Tag: KRA

  • 3 Tax Loopholes Every Kenyan Freelancer Should Know in 2025

    3 Tax Loopholes Every Kenyan Freelancer Should Know in 2025

    Let’s be honest. As a freelancer, what’s the one thing that gives you more stress than a difficult client or a looming deadline? For most of us, it’s taxes.

    That dreaded email from the KRA, the confusion around what to pay, and the constant fear of penalties can be overwhelming. It’s especially tough when your income isn’t a fixed monthly salary. One month you’re crushing it, and the next is quiet. How are you supposed to manage your tax obligations with that kind of unpredictability?

    Well, what if I told you that you might be leaving money on the table? What if there were simple, 100% legal ways to not just pay your taxes, but to actually save money in the process?

    Stop stressing and start saving. Here are three powerful, yet simple, tax strategies every freelancer and small business owner in Kenya needs to know for 2025.

    1. Make Withholding Tax Work FOR You

    First up is a concept that many freelancers find confusing: Withholding Tax. You might have seen it on a client’s contract—a 5% deduction—but what is it, really?

    Think of it like this: Withholding Tax is a client pre-paying a small part of your annual tax bill on your behalf. It’s like a forced savings account specifically for your taxes!

    Here’s how it works in simple terms. Let’s say you’re a freelance consultant and you send an invoice for a project worth 100,000 shillings.

    When your client pays you, they are required by the KRA to “withhold” 5% of that service fee, which amounts to 5,000 shillings. You receive the remaining 95,000 shillings in your bank account.

    But that 5,000 shillings isn’t gone forever. The client remits it directly to the KRA under your KRA PIN. It now sits safely in your KRA account as a tax credit.

    So, how does this save you money?

    At the end of the year when you file your annual returns, imagine the KRA calculates that your total income tax for the year is 50,000 shillings. Instead of paying the full amount, you get to deduct all the withholding tax credits you’ve accumulated. If you completed ten projects just like the one above, you’d have 50,000 shillings (5,000 x 10) already sitting in your KRA account.

    Your tax bill just went from 50,000 down to ZERO.

    By operating as a registered business (even a simple Sole Proprietorship), you can turn this tax deduction into a powerful tool for managing your end-of-year tax bill.

    2. Turn Your Business Expenses into Tax Savings with VAT

    This next strategy is a game-changer, especially if you’re looking to grow your freelance work into a serious business. We’re talking about VAT (Value Added Tax).

    Don’t let the term intimidate you. Imagine you have two piggy banks:

    • Tax Bank #1 is for the VAT you collect from your clients.
    • Tax Bank #2 is for the VAT you pay on your business expenses.

    When you register for VAT, you must add 16% to your invoices. So, if you charge a client 100,000 shillings, you actually invoice them for 116,000 shillings. That extra 16,000 goes into Piggy Bank #1. It’s not your money—you’re just holding it for the KRA.

    Here’s the magic part.

    Whenever you buy something for your business—a new laptop, an internet subscription, software, or even office supplies—you also pay 16% VAT. That amount goes into Tax Bank #2.

    At the end of the month, the KRA asks for the money in Piggy Bank #1. But you get to say, “Hold on! I can subtract everything that’s in Tax Bank #2 first.”

    For example:

    • You collected 32,000 Ksh in VAT from your clients this month (Tax Bank #1).
    • However, you bought a new office chair and paid 5,000 Ksh in VAT. You also paid for software and paid 3,000 Ksh in VAT. In total, you paid 8,000 Ksh in VAT on your expenses (Tax Bank #2).

    So, the amount you actually remit to the KRA is 32,000 minus 8,000, which equals 24,000 shillings.

    You just saved 8,000 shillings! You’re essentially getting a discount on all your legitimate business purchases, which encourages you to reinvest in your own growth. Just remember to always get a proper ETR receipt with your business KRA PIN on it to make a claim.

    3. The Easiest Money You’ll Ever Save

    This last one isn’t a fancy loophole. It’s the most simple, most overlooked way to save money, and it costs you nothing but a bit of discipline: File your taxes on time.

    Seriously.

    The KRA charges fixed penalties for late filing that can add up quickly.

    • For an individual or a sole proprietorship, it’s Ksh. 2,000.
    • For a registered company, it’s Ksh. 10,000.

    That’s money you are literally throwing away for no reason. Think about it—saving Ksh. 2,000 is just as good as earning an extra Ksh. 2,000.

    Set a reminder on your phone. Put a big red circle on your calendar for June 30th. Do whatever it takes to file on time, even if you have zero income to declare for the year. Avoiding that penalty is the easiest profit you’ll make all year.

    Taxes don’t have to be a source of stress. When you understand the system, you can make it work for you.

    For more expert tips on freelance, media, tech, and business, make sure to follow me on all social media platforms @cheptionymutai. Let’s level up together!

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  • Understanding Your Tax Obligations As a Freelancer & Consultant Living in Kenya

    Understanding Your Tax Obligations As a Freelancer & Consultant Living in Kenya

    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 BandAnnual Income ksh.Monthly Income Ksh.Rate
    On the first 288,00024,00010%
    On the next100,0008,33325%
    On the next5,612,000467,66730%
    On the next3,600,000300,00032.5%
    On the excess of9,600,00032,33335%
    Source : Kenya Revenue Authority.
    Watch Video – Understanding Tax Obligations as a freelancer or consultant

    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

    1. 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.
    2. 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.
    3. Keep all receipts with claimable VAT in your file for easy reference.
    4. 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.
    5. 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.

    Follow me on social media @cheptionymutai

  • How to Close a KRA Pin Online

    In this video I am going to show you how to close a KRA Pin online. Stay tuned.

    How to Close A KRA PIN Online

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  • How to Check if a KRA Pin or Tax Compliance is Valid

    Watch the video tutorial

    With technology now part of our life’s, anything can happen. The probability of someone using your Tax PIN or Tax Compliance Certificate to carry out unscrupulous business activities is very high.

    That’s why it is important for hiring managers and tendering companies to check validity of the Tax documents submitted by the applicants.

    Doing this will protect them and PIN holders from the consequences of identity theft.

    Statistics on Identity Theft

    The figures released last year (2020) by the US Federal Trade Commission (FTC), a consumer protection agency, show that identity theft reports were more than triple the number from 2018. Cases reached 1.38 Million in 2020 compared to 444,344 in 2018.

    This is 2,920 percent annual hike in the number of identity theft cases. The victims said their information was used to apply or receive government benefits such as unemployment compensation, obtain driver’s licenses, passports and other government-issued documents.

    The disturbing trend likely stemmed from the trillions of federal dollars unleashed in COVID-19 relief.

    According to Kenya Market Analytics report released by Transunion; an American consumer credit reporting agency in 2020, Fraud is an ongoing and increasing concern. Annual losses from identity theft and loan stacking amount to approximately KES 13.3 billion.

    What can you do about it?

    We can change this story if me and you can utilize use the tools available to verify documents as CEO’s, Human Resource Executives and procurement officers of the companies we represent.

    That’s why in this blogpost, I will show you how to check validity KRA Tax compliance certificate and PIN number.

    Please watch the video to see how.

    If you have any questions or concerns? let me know here.

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    Until next time, take.

    Follow me on twitter @cheptiony.