When it comes to taxes in Kenya, individual consultants and freelancers are subject to the same regulations. This is because they have multiple sources of income. Their income is determined by their productivity.
In this article, I will shed a light on the kind of tax obligations that consultants and freelancers needs be enrolled in.
Income Tax
This is compulsory tax for all people with a Tax PIN. Income tax is filled annually by the taxpayer on iTax portal. This is the direct tax on income and is charged for each year of income on all the income of a person, with resident or non resident that is accrued in or was derived from Kenya.
As of July 2023, tax rates now vary depending on the amount of income you earn per year. Here is table.
| Tax Band | Annual Income ksh. | Monthly Income Ksh. | Rate |
| On the first | 288,000 | 24,000 | 10% |
| On the next | 100,000 | 8,333 | 25% |
| On the next | 5,612,000 | 467,667 | 30% |
| On the next | 3,600,000 | 300,000 | 32.5% |
| On the excess of | 9,600,000 | 32,333 | 35% |
Every individual tax payer is entitled to get a Personal Relief of Kshs. 28,800 per annum (Kshs. 2,400 per month). This only applies to resident tax payers. Non residentials are expected to pay their taxes at the rates indicated above with no relieve.
Most consultancy clients will withhold 5% of the total cost of services and remit the amount to Kenya Revenue Authority. This amount reflects in your account and deducted from tax payable at the end of the year. E.g if your tax payable at the end of the year is Ksh. 50,000 and your total withholding tax credit amount is Ksh. 20,000, then you will pay Ksh. 30,000 as tax payable.
Penalties – If you don’t file your income tax returns 6 months after your annual accounting year has ended, you will be penalized Ksh. 20,000.
VAT Tax
VAT tax is an indirect tax that is paid by person who consumes taxable goods and services supplied and consumed in Kenya. This is another tax obligation that a freelancer or a consultant needs to voluntarily enroll in order to benefit. Its not mandatory but necessary if you are charging VAT on your services or your client is withholding VAT tax on the services that you have rendered.
Additionally, it benefits you as all the VAT tax on purchases on your PIN will be credited into your tax account via ETIMS. This is accounted for when you file your return at the end of the month.
Unless otherwise, VAT tax rate for freelancers and consultants is 16% of the total cost of goods or services.
Once you are enrolled for VAT tax, you will be required to file return before the 20th date of every month. As of November 2024, most of the purchases and sales tax are prepopulated into the downloadable return excel sheet to simplify the process.
How To Claim VAT Tax
- In order to claim VAT tax on all your purchases, you need to first enroll for VAT tax via iTax portal. Once the VAT obligation is added to your PIN, you can start claiming VAT on all your purchases while filling your monthly returns.
- When making purchases, ask your seller for VAT tax receipt. They will request that you give them your PIN number. This way your purchase will qualify as it will be registered on ETIMS.
- Keep all receipts with claimable VAT in your file for easy reference.
- File your VAT returns before 20th day of the following month for previous months return. e.g. You file January VAT returns before 20th Feb.
- You will be penalized Ksh.10,000 if you file your returns later than 20th day of the month.
Digital Marketplace Supplies Registration
If you’re a non-resident freelancer or consultant selling goods or services in Kenya over the internet, an electronic network, or a digital marketplace, you must register for Value Added Tax (VAT). This applies even if your sales are less than the usual KES 5 million annual turnover threshold.
Paying Your Taxes
You can pay your tax online on iTax portal. You can pay via Mpesa or Bank. You will first need to generate a payment slip on iTax portal then use the payment slip No. for the payment to be processed. If you have any problem, its advisable to contact KRA support for assistance.
Conclusion
Understanding your tax obligations makes navigating the tax system straightforward. Paying taxes is essential for the growth and expansion of your freelance or consultancy business. Don’t be misled into avoiding your tax responsibilities.
Tax-compliant freelancers and consultants are often the preferred choice for businesses and individuals seeking services. Adhering to tax regulations also opens doors to higher-value contracts, as many organizations require proof of tax compliance before awarding significant projects.
And that is it from me here. I hope you have found this article helpful. Let me know your thoughts in the comments section below. And if you need help to create content, you can reach out to me here.
Up until next time, bye bye and take care.
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