SEMINAR ON INDIRECT TAXES, TRANSFER

PRICING AND EMERGING ISSUES IN

TAXATION

SESSION TOPIC
“Withholding Tax (WHT)”

Hilton Hotel Nairobi, Friday 29th April, 2016

Facilitator
FCPA Erastus K. Omolo
Horwath Erastus & Co., Certified Public Accountants
E-mail : horwatherastus@crowehorwath.co.ke
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CONTENTS
ü Introduction

ü Services subject to WHT

ü Exemptions under WHT
ü Double Tax Agreements (DTAs)

ü WHT Rates

ü Penalties under WHT Regime

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3
Tax that is deductible from certain
classes of income at the point of
making a payment to non-employees.
It can be an advance tax or a first and
final tax.

Person making payment is responsible

for deducting and remitting the tax to
the Commissioner of Domestic Taxes.
 Introduction - Key Definitions
“Management or Professional Fees” – means
payment made to a person other than an
employee by his employer, as a consideration
for:-

q Managerial

q Technical
q Agency

q Contractual
q Professional
q Consultancy services
 Introductions - Key Definitions

“Training Fee” - means payment made in

respect of business or user training
service designed to improve work
practice and efficiency of an
organization and includes any payment in
respect of incidental cost associated
with provision of such services

“Consultancy Fees” – means payment to

any person acting in an advisory
capacity or providing services on a
consultancy basis
 Introduction - Key Definitions

“Agency fees” means payments made to

a person for acting on behalf of any other
person or group of persons, or on behalf
of the government and excludes any
payments made by an agent on behalf of
a principal when such payments are
recoverable.
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1. Management : Management services

2. Technical : Technical nature

3. Agency : Representative role

4. Contractual : Construction Contracts

5. Professional : Scheduled Professions

6. Consultancy : Sale of Skills

7. Training : Improving skills, practice and
efficiency

WHT IN NON – SERVICE INSTANCES – Include:-

Ø Rent payable to a non resident person

Ø Windfall gains from betting and gaming.

Ø Deemed interest – Thin Capitalization cases

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Case of exception:-
q Withholding Tax not deductible where
payments to a resident person is less than
Kshs 24,000/= in a month (calendar).

q Where the payer is exempt under any law in

Kenya e.g official aid funded projects
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DTAs are agreements negotiated between
countries or jurisdictions to provide for
reciprocal rights of a territory with
respect to taxation.

The main aim of a DTA is to:-

¨ Eliminate double taxation of income and
capital
¨ Curb tax avoidance and evasion
¨ Enhance capital import and export
neutrality and hence encourage cross
border investments
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How DTAs work:-
q Unless the treaty expressly states
otherwise – tax will be paid in Kenya in
the first place and claimed by the other
party (if possible) in the home country.
q Acceptable evidence of the tax paid in
Kenya may vary from country to country
but may include KRA receipts or
certificates
q Where the treaty rate is higher than the
non-treaty rate, the lower rate applies. 15
1. Zambia –1968, Legal Notice No. 10/1970

2. Norway –1972, Legal Notice No. 6/1973

3. Denmark –1972, Legal Notice No. 5/1973

4. Sweden – 1973, Legal Notice No. 14/1973

5. U.K – 1973, Legal Notice No. 253/1977

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6. Germany – 1977, Legal Notice No. 20/1980

7. Canada – 1983, Legal Notice No. 111/1987

8. India – 1985, Legal Notice No. 61/1989

9. France- 2007, Legal Notice No. 140/2009

10. Mauritius- 2012, Legal Notice No. 59/2014

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1. South Korea - 2014;

2. Qatar - 2014;

3. Seychelles - 2014;

4. South Africa - 2010;

5. United Arab Emirates - 2011;

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6. Nigeria- 2013;

7. Kuwait- 2013;

8. East African Community “EAC”

Multilateral DTA (Kenya-Tanzania-
Uganda-Rwanda- Burundi - 2010); and

9. Italy - 1979.

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1. Ethiopia

2. Sri Lanka

3. Turkey

4. Finland

5. Russia
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Withholding Tax Rates – DTTs Only
Royalties
Payee
Mngt &
Resident in Divs Intrst
Prof. Fees
% % %
Canada 10 15 15
Denmark 10 20 20
Germany 10 15 15
India 10 15 20
Norway 10 15 20
Sweden 10 15 20
U.K 10 15 12.5
Zambia 0 15 20
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22
 Withholding Tax Rates

The percentage rate of Withholding

Tax varies on the basis of the tax
subject.

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 Withholding Tax Rates (Normal)
Applicable rates of withholding tax /
comparative
Payment Status

Non
Residents
Residents
Dividends 5% 10%
Interest
- Housing Bonds 10% 15%

- Other sources 15% 15%

Insurance Commission
- Brokers 5% 20%
Consultancies 10% 20%
Construction 3% 20%
Management or 5 20
Professional fees
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 Withholding Tax Rates (Normal)
Applicable rates of withholding tax /
Comparative

Payment Status

Non
Residents
Residents

Winnings from 10% 20%

gaming and Betting
Training (including
incidental costs) 5% 20%

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Where a person, when under obligation fails to
deduct / withhold :-

1) Commissioner may impose a penalty equal to

10% of the amount of tax to a maximum of Kshs
1Million.

2) Upon conviction :-
a.) A fine of upto Kshs 100,000/=

b.) Imprisonment – not exceeding 6 months

c.) Both fine and imprisonment

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Note:-
Withholding Tax should be remitted by the
20th of the month following the month of
deduction.

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Requirements:-

a. Update your tax payer obligations on ITMS to

include Withholding tax

b. Register your company on iTax

c. The tax PIN of Withholdee

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Process:-

a. On the KRA website, click on the huge iTax

banner that will redirect you to the iTax login
page. Using your company PIN Number and
password, log into the system.

b. Proceed to the “Payments” tab then select

“Payment registration”

c. Fill out the “Tax Head” by selecting “Income

Tax” and the “Tax Sub Head” as “(0105)
Income Tax – Withholding”.

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Process:-
d. Choose your method of submission either “By Using
Excel Upload” or “By Web Form”

e. The “Excel Upload” option directs you to download an

excel sheet. After downloading it, proceed to fill the
payment excel sheet, save and validate it and then
upload it onto iTax using the browse button given.

f. If you choose the “Web Form” proceed and select the

“Nature of Transaction” (one your supplier belongs to).

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Process:-

g. Fill out the “Withholdee’s PIN” number and “Gross

Amount” the system will fill out the rest of the details
for you, ( ie, their full names, address, email and tax
rate).

h. Click “Add” button so that that transaction is added to

the list of transactions that you have. (Add new
transaction lines if you have more than one supplier you
are withholding for and are preparing their report).

i. Finally select “Mode of Payment” and the “Receiving

Bank Name”(the bank where you will make your
payment) and click SUBMIT.
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Process:-

j. The system will submit your withholding details for that

month and give you back a ‘download link’ where you
can download your withholding tax “Payment Slip”.

k. A copy is sent to your email address and your supplier

also automatically receives their Withholding Tax
Certificate.

l. Print the payment slip in 2 copies and take to the bank

you selected to make your payment.

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 All withholding taxes deducted from
I.
payments to non-resident persons.

Payments to resident individuals where

II.
WHT becomes the final tax:-

a.Withholding Tax on qualifying interest

b.Withholding Tax on qualifying dividends.

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Horwath Erastus & Co., Certified Public
Accountants
www.crowehorwath.net/ke
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