Quarterly instalment tax based on the estimated annual tax.
Each quarterly instalment
—
Estimated annual tax
—
110% of prior year
—
Basis used
—
Who has to pay instalment tax
Kenyan companies do not wait until the end of the year to settle their corporation tax. The Kenya Revenue Authority asks them to pay it in advance, in instalments, during the very year the profit is being earned. The logic is the same as PAYE for an employee: spread the bill across the period so the state is not waiting twelve months for its money and the taxpayer is not hit with one enormous demand. If your company expects to owe more than a small amount of tax for the year, instalment tax applies to you. Brand new companies in their first year of trading are generally outside it, since there is no prior year to measure against and the estimate is still forming.
This tool is built for a finance officer or director who needs a quick read on the quarterly cheque. You feed it two numbers, an estimate of the year's taxable profit and the tax actually charged last year, and it returns the instalment. It assumes the resident company rate of 30 percent that the calculator applies to profit, so if your company pays at a different rate, treat the corporate-tax figure as indicative and confirm the position with the KRA.
The lower-of test that sets your bill
The clever part of the rule is that you do not simply pay a quarter of your estimated tax. You pay a quarter of the lower of two amounts: the tax on your current-year estimate, or 110 percent of the previous year's tax. The 110 percent figure is the safety valve. It means that even if you underestimate this year, basing your instalments on last year's tax plus a tenth keeps you broadly within the rules and shields you from penalties for paying too little. Most stable companies find the 110 percent leg is the lower of the two and end up paying on that basis. A company growing fast, whose current-year tax dwarfs last year, will see the prior-year leg cap the instalment, which is exactly the relief the rule intends.
A company with KES 6 million profit
Work through the default figures. The company estimates taxable profit of KES 6 million, so the tax on that estimate, at the 30 percent rate this calculator applies, is KES 1.8 million. Last year it paid KES 1.5 million in tax, and 110 percent of that is KES 1.65 million. The rule takes the lower of the two, which is the KES 1.65 million prior-year leg. A quarter of that is the instalment.
| Step | Amount |
|---|
The chart shows the instalment basis split across the four quarterly payments.
Due dates and the balance at year end
For an ordinary trading company the four instalments fall in the 4th, 6th, 9th and 12th months of its accounting period, each one a quarter of the basis. Note that the gaps are uneven, the year is not split into neat three-month blocks, so a December year-end company pays in April, June, September and December. Agricultural companies follow a different, lighter schedule of two instalments. After the year closes and the real accounts are drawn up, you file the return and pay any balance, which is the actual tax for the year less the instalments already remitted. A common and costly mistake is forgetting that balance. If the year turned out far more profitable than the estimate, the four instalments will have been too small and a large balancing payment, possibly with interest, lands when the return is filed. Reviewing your estimate at the half-year point and topping up the later instalments is the simplest way to avoid that shock.
What if my actual profit ends up higher than the estimate?
Then your instalments were too low and you settle the gap as a balancing payment when you file. Paying on the 110 percent prior-year basis protects you from underpayment penalties on the instalments themselves, but it does not erase the balance, and the KRA can charge interest on tax paid late. If you can see profit running ahead, lift your estimate and pay more in the later instalments rather than leaving it all to the balancing payment.
Do small businesses and farmers pay instalment tax the same way?
Not necessarily. Very small resident businesses inside the turnover tax band pay a flat percentage of monthly turnover instead, so they are not in this quarterly instalment system at all. Farming companies use a two-instalment schedule rather than four. This tool models the standard four-instalment company, so confirm your own category with the KRA before relying on the quarterly figure.