Remittance Tax: Tax Implications of Sending Money to Kenya
Understanding how remittances to Kenya are taxed and what you need to know when sending money home.
In Simple Terms
Remittance tax is a tax on money sent to Kenya from abroad. However, not all remittances are taxable. The tax typically applies to certain types of payments and services, not personal remittances to family members. Understanding when this tax applies can help you plan your remittances effectively.
Overview
Remittance tax in Kenya is a withholding tax on certain payments made to non-residents or payments made from outside Kenya. It's important to distinguish between:
- Personal remittances: Money sent to family members (generally not taxable)
- Business remittances: Payments for services, royalties, interest (may be taxable)
- Investment remittances: Dividends, capital gains (may be taxable)
What is Remittance Tax?
Remittance tax is a form of withholding tax that applies to certain payments made from Kenya to non-residents, or payments made from outside Kenya to Kenyan residents in specific circumstances.
Official Definition (KRA)
Remittance tax is levied on payments made to non-residents for services rendered, royalties, interest, management fees, and other specified payments. It's deducted at source by the payer before the payment is made.
When Remittance Tax Applies
Remittance tax applies to specific types of payments:
Taxable Remittances
- Professional services: Fees paid to non-resident professionals
- Management fees: Payments for management services
- Royalties: Payments for use of intellectual property
- Interest: Interest paid to non-residents (subject to withholding tax)
- Consultancy fees: Payments for consulting services
- Technical services: Payments for technical expertise
Non-Taxable Remittances
- Personal remittances to family members
- Gifts to family and friends
- Personal savings transfers
- Educational expenses for dependents
- Medical expenses for family
- Payments covered by double-taxation treaties (with proper documentation)
Remittance Tax Rates
The remittance tax rate depends on the type of payment:
Current Rates (2024)
| Payment Type | Tax Rate |
|---|---|
| Professional/Management Fees | 20% |
| Royalties | 20% |
| Interest (to non-residents) | 15% |
| Dividends (to non-residents) | 15% |
| Technical Services | 20% |
Important Note
These rates may be reduced or eliminated if there's a double-taxation treaty between Kenya and the recipient's country. Always check the applicable treaty provisions.
Exemptions from Remittance Tax
Certain remittances are exempt from tax:
Exempt Remittances
- Personal remittances to family members (not for services)
- Payments covered by double-taxation treaties (with proper documentation)
- Remittances to registered charities and NGOs
- Educational expenses for dependents
- Medical expenses for family members
- Payments to residents (remittance tax only applies to non-residents)
How to Calculate Remittance Tax
Worked Example
Scenario: You're a Kenyan company paying KES 1,000,000 in management fees to a non-resident consultant in the UK.
Step 1: Determine the tax rate
Management fees: 20%
Step 2: Calculate remittance tax
KES 1,000,000 × 20% = KES 200,000
Step 3: Amount to remit
KES 1,000,000 - KES 200,000 = KES 800,000 (net payment)
Result: You pay KES 200,000 to KRA and remit KES 800,000 to the consultant.
With Treaty Benefits
If there's a UK-Kenya tax treaty reducing the rate to 10%:
Remittance tax: KES 1,000,000 × 10% = KES 100,000
Net payment: KES 1,000,000 - KES 100,000 = KES 900,000
Savings: KES 100,000
Filing and Payment
The payer (person making the payment) is responsible for:
Responsibilities
- Deduct tax at source - Withhold the remittance tax before making payment
- File withholding tax return - Submit return to KRA within 20 days of the month end
- Pay the tax - Remit the tax to KRA by the due date
- Issue certificate - Provide the recipient with a withholding tax certificate
- Maintain records - Keep all documentation for at least 5 years
Penalties for Non-Compliance
- Penalty of 25% of tax due for late payment
- Interest at 1% per month on outstanding amounts
- Additional penalties for continued non-compliance
- Potential prosecution for willful non-compliance
Common Questions
Do I pay remittance tax on money I send to my family?
No, personal remittances to family members are generally not subject to remittance tax. This tax applies to payments for services, royalties, and other business-related payments to non-residents.
Who is responsible for paying remittance tax?
The payer (person or company making the payment) is responsible for deducting and remitting the tax to KRA. The recipient receives the net amount after tax.
Can I claim a refund if I overpaid remittance tax?
Yes, if you've overpaid remittance tax, you can claim a refund from KRA. You'll need to provide documentation showing the overpayment and file the appropriate refund claim form.
How do double-taxation treaties affect remittance tax?
Tax treaties can reduce or eliminate remittance tax rates. To claim treaty benefits, you typically need to provide a tax residency certificate from the recipient's country and complete the appropriate forms.