Taxes a Kenyan sole proprietor deals with
The annual return, eTIMS, the Housing Levy, instalment tax and turnover tax for a Kenyan sole proprietor, and a sensible order to set them up.
By Achekam · · 5 min read · For Running a business businesses in Kenya
You have left employment to run your own salon, workshop or consultancy. The PIN is the same one you had as an employee, but almost nothing else about your tax life is. Nobody deducts tax for you any more, the business has obligations of its own, and KRA expects you to know which ones apply.
As a sole proprietor there is no company standing between you and KRA: the obligations below fall on you, under your own PIN. This guide walks through the obligations KRA describes for someone in business on their own account, and suggests an order for putting them in place.
Filing an annual return, even a nil one
The starting point is the annual income tax return. KRA says every person with a KRA PIN who has an income tax obligation must file an annual income tax return, and must file a nil return if they earned no income in the year.
The nil return catches many new proprietors out. A first year spent buying equipment and finding customers may produce little or no income, and it is tempting to file nothing. KRA's position is that the return is still due. KRA's page on filing your returns sets out who must file and the nil return rule, and is the place to confirm the current filing process.
eTIMS for every business
KRA says all persons carrying on business in Kenya must be registered on TIMS or eTIMS, and its list expressly includes individuals with income other than employment income. A sole proprietor is exactly that.
KRA also says the income to be declared through TIMS or eTIMS includes the income of taxpayers registered for VAT, monthly rental income, turnover tax and excise duty. In practice, that means eTIMS is not something to look at later, once the business grows: it belongs at the start, alongside the PIN, because the invoices you issue from day one are part of the picture.
The Housing Levy on gross income
Salaried employees see the Affordable Housing Levy on their payslips. A sole proprietor has no payslip, but that does not take them outside the levy. KRA's public notice of 21 March 2024 on collecting the levy says all other persons who receive income, or whose income accrues, in Kenya must remit 1.5% of their gross income to KRA as the Affordable Housing Levy.
Two words in that sentence matter. "Gross" means the levy is worked out on income before expenses, not on profit. And "remit" means you pay it yourself; nobody deducts it for you. The rate is as stated at the time of writing, so check KRA's notices before you rely on it. More detail is in the Housing Levy on non-salary income.
Instalment tax above the threshold
KRA says instalment tax is payable by every person subject to tax, but not by turnover tax payers. Individuals pay it where their tax liability not covered by PAYE is over Kshs 40,000 for the year.
For a sole proprietor whose business income is taxed under the ordinary rules, that threshold is the test. If the tax on the business income looks set to exceed it, the tax is paid during the year in instalments rather than as one sum after the return. The dates and the ways of estimating each instalment are covered in instalment tax for Kenyan sole proprietors.
Turnover tax in the middle band
Some sole proprietors fall into a different regime altogether. KRA says turnover tax applies to resident persons and businesses whose gross turnover is more than Kshs 1,000,000 but does not exceed, and is not expected to exceed, Kshs 25,000,000 in a year of income. KRA adds that it is charged under section 12C of the Income Tax Act and does not apply to non-residents.
Turnover tax is worked out on turnover rather than profit, and, as noted above, turnover tax payers do not pay instalment tax. Whether it suits you depends on your margins, so look at the numbers with your accountant before the year starts rather than after.
A suggested order of set-up
- Confirm your KRA PIN is active and correct for your own name.
- Register for eTIMS before you issue your first invoice.
- Estimate your turnover for the year: decide whether turnover tax or the ordinary rules apply.
- If the ordinary rules apply, estimate the tax and check it against the instalment tax threshold.
- Set aside the Housing Levy on gross income as money comes in.
- Put the annual return, or the nil return, in the diary for the year-end.
Your choice of structure affects all of this. If you are still deciding between trading in your own name and forming a company, read business name or limited company in Kenya first.
Setting up a Kenyan business workspace in Achekam
Every obligation above depends on knowing your income, and that starts with books. A business can sign up to Achekam as a business, rather than as an accounting firm, choose its country and get its own workspace, its own books and its own web address on the Achekam domain. The person who signs up becomes the administrator.
Choose Kenya at sign-up and the workspace takes the Kenya pack as its default. On activation it sets the shilling and the Africa/Nairobi time zone, unless they have already been set, so invoices, bank accounts and deadlines are in the right currency and on the right clock from the start.
Once the Kenyan tax rules in the workspace are approved, Achekam computes Kenyan instalment tax and turnover tax, along with corporation tax, VAT, withholding tax, capital gains tax and stamp duty. For a sole proprietor, the instalment tax and turnover tax computations are the ones that matter most; the books themselves are the basis for the annual return you or your accountant prepare.
Start with the first two steps of the list this week: check the PIN and register for eTIMS. Everything else follows from the invoices and records those two steps put in place.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
