Business Tax Compliance: Complete Guide for Kenyan Businesses

Understand all compliance requirements for running a business in Kenya and stay on the right side of KRA.

In Simple Terms

Business tax compliance means meeting all your tax obligations as a business owner in Kenya. This includes registering for taxes, filing returns on time, paying taxes due, and maintaining proper records. Non-compliance can result in penalties, interest, and even legal action.

Overview

Every business in Kenya has tax compliance obligations. These vary depending on:

  • Type of business (sole proprietorship, partnership, company)
  • Annual turnover
  • Nature of business activities
  • Number of employees
  • Location of business

Business Registration

Before you can comply with tax obligations, you must register your business:

Step 1: Business Name Registration

  • Register business name with Business Registration Service (BRS)
  • Obtain business registration certificate
  • This is required before applying for KRA PIN

Step 2: KRA PIN Registration

  • Apply for KRA PIN online or at KRA offices
  • Provide business registration documents
  • Receive your PIN certificate
  • Activate your iTax account

Tax Registration Requirements

Depending on your business, you may need to register for:

VAT Registration (Mandatory if turnover > KES 5M)

Required when annual turnover exceeds KES 5 million. You must:

  • Register for VAT within 30 days of exceeding threshold
  • File monthly VAT returns
  • Comply with eTIMS requirements
  • Issue VAT invoices

PAYE Registration (If you have employees)

Required if you employ staff. You must:

  • Register as an employer
  • Deduct PAYE from employee salaries
  • File monthly PAYE returns
  • Remit PAYE, NSSF, NHIF, and Housing Levy

Turnover Tax (TOT) - Optional

Available for businesses with turnover below KES 50M. You can:

  • Opt for TOT instead of VAT and CIT
  • Pay 3% of gross turnover
  • File quarterly returns

Ongoing Compliance Obligations

Once registered, you must maintain compliance through:

Key Ongoing Requirements

  • Record Keeping: Maintain proper books of accounts
  • Filing Returns: File all required returns on time
  • Tax Payments: Pay all taxes due by deadlines
  • eTIMS Compliance: Issue compliant invoices (if VAT registered)
  • Employee Compliance: Deduct and remit employee taxes
  • Annual Returns: File annual tax returns
  • Audit Cooperation: Cooperate with KRA audits

Filing Requirements by Tax Type

VAT Returns

  • Frequency: Monthly
  • Deadline: 20th of the following month
  • Content: Output VAT, Input VAT, Net VAT payable/refundable
  • Payment: Due with return filing

PAYE Returns

  • Frequency: Monthly
  • Deadline: 9th of the following month
  • Content: Employee details, PAYE, NSSF, NHIF, Housing Levy
  • Payment: Due with return filing

Corporate Income Tax (CIT)

  • Frequency: Annual
  • Deadline: 6 months after year-end
  • Content: Profit and loss, tax computation
  • Installments: Quarterly installments during the year

Turnover Tax (TOT)

  • Frequency: Quarterly
  • Deadline: 20th of the month following quarter end
  • Content: Gross turnover, tax payable
  • Payment: Due with return filing

Compliance Calendar

Key dates to remember:

Monthly Deadlines

  • 9th: PAYE return and payment
  • 20th: VAT return and payment
  • 20th: TOT return and payment (quarterly)

Annual Deadlines

  • June 30th: Individual Tax Return (ITR)
  • 6 months after year-end: Corporate Income Tax return
  • Throughout the year: Quarterly CIT installments

Penalties and Consequences

Non-compliance can result in:

Penalties for Late Filing

  • KES 2,000 or 5% of tax due (whichever is higher)
  • Additional KES 1,000 per month for continued non-compliance
  • Interest at 1% per month on outstanding tax

Penalties for Late Payment

  • 25% of tax due for late payment
  • Interest at 1% per month
  • Potential prosecution for willful non-compliance

Other Consequences

  • KRA may freeze your bank accounts
  • Difficulty obtaining business licenses
  • Impact on credit rating
  • Legal action and prosecution
  • Business closure in extreme cases

Compliance Tips

Best Practices

  • Set up reminders: Use calendar alerts for all deadlines
  • Maintain good records: Keep all receipts and invoices organized
  • File early: Don't wait until the deadline
  • Use accounting software: Automate calculations and reminders
  • Seek professional help: Hire an accountant for complex situations
  • Stay informed: Tax laws change, keep updated
  • Reconcile regularly: Monthly reconciliation prevents errors
  • Keep separate accounts: Separate business and personal finances