Let’s talk about a tax that many people see on their payment statements but don’t fully understand: Withholding Tax (WHT).
- You deliver a service.
- You send your invoice.
- You expect full payment.
Right?
Then boom, the amount that hits your account is less than what you invoiced.
Welcome to the world of Withholding Tax.
So, What Exactly Is Withholding Tax?
Withholding Tax is simply tax deducted at source.
This means the person or company paying you deducts a portion of tax before paying you, then remits that tax directly to the Kenya Revenue Authority (KRA) within five working days. You receive the balance.
Afterward, you are issued with a Withholding Tax certificate, which shows:
- The gross amount you were paid
- The applicable WHT rate
- The actual tax deducted and remitted to KRA
Are we still together?
Think of it as the government getting its share first before the money reaches you.
What Types of Payments Attract Withholding Tax?
Withholding Tax applies to several types of income, including:
- Professional and consultancy fees
- Contractual services (such as construction)
- Rent
- Interest
- Dividends
- Royalties
- Commissions
- Digital content income
- Sales promotion, marketing and advertising services
If you operate in any of these spaces, chances are you’ve encountered WHT.
The Big Question: Is Withholding Tax a Final Tax?
Here’s where many people get it wrong.
Because tax has already been deducted, some assume their tax obligation is fully settled.
In most cases, it is NOT.
For example:
Professional, consultancy and management fees may attract WHT at 5%
Yet the recipient may still be subject to:
- Corporate tax at 30%, or
- Individual income tax at graduated rates of up to 35%
That 5% is often just a portion of what you actually owe.
You are still required to:
- File your annual tax returns
- Declare ALL your income
- Include the WHT certificates
- Pay any balance of tax due
Failing to do so can lead to penalties, and those are never pleasant.
So, When Is Withholding Tax a Final Tax?
There are a few specific instances where WHT becomes a final tax, meaning no further tax is payable on that income. These include:
- Qualifying dividends
- Qualifying interest
- Betting and gaming winnings
- Payments made to non-residents without a permanent establishment in Kenya
- Rental income tax for non-residents
But for many service providers and businesses, Withholding Tax is NOT a final tax.
Why Understanding WHT Matters
If you’re a freelancer, consultant, contractor, landlord, digital creator or business owner, understanding Withholding Tax protects you from:
- Cash flow surprises
- Underpaying taxes
- Penalties and compliance issues
- Miscalculating your profit
Withholding Tax is, in most cases, a prepayment of tax, not the full story.
Always reconcile your WHT certificates, declare all your income, and ensure you settle any outstanding tax when filing your annual returns.
Because when it comes to taxes, what you don’t understand can cost you.
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