Kenyan Taxes

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;

  • What is the importance of taxes?
  • Types of statutory taxes you need to know for your start-up company
  • PAYE
  • Withholding taxes
  • Corporate tax
  • Excise duties
  • Value Added Tax (VAT)
  • Conclusion

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.

What is the importance of filing taxes?

  1. Through the governments' connection with the KRA tax collections, the country states have been able to be improved with better and stable infrastructures that promote goods transportation of goods in better conditions.
  2. With taxation involvement, business executives can trust the system and send their money to the government without worrying about being overcharged.
  3. Businesses benefit from taxation as they can get loans from the government from the same money that individuals are taxed for.

How to register a KRA Pin for start-up companies

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;

  1. Visit the KRA portal online and input your pin and password in order to access the platform.
  2. Click on "New Pin Registration" to get you going.
  3. Fill in the required form with relevant information per the form's requirements.
  4. Enter information for your business/company's manager.
  5. Fill in the mathematical equation asked, then click submit.

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.

Types of statutory taxes you need to know for start-up companies

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.

Pay as you earn (PAYE)

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.

What are some of the incomes you will not be charged for PAYE?

  • Medical coverage made by your employer.
  • pension contributions made by the employer
  • Education fees of the employees' dependents will be paid from their income which the employer would have already taxed.
  •  Meals provided by the employer.

Examples of an allowance one can get deducted from their salary include;

  • Pension contributions made by an employee to a registered pension fund, they will be deducted a certain amount.

Are NHIF and NSSF mandatory when it comes to PAYE?

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.

Withholding taxes

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. 

Corporate tax

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.  

Want to know who is exempted from filing for corporate taxes? 

  •  If you are self-employed or involved in a sole proprietorship, you will not be subjected to paying these taxes, as the annual income tax already covers you.
  • Partnerships do not pay corporate taxes since their income is declared through partnership returns.

Excise duties

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. 

Value Added Tax (VAT)

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. 

Conclusion

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.

Single Inbox
Pro-tip

Are you ready to get started? sign up for our forever FREE version of Brrng CRM and customer engagement automation software now.

Bellah Mukisa
November 25, 2022

Relationships that matter.

Plan, engage, and analyse with ease. Transform your customer relationship with an all-in-one platform.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Subscribe