How can an Umbrella Company Help with Contracting in Kenya?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Kenya. Even better, most are experts in Kenyan and expat tax law, meaning they’ll also help you optimize your earnings in Kenya.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Kenya.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Kenya, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Kenya and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Kenya
One of the most consistently challenging aspects of contracting in Kenya is complying with the country’s tax system. As well as paying tax in Kenya, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Kenya
If you’re working in Kenya under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Kenya for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Kenya, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Kenya through PAYE is left with the prospect doing everything themselves.
Do you know much about Kenyan Tax Law? Does Kenya have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Kenya can range from 10 to 30 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Kenya
| When Do You Need to Lodge Your Tax Return? | 30 June (in the year following the income year) |
| Tax Filing Deadline | 30 June (in the year following the income year) |
| Can you file it online? | Yes, https://itax.kra.go.ke/KRA-Portal/ |
How to File Taxes in Kenya as a Contractor
Step 1: Apply for a PIN
Apply for a PIN online here(link is external), to use iTax. iTax allows individuals to file taxes online.
Step 2: Login to iTax
Enter your PIN, password, and answer to security question on the iTax online portal website here.
Step 3: File Returns
Click on ‘File Returns’ under ‘Returns’ on the navigation bar.
If you are only reporting employment income, click on ‘ITR For Employment Income Only’. See steps 4 to 7 on how to file employment income taxes only.
Enter your PIN and select the tax obligations that apply to you. The following page will walk you through the filing process. In general, click on the links provided to download the Tax Return forms in Excel of ODS format.
Fill out all the applicable field in the downloaded tax return forms and save the documents. Zip your file.
Return to the page and select the period for which you are filing the returns, upload your zipped file, agree to the terms and select ‘Submit’.
Step 4: Fill in Fields
Fill in all the fields marked with a red asterisk. Under ‘Section T: Tax Computation’, only 2 items are necessary if your employer has correctly submitted their tax returns.
The 2 items you need to fill are:
Item 1.1: ‘Defined/Pension Contribution’. Fill in the actual amount you have contributed.
Item 2.5: ‘Personal Relief’. Fill in the annual relief up to a maximum of 13,944.
Step 5: Fill Section F, ‘Details of employment income’
Scroll to the bottom of section F and confirm gross pay, as per the P9 form. This information has been pulled from the monthly returns filed by your employer. This can be modified by clicking modify if your employer has submitted less than 12 returns for the income year.
Step 6: Fill Section M, ‘Details of PAYE: Deducted at Source from Salary’
Confirm that the taxable salary, tax payable and tax deducted, match the information on the P9 form and modify if necessary.
Step 7: Fill out Section Q, ‘Details of Income Tax Paid in Advance’
Fill in the details of any taxes paid prior to filing current returns, if applicable.
Once complete, click ‘submit’.
Tax Figures in Kenya
| Currency | Kenyan Shilling (KES) | ||||||||||||
| Tax-free Threshold in Kenya | None | ||||||||||||
| Income Tax Rates |
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| Notes | Tax Exemptions: Bonuses, overtime allowances and retirement benefits paid to employees earning less than KES147,580 per year are exempt from tax. Taxable income is based on income before bonuses, overtime allowances, and retirement benefits. Withholding Taxes: Employment income taxes are paid by withholding under the PAYE system. Payment Deadlines: An individual whose tax liability exceeds KES40,000 per annum (not including taxes withheld at source), is required to pay 4 instalments by 20 April, 20 June, 20 September, and 20 December. The instalment tax payable is 25% of (i) 110% of tax assessed in the prior year or (ii) the taxpayer’s estimate, whichever is the lower amount. |
Tax Residency in Kenya
When do you become a tax resident in Kenya
You become a tax resident in Kenya when:
- You have a permanent home in Kenya and were present in Kenya for any period of time in the income year;
- You do not have a permanent home in Kenya but were present in Kenya for 183 days or more in the income year; or
You do not have a permanent home in Kenya but were present in the income year and in the 2 preceding years for a average of more than 122 days in each year of income.
Does the 183 day rule apply in Kenya
Yes
Am I taxed on my global income in Kenya
Residents are taxed on their global income.
Non-residents are taxed on their Kenya-sourced income only.
Can you set up your own Limited Company in Kenya?
| How long does it take to set up | 6 days |
| How much does it cost | KES18,300 – KES19,300 |
| Is it easy? | Starting a Business Rank: 117/190 (Source: World Bank) |
Tax Calculator in Kenya
If you are a contractor and want a calculation on your tax and net retention in Kenya, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Kenya
Contractors in Kenya are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Kenyan umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Kenyan taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Kenyan tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Kenya
We work with numerous umbrella companies in Kenya, many of whom are experts in tax and immigration laws. If you have any questions about tax in Kenya, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Kenyan work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Kenya but without the overhead of directly dealing with the Kenyan tax authorities. Get in touch with us today for some reliable advice on tax in Kenya!
A Contractor’s Guide to Work Permits in Kenya
Immigration is one of the primary concerns for any contractor hoping to start working in Kenya. Permanent employees will find it easy to get their Kenya work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Kenyan work permit, known more commonly as the Kenyan e-Visa, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Kenya is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Kenya (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Kenya. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Kenya and match contractors with the right company for them. If you’ve already secured a contract in Kenya, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
