Kenyan withholding tax on dividends and interest
The withholding tax a Kenyan company deducts from dividends and interest, the exemption for large corporate shareholders, and how to remit and record it.
By Achekam · · 4 min read · For Running a business businesses in Kenya
The year has been good and the directors want to pay a dividend. Or a shareholder lent the company money two years ago and is owed interest. In both cases the cheque, or the transfer, is not for the full amount. A Kenyan company that pays a dividend or interest generally has to deduct withholding tax first, pay it over to KRA and give the recipient the net.
Small companies often get this wrong in one of two ways: they pay the full amount and later discover that the tax is still due from the company, or they deduct at the wrong rate because the shareholder's position was never checked. This article sets out the rates at the time of writing, the exemption that matters most to companies owned by other companies, a recent change for East African shareholders, and how to remit and record the tax.
Interest
Kenyan withholding tax on interest is 15% at the time of writing. If the company pays interest on a loan from a director, a shareholder or anyone else within the rules, it deducts the tax from the interest and pays the net to the lender.
The trap here is the informal loan. A director who has lent the company money with no written agreement may still be owed interest under whatever was agreed, and when it is paid, the withholding question arises. Write the terms down, and agree with your accountant when the interest is treated as paid.
Dividends to residents and non-residents
On dividends, withholding tax is 5% for residents and 15% for non-residents at the time of writing. A dividend to a shareholder who lives in Kenya is taxed at the resident rate; a dividend to one who lives abroad at the non-resident rate.
Residence is a question about the shareholder, not their nationality or their passport. A Kenyan citizen who has moved abroad may be non-resident; a foreign national living and working in Kenya may be resident. Check, and keep the evidence.
The exemption for a resident company with enough of the votes
A resident company that holds 12.5% or more of the votes in the paying company is exempt from withholding tax on its dividends. It lets dividends pass between companies in a Kenyan group without withholding tax at each step.
Two conditions do the work: the shareholder must be a resident company, and its holding must reach 12.5% of the votes. A resident individual with a large holding does not qualify, and neither does a resident company with a smaller one. Record the shareholding and the voting rights on the date the dividend is declared.
The Finance Act 2026 change for EAC citizens
Kenya used to apply a 5% rate to dividends paid to non-resident citizens of the East African Community. The Finance Act 2026 deleted that rate. If your company has shareholders who are EAC citizens living outside Kenya, do not carry the old rate forward from previous years' workings: ask your adviser which rate now applies and from when.
KRA's page on withholding tax explains how withholding tax works, the resident and non-resident rates by type of payment, and the deadline for remitting the tax deducted. Check it before each dividend, because Finance Acts change these rates more often than dividends are declared.
Remitting and recording
Withholding tax is remitted to KRA by the 20th of the month after the payment. Generate a payment slip on iTax for the tax and note its Payment Registration Number, then pay at a bank or by M-Pesa to government paybill 222222 with the PRN as the account number. Paybill 572572 is discontinued.
Achekam records a Kenyan tax payment with KRA's own reference and receipt, the PRN and the bank or M-Pesa confirmation. It never generates a payment reference of its own, refuses a payment recorded against paybill 572572, and needs a second person to confirm each payment.
What Achekam computes
Once its rules are approved, Achekam computes Kenyan withholding tax among the other Kenyan taxes it handles, from corporation tax to stamp duty. Every Kenyan tax figure in Achekam's rule book was seeded "under review", and nothing is computed from a figure until an Achekam platform administrator approves it. Until then, work the withholding out by hand and have someone else check it.
Checking the rate before each payment
A worked example in words. A company declares a dividend to three shareholders: a resident individual, a non-resident individual, and a resident company holding more than 12.5% of the votes.
| Shareholder | Rate at the time of writing | What to keep |
|---|---|---|
| Resident individual | 5% | Evidence of residence |
| Non-resident individual | 15%, or as your adviser confirms for EAC citizens | Evidence of residence abroad |
| Resident company with 12.5% or more of the votes | Exempt | Share register and voting rights on the date |
Before each payment of a dividend or interest:
- List every recipient and their residence.
- Check the current rate for each on KRA's page.
- Check any company shareholder's voting percentage on the declaration date.
- Deduct, pay the net and note the date of payment.
- Remit the tax by the 20th of the following month with a PRN.
- Record the payment and have a second person confirm it.
Withholding on payments to consultants, trainers and contractors works on different rates; see deducting withholding tax from Kenyan suppliers. The 20th, when withholding tax is due, is also VAT day; see a Kenyan business's tax calendar.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
