Withholding Tax on Professional Fees in Kenya

Sure, I can help you with that. Here's a guide on withholding tax on professional fees in Kenya. If you're professional offering services in Kenya, it's important to understand how withholding tax affects you. This guide will explain what withholding tax is, how it applies to professional fees, and how to handle it in your business operations.

Understanding Withholding Tax

Before we dive into the specifics of professional fees, let's first understand what withholding tax is. Withholding tax is a form of income tax that's deducted at source. This means that the tax is deducted from payments for certain types of income and paid directly to the Kenya Revenue Authority (KRA). The person making the payment is responsible for withholding the tax and remitting it to KRA.

Read Also: How to Calculate Withholding Tax on Invoice in Kenya

Withholding Tax on Professional Fees

Professional fees are one of the types of income subject to withholding tax in Kenya. If you're a resident professional providing services such as consulting, legal, or accounting services, the person paying for your services is required to withhold tax at a rate of 5% and remit it to KRA.

How Withholding Tax Works with Professional Fees

Now that we've covered the basics, let's delve into how withholding tax works with professional fees.


Step 1: Invoice for Your Services


When you invoice a client for your services, you should invoice for the gross amount. This is the total amount before any tax deductions.


Step 2: Client Withholds Tax


When your client makes payment, they will withhold 5% of the gross amount as withholding tax. For instance, if your invoice is for Kshs. 10,000, your client will withhold Kshs. 500 (10,000 x 0.05) as withholding tax.


Step 3: Client Pays You the Net Amount


Your client will then pay you the net amount, which is the gross amount minus the withholding tax. In our example, your client will pay you Kshs. 9,500 (10,000 - 500).

Step 4: Client Remits Withholding Tax to KRA


Your client is responsible for remitting the withheld tax to KRA by the 20th day of the following month.


Step 5: Client Issues You a Withholding Tax Certificate


After remitting the tax to KRA, your client should issue you a withholding tax certificate. This certificate is proof of the tax that's been withheld and remitted to KRA on your behalf.

Conclusion

Understanding withholding tax on professional fees in Kenya is crucial if you're a professional offering services. It helps you know what to expect when invoicing clients and how to handle the tax deductions. Remember, while your client is responsible for withholding and remitting the tax, it's always good to understand how it works so you can ensure everything is done correctly.

(Note: This is a simplified guide and the actual process may have more detailed steps depending on your tax situation. Always consult with a tax professional if you're unsure about anything.)

FAQs

What is the rate of withholding tax on professional fees in Kenya?


The rate of withholding tax on professional fees in Kenya is 5% for resident professionals. This means that when a client pays for your professional services, they are required to withhold 5% of the payment and remit it to the Kenya Revenue Authority (KRA).


Who is responsible for remitting the withholding tax to KRA?


The person or entity making the payment for professional services is responsible for withholding the tax and remitting it to KRA. After remitting the tax, they should issue a withholding tax certificate to the professional as proof of the tax that's been withheld and remitted.


What should I do if a client doesn't issue a withholding tax certificate?


If a client doesn't issue a withholding tax certificate after remitting the tax to KRA, you should follow up with them. The certificate is important as it serves as proof of the tax that's been withheld and remitted on your behalf. If the client fails to issue the certificate, you can report the matter to KRA.
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