Withholding tax is the tax most SMEs discover the hard way — usually when KRA asks why professional fees were paid gross. The rule is simple: on certain payments, the payer must deduct tax at source and remit it to KRA, within five working days of the deduction. Miss it and the liability becomes yours.
The 2026 rate card
| Payment | Resident | Non resident |
|---|---|---|
| Management, professional or consultancy fees | 5% | 20% |
| Contractual fees (building, construction) | 3% | 20% |
| Dividends | 5% | 15% |
| Interest | 15% | 15% |
| Royalties | 5% | 20% |
| Rent — immovable property | 7.5% (appointed agents) | 30% |
| Digital content monetisation | 5% | 20% |
| Winnings | 20% | 20% |
| Interchange and merchant service fees (new, Jul 2026) | 5% | 20% |
Two useful softeners for small payments: professional and management fees paid to a resident only attract withholding where the total paid to that person reaches KES 24,000 in a month, and dividends paid to a resident company controlling more than 12.5% of voting power are exempt. Rent paid to resident landlords is only withheld by agents KRA has specifically appointed.
What the payer must do
- Check whether the payment type is in the table before paying the invoice.
- Deduct the tax and pay the supplier the net amount.
- Declare and remit on iTax within five working days of the deduction — not on the 20th with everything else. This deadline changed and many businesses still batch it monthly; that is non compliance.
- iTax generates a withholding certificate to the supplier automatically.
Fail to deduct or remit and KRA charges the agent a penalty of 10% of the tax involved, up to KES 1 million — on top of the tax itself, which you now owe out of your own pocket. Grossing up a supplier who "does not do withholding" is you volunteering to pay their tax.
If tax is withheld from you
Withholding is mostly a prepayment, not an extra tax. The certificates that land in your iTax profile are credits against your final income tax bill — a consultant who suffered 5% all year deducts every shilling of it from the tax due on their return. The exceptions are payments where withholding is final, such as winnings and most payments to non residents. The discipline that matters: reconcile the certificates on iTax to your invoices every quarter, because a customer who deducted but never remitted has cost you a credit you will need at filing time — worth knowing before the new April filing deadline compresses your year end.
Where SMEs slip
- Paying directors' or consultants' fees gross because "it's internal".
- Treating the 20th as the WHT deadline — it is five working days.
- Forgetting the new categories the Finance Act 2026 added, including merchant and interchange fees.
- Never logging in to check certificates received, then overpaying at year end.
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