Think about the requirements before going through the taxation process. Have you registered your start-up? If not, this should be your number one on the TODO list things before going any further. Setting up a business requires a lot of sacrifices, funding, and legal documents according to Kenyan laws.
Failure to protect your company with these procedures will set you up for a problematic relationship between you and the government. Have you thought about the number of certificates you need? If not, you will have to pause first and draft a plan for operating your company.
If you own a KRA pin, registering your start-up company for taxation purposes would be better. Below is the step by step guides on what you are required to do;
You will receive an online notification receipt acknowledging that you have completed your application successfully. After going through this process, you will instantly receive a pin.
You can consider having different taxes you need for your business, which will allow you to get on normal operations in your company. Let's examine what these taxes are and how they function.
As an employer managing a start-up company, you must deduct a certain amount of your employees' salaries and submit it to the KRA portal. You can calculate these deductions with the help of a PAYE calculator that will ease your work while at it. Deductions of your employee's salary should be made before the 9th of the following month. Failure to align with the KRA laws on taxes will attract penalty charges of 25% of the tax due. PAYE applies only to companies with employees earning a basic salary of Kshs 24,000 and above.
Examples of an allowance one can get deducted from their salary include;
NHIF and National Social Security Fund (NSSF) are under insurance relief and must be deducted by the employer and sent to KRA. It's a 15% relief for employees who want premium insurance such as medical or education policies. They both take a period of 10 years for them to mature. Medical contributions made as of 1st January 2022 to the National Hospital Insurance Fund (NHIF) will qualify for insurance relief.
It is a tax deducted by an individual before paying the amount due and sending the deducted amount to KRA. You can make this payment by generating a withholding certificate to the iTax system, which will do the calculations and send it to the payee once the payer submits the withholding tax required.
Examples of payments subjected to withholding taxes include dividends, interests and deemed interests, legal and consultancy fees, among many others. The amount to be deducted here will vary depending on whether you are a Kenyan resident or not.
If you are paying withholding taxes, you can claim a refund when filing your annual tax returns. You are supposed to file your withholding tax return on the 20th day of the month following the month when deductions were made.
Is withholding tax final? My answer would be yes, and no. It all depends. It can only be considered final if you are a non-resident with no permanent business in Kenya. In cases whereby you are a resident, it can be final if only it relates to qualifying interests and dividends, pensions, and winnings. Other than that, it won't be considered a final tax.
Penalties you can face if you have failed to keep up with the filing dates include a 5% payment on taxes due and a 1% late interest payment.
These are taxes filed by companies to KRA, 30% for resident company owned and 37.5% for non-residents. For their incomes, corporate taxes are implied on companies such as limited( LTD) and co-operatives yearly.
You will be charged with this tax if you have goods manufactured in the country or are importing them from other countries. Excise duties are managed under two law bodies; the Excise Duty Act 2015 for imported goods and the Custom and Excise Act CAP 472 laws of Kenya. Some of these goods that can be imported include mineral water, soft drinks, and opaque beer, among many more.
VAT is a tax charged on goods and services made in Kenya. It has its limitation if you want to register your start-up company given that the yearly revenue exceeds Kshs 5M.
Registering for your business taxation is an important step every individual must take for their start-up companies. Always consider setting time aside for setting up details about your company on the KRA portal. Avoid last minute rush and file your taxes on time to avoid unnecessary penalties. Ensure your start-up company has been registered on the e-citizen portal with the relevant information provided.
NOTE: Check out a summary of our YouTube shorts video for the above mentioned taxes.
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An mpesa Pay Bill is a service that allows a business to collect money on a regular basis from your customers through the use of M-PESA while Buy Goods/ Till number allows an individual to pay for goods and services.
PAYE is an individual income tax meant for employed people conducted by an employer deducting a certain amount of their employee's salary and submitting it to the KRA as required of them by the law.
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