Fulfillment

Complying with taxes

Clara Mutai
July 29, 2021
October 10, 2022

 

When it comes to tax compliance, a business person needs to ponder over the following questions:

  1. Whether they need to obtain tax registration
  2. The different types of taxes they need to pay depending on their business type
  3. How each type of tax is applicable and the rates
  4. When each type of tax  is due to the taxman
  5. What is the method of payment for each tax

Tax registration in Kenya is mandatory for entities/individuals doing business in the country. Registering for taxes is processed through the Kenya Revenue Authority (KRA) through the issuance of a Personal Identification Number (PIN). Tax registration is free of charge and is automated, this registration is completed on the iTax platform of the KRA.

Depending on what structure your business takes, your company in Kenya will be subject to certain tax obligations and requirements.

There are two types of taxes businesses and individuals pay and can register for. These are direct and indirect taxes. Direct taxes are paid directly to KRA on income earned e.g corporation tax, PAYE while indirect taxes are paid on goods or services –such as Value Added Tax (VAT).

I will speak about two types of taxes in this blog, VAT and corporate income tax.

VAT registration in Kenya is mandatory for all individuals, companies or partnerships that sell goods worth Kshs. 5million or higher within a year. VAT registration is done through KRA’s iTax platform. New VAT regulations also require that a person selling goods or services through online platforms should register for VAT.

Upon VAT registration, a person is required to comply with the VAT laws by ensuring that:

  1.  VAT is charged on all taxable supplies made at the specified rate of 16%;
  2. They issue a proper tax invoice for each sale made;and
  3. They file and pay the monthly VAT by the 20th day of the following month

Please note that only VAT registered traders are allowed to charge VAT on their sales. It is an offence to charge VAT if one is not registered for VAT. It is also an offence to load VAT on a sale and not remit the VAT to KRA.

 In addition to VAT, there is corporate income tax that should be paid on business profits. Payment and filing of income tax return is mandatory as long as you are carrying out any form of business.

If you have set up a company which has a separate PIN, then you should report all business income and losses in the corporate income tax return, pay tax at 30% of the profits and file an Income Tax Company Return.

Where the business is set up as a sole proprietorship and the business name is registered under your personal PIN, you must report all business income or losses on your personal income tax return that is usually filed by 30 June with your employment income if applicable. The business will therefore be taxed at personal income tax rate instead of as a corporation.

If your business is not carrying out any business then you are allowed to make nil returns. However, do not file a nil return or fail to declare your sales when your business is generating revenue because the taxman will eventually catch-up with you.

 


Blog Author

Clara Mutai

Clara Mutai is the Group Tax Manager at Sendy. She is highly resourceful, self-driven with a strong technical background and sound knowledge in all tax heads as well as tax planning and optimization reviews having gained over 9 years’ experience working in different tax departments.She also possesses in-depth knowledge of the region’s tax laws and issues having travelled and worked across different African countries. You can connect with her on LinkedIn and Facebook.
https://www.linkedin.com/in/clara-mutai-mba-b-econ-cpa-k-a0741360/
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