Most owners take money from the business when they need it: school fees on Monday, a transfer to the personal Mpesa on Friday. That feels like paying yourself. For tax and for the books it is something else. What it is depends on how the business is set up.
Sole proprietor: you are taxed on profit, not on what you take
If you trade in your own name, the business and you are the same taxpayer. Money you take out is drawings. It is not an expense, so it does not reduce your tax. You pay tax on the year's profit at personal rates, whether you took out all of it or none. Paying yourself a "salary" changes nothing. The only thing that matters is recording drawings separately so your profit figure is right.
Limited company: three ways out, each taxed differently
A company is a separate person. Its money is not yours until it is paid to you in one of three ways.
| Route | How it is taxed | Paperwork |
|---|---|---|
| Salary | PAYE, SHIF, NSSF and Housing Levy; a deductible cost for the company | Payroll and monthly returns by the 9th |
| Dividend | Paid from profit after 30% corporation tax; 5% withholding tax for resident shareholders | Board resolution and withholding tax return within five working days |
| Director loan | Not income if it is repaid; interest below KRA's prescribed rate (8% in 2026) is a taxable benefit | Written loan terms and a director's account in the books |
Where it goes wrong
- Unrecorded withdrawals. Transfers that are not salary, dividend or a recorded loan sit in the books as a growing debt you owe the company. KRA can treat that balance as disguised pay.
- Personal costs through the business. Household shopping or family school fees paid from the company account are not business expenses and cannot be claimed.
- Dividends with no profit. A company can only pay dividends out of profit. Money taken "as dividends" in a loss year is really a loan.
Five steps for this month
- Decide a fixed monthly amount you take and how it is paid.
- If you run a company, put that amount through payroll or declare it as a dividend, with the paperwork.
- Stop paying personal costs from the business account.
- Ask your accountant for the current balance on your director's account.
- Agree a plan to clear any balance you owe the company before year end.
Not sure which structure fits you? Our guide to sole proprietor or limited company runs the numbers. The 2026 payroll guide has the current deductions.
Not sure how you should be paying yourself?
We set up owner pay, director accounts and payroll for Kenyan SMEs, so what you take out is planned, recorded and taxed correctly.
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