Quick Answer
A registered business deals with several taxes through KRA: income tax on profits (or turnover tax for small businesses), VAT if it crosses the registration threshold, and PAYE if it has employees. All are handled on iTax.
Key facts
- Business income is taxed by KRA.
- Small businesses may pay Turnover Tax on gross sales.
- VAT applies once you cross the registration threshold.
- Employers must deduct and remit PAYE for staff.
Tax on business income
A business pays tax on its income: a company pays corporate income tax on profits, while a sole proprietor’s business income is taxed as part of personal income tax. Smaller businesses may instead fall under Turnover Tax (TOT), charged on gross sales.
VAT and employer taxes
Two further taxes are common:
- VAT — once your turnover crosses the registration threshold, you must register, charge VAT and file monthly;
- PAYE — if you employ staff, you must deduct income tax (and remit NSSF, SHIF and the housing levy) and pay it to KRA.
Thresholds and rates are set by the annual Finance Act and change — confirm current figures before relying on them.
Records and electronic invoicing
Keep proper records of income and expenses, and note that KRA increasingly requires electronic tax invoices (eTIMS) to support what you declare. Good records make filing accurate and protect you in any audit.
Why this matters to you
Tax mistakes are one of the fastest ways a young business gets into trouble. Knowing which taxes apply, and keeping clean records, keeps you compliant and lets you plan your finances.
Frequently asked questions
How is a sole proprietor taxed?
Business income is taxed as part of personal income tax (or under Turnover Tax for small businesses).
When must I register for VAT?
Once your turnover crosses the VAT registration threshold set by law.
Do I deduct tax for employees?
Yes — PAYE, plus NSSF, SHIF and the housing levy.
Sources & references
- Kenya Revenue Authority — kra.go.ke
- Income Tax Act; VAT Act, 2013 — kenyalaw.org