Withholding tax is a tax deducted from certain incomes at source, and remitted to the Commissioner on behalf of the recipient. In Kenya, withholding tax is levied at varying rates (3% to 25%) on a range of payments to residents and non-residents. Resident withholding tax is either a final tax or creditable against Corporate Income Tax (CIT), while non-resident withholding tax is a final tax. The payer of any of the incomes subject to withholding tax is responsible for deducting tax at source from payments made and remitting the deducted tax to the Kenya Revenue Authority (KRA) within five working days after the deduction is made. Payment of withholding tax is done online via iTax by generating a payment slip and presenting it at any of the appointed KRA banks to pay the tax due.

Some examples of payments subject to withholding tax in Kenya include management, professional or training fees, consultancy fees, legal fees, audit fees, contractual fees, winnings, appearance at or performance to entertain, royalties, interest and deemed interest, and dividends. However, there are some exemptions to withholding tax, such as dividends received by a company resident in Kenya from a local subsidiary or associated company in which it controls (directly or indirectly) 12.5% or more of the voting power, interest payments to financial institutions stated in the fourth schedule of the Income Tax Act, payments made to tax-exempt bodies, resident management, professional, training and contractual fees whose aggregate value is Ksh 24,000 and below in a month, and air travel commissions paid by local air operators to non-resident agents.

The rates of withholding tax applicable for non-residents may vary if the payee is a resident of a country which has a double tax agreement (DTT) with Kenya that provides a different rate. The DTTs provide for lower or nil withholding tax rates in some instances. If a payer fails to withhold tax, the tax shall be deemed to be due and payable by the payer as though they were the person who earned the income, and the due date for the payment shall be the date on which the amount of tax should have been remitted to KRA. A late payment penalty of 5% shall also apply on the tax due together with a late payment interest of 1% per month for the period that the tax remains unpaid.