How to guide on Tax and Tax returns in Kenya

Tax Laws and deadline for payments in Kenya

One of the first things you need to find out when you are starting any kind of business, be it a sole proprietor, Limited company, Partnership among others are the tax laws that apply to your business.

On the below, I will outline some of the taxes that apply to most business entities in Kenya, While this should not to be regarded as offering a complete explanation of the taxation issues, I hope you will use the article as your first point of reference and then consult a professional to provide specific information and advice and to help you with all the requirements that you must comply with.

Some of the taxes that apply to the most business entities include;

(A) Income tax

Income Tax is a direct tax that is imposed on income derived from Business, Employment, Rent, Dividends, Interests, and Pensions among others. Every taxpayer with income chargeable to income tax is required to have a Personal Identification Number (PIN).

Some of the methods of collecting income tax include Pay As You Earn tax (PAYE) and Value Added Tax.

1. Pay As You Earn tax (PAYE)

• PAYE is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee’s salary or wages on each payday then remit the tax to the Authority. The tax is payable by every 9^th of the following month.
• Employment income is taxed on a graduating scale rate and every individual is granted a tax relief from the Authority, this is known as Personal Relief. Insurance relief and mortgage relief are also available for eligible persons.
• At the end of the year, every individual will be required to submit his self-assessment on total income received from various sources. What we call individual End Year Return
• The deadline for filling individual return is 30^th June of the following year, Note: Penalty for non-filling has been raised up to Kshs.20,000 

2. Corporate tax

• Corporation tax is a form of income tax that is levied on companies such as limited companies, trust & cooperatives. Resident companies are taxable at a rate of 30% while non – resident companies are taxable at a rate of 37.5%.

3. Withholding Tax

• Withholding taxes are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining at various rates.

4. Advance Tax

• Advance tax is applicable to all public service and commercial vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or a commercial vehicle is registered or licensed.

5. Capital Gain Tax

• A capital gains tax is a tax that is charged on the profit realized from the sale of an asset that was purchased at a lower price.

(B) Value Added Tax

Value Added Tax (VAT) is a consumption tax that is applied to the sale of goods and service. The VAT rate are 16%.VAT is payable by every 20^th of the following month

In Kenya some of the basic tax compliance requirements according to the income tax laws relating to businesses are:

•  Keeping of up to date books of account
•  Having a Personal Identification Number (PIN) and Company PIN
•  Determining the taxable income
•  Accurate determination of tax liability
•  Filing of returns by the prescribed date
•  Paying of tax dues by the prescribed date
• Paying of fines and penalties for overdue taxes

Due to the current strict requirements and severe penalties imposed by the Kenya Revenue Authority on any case of non-compliance, a number of people now prefer to have the above handled by competent professionals, it’s for this reason PhiloBiz Elite Business Solutions was established  to offer services in book keeping accounting, taxations, preparation of statutory deductions return, business registration, and business advising services to organizations and businesses that would not access the same from larger professional firms with larger overhead simply on account of economic considerations. Contact us today For all you KRA Returns in the I Tax system .I.E. PAYE, VAT, Individual Return, Company Return, Rental income return, Tax compliance application, PIN Update, Book keeping services, Payment of NSSF/NHIF. Don’t wait to pay penalty for non-filling which is up to now Kshs.20, 000. Fill in your tax returns by 30th June.

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