Withholding tax on fees paid to Kenyan firms
What withholding tax Kenyan clients deduct from management and professional fees, when they remit it, and how the firm should record a short receipt.
By Achekam · · 4 min read · For Accountants & audit firms in Kenya
Every Kenyan accounting firm knows the pattern. The invoice goes out for the full fee, the client pays a little less, and the difference sits on the debtors list for months because nobody is quite sure what to do with it. At year end someone writes it off, and the firm has quietly thrown away a tax credit.
That difference is usually withholding tax. The client has deducted it from the fee, as Kenyan law requires, and owes it to KRA, not to the firm. Handled properly, it comes back to the firm as a credit against its own tax. Handled carelessly, it is lost. This article covers the rates, the client's remittance deadline, how to record a short receipt, and how to make sure the credit is claimed.
Resident and non-resident rates on fees
At the time of writing, Kenyan withholding tax on management, professional and training fees is 5% for resident recipients and 20% for non-residents. Accounting, audit, tax and advisory fees paid to a Kenyan firm fall within professional fees, so a resident client paying a resident firm ordinarily deducts 5% of the fee.
Rates change with Finance Acts, so confirm them on KRA's own pages before relying on them for a large engagement or a cross-border one.
Contractual fees
A different rate applies to contractual fees: 3% for residents and 20% for non-residents at the time of writing. The line between a professional fee and a contractual fee is not always obvious for a firm that also supplies, say, software implementation or outsourced bookkeeping under a service contract. If a client deducts at one rate and the firm believes the other applies, raise it early with the client, because the difference will show on the certificate and on the firm's tax position.
Remitted by the 20th of the next month
The client remits the tax it withheld to KRA by the 20th of the month after the payment. That is the client's obligation, not the firm's, but it matters to the firm for one reason: the firm's credit depends on the client having declared and paid it.
KRA's answers on withholding tax cover which payments are subject to it, who must withhold, the remittance window and how withholding certificates reach the payee. Point clients to it when they ask why they must deduct from your fee.
Recording a fee receipt short by the tax withheld
A worked example in words. The firm invoices a resident client for the annual audit fee. The client pays the fee less 5% withholding tax and remits that 5% to KRA. The firm's bank shows the net amount.
The receipt has two parts:
| Part | What it is | Where it belongs |
|---|---|---|
| The net amount received | Cash in the bank | Against the client's invoice |
| The amount withheld | Tax paid to KRA on the firm's behalf | A withholding tax asset, to be claimed against the firm's own tax |
The withheld part is not a discount, a bad debt or a fee concession. It is money the firm will recover through its tax return, and it must be recorded so that it can be.
Know one limit before you start. The firm's client invoices, receipts, credit notes and statements of account are kept in a receivables ledger on Achekam's server. When a customer pays net of withholding tax, though, Achekam's receipt screens cannot settle the withheld part of the invoice. Recording the net cash leaves the withheld amount open on the invoice.
Until that changes, take three steps:
- Record the net receipt against the invoice as usual.
- Keep a schedule of the withheld amounts, by client and invoice, with the date paid.
- Agree with whoever keeps the firm's books how the open balance is cleared to a withholding tax asset in the firm's ledger, and do not issue a credit note to make the invoice look settled. A credit note tells the client the fee was reduced, which it was not.
Review the schedule monthly. An invoice still open for exactly the withheld amount is almost always withholding tax waiting to be matched to a certificate.
Certificates and credits
The firm's credit rests on evidence that the tax was withheld and paid. Withholding certificates are the evidence. Check each month that a certificate exists for every client who withheld, and that the amount on it matches your schedule. A client who deducted but did not remit leaves the firm with a short payment and no credit, which is a conversation to have promptly, not at year end.
When the firm prepares its own corporation tax return, the withholding tax suffered on its fees, supported by certificates, is set against the tax due. If the firm pays instalment tax, the expected credit is worth considering when estimating the instalments. Kenyan instalment tax and the company return explains the dates and the estimation methods.
Achekam can help with the client side of withholding. Once its rules are approved, it computes Kenyan withholding tax alongside corporation tax, instalment tax, VAT, turnover tax, capital gains tax and stamp duty. Every Kenyan tax figure in its rule book was seeded "under review", however, and nothing is computed from a figure until an Achekam platform administrator approves it; no firm user can change a rate.
Businesses that face the same short-payment problem from their own customers will find the business side explained in withholding tax and net payments.
A monthly withholding routine
At each month end, list every receipt that came in short, match each to the rate the client should have used, and chase any certificate that is missing. Clear matched amounts to the withholding tax asset, and carry the total into the firm's tax working papers so the credit is claimed in full.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
