Kenya has its own currency, the shilling, no exchange controls and a mobile-money system, M-Pesa, that international transfer services pay into. A contractor usually works as an individual with a KRA PIN, sometimes under a registered business name or through a limited company. For a client abroad, the rules that matter are zero-rated VAT on exported services, SHIF and the Housing Levy on self-employed income, and a court that judges the relationship by how it works, not by its label.
Individual, business name or limited company
Every contractor needs a KRA PIN, the taxpayer number used for filing on iTax. A freelancer can invoice under their own name with just the PIN. Some register a business name (a sole proprietorship) with the Business Registration Service under the Registration of Business Names Act, online through eCitizen. A business name is a trading name, not a separate legal person, so the profit is the owner’s personal income.
A private limited company is a separate entity. It pays corporate tax at 30% (PwC, reviewed 2026-07-17, checked 2026-09-29), and dividends to a resident individual with less than 12.5% of the voting power carry 5% withholding (PwC, reviewed 2026-07-17). For you, a company is a corporate counterparty that signs a W-8BEN-E.
Income tax, SHIF, NSSF and the Housing Levy
| Item | Rate | Base in 2026 |
|---|---|---|
| Income tax, resident individual | 10% / 25% / 30% / 32.5% / 35% | Annual taxable income: first KES 288,000, next 100,000, next 5,612,000, next 3,600,000, above 9,600,000; personal relief KES 2,400 a month |
| Social Health Insurance Fund (SHIF) | 2.75% | Household income of a non-salaried person, minimum KES 300 a month, no maximum |
| Affordable Housing Levy | 1.5% | Gross income that is not salary, paid by the ninth working day after the month ends |
| NSSF | Voluntary | Self-employed people may join as voluntary members |
Sources: PwC Worldwide Tax Summaries, reviewed 2026-07-17; EY, 25 September 2024; Oraro & Company Advocates; NSSF. All checked 2026-09-29.
PwC’s summary, reviewed on 17 July 2026 after the Finance Act 2026 took effect, still shows the bands in force since July 2023; the proposal to exempt monthly income up to KES 30,000 was not enacted. The Act does move the individual return deadline from 30 June to 30 April, starting 1 January 2027 (KRA, checked 2026-09-29). The Housing Levy survived its latest challenge: on 25 September 2026 the Court of Appeal dismissed 42 consolidated appeals against the Affordable Housing Act (Pulse Kenya, checked 2026-09-29).
The 1.5% turnover tax covers businesses with turnover from KES 1 million to KES 25 million, but it does not apply to management, professional or training fees (KRA, checked 2026-09-29). A developer or designer billing for services files an ordinary return with deductions.
VAT. The standard rate is 16%, and registration is compulsory once taxable supplies reach KES 5 million in 12 months (PwC, reviewed 2026-07-17). Exported services have been zero-rated since 1 July 2023, when the Finance Act 2023 moved them back from exempt (Muma & Kanjama Advocates, checked 2026-09-29). Zero-rating matters to the contractor: unlike an exemption, it lets them recover input VAT on equipment and services.
eTIMS. KRA requires “all persons engaged in business” to issue electronic tax invoices through eTIMS, VAT-registered or not (KRA, checked 2026-09-29). Its excluded transactions are imports, salaries, air tickets, services from non-residents and payments under final withholding, so a contractor’s invoice to you still goes through eTIMS.
Digital content and digital assets. Kenyan payers withhold 5% on digital content monetisation paid to residents (KRA, checked 2026-09-29), which reaches creators paid for content, not engineers paid for code. The 3% Digital Asset Tax was repealed by the Finance Act 2025 and replaced by a 10% excise duty on fees charged by virtual asset service providers (Deloitte Kenya, checked 2026-09-29), which matters only to a contractor who converts crypto payouts.
When a contractor is treated as an employee
The Employment Act 2007 defines a contract of service as an agreement, oral or written, express or implied, to employ or serve as an employee for a period of time. The Employment and Labour Relations Court decides which side of that line a relationship falls on with four tests (Oraro & Company Advocates, checked 2026-09-29):
- Control: whether you direct how, when and where the work is done.
- Integration: whether the person is part of your organisation, for example in your org chart, team rituals or office.
- Economic reality: whether they run a business of their own, carrying the risk of loss and the chance of profit.
- Mutuality of obligation: whether both sides are committed to keep offering and accepting work over time.
The court treats these as guides, not a checklist, and in Maurice Oduor Okech v Chequered Flag Limited (2013) said it must go beyond the parties’ terminology to the whole set of facts (same source). A developer working full time for one client, on the client’s hours and inside its team, is the exposed profile.
Reclassification brings the Employment Act’s protections. An unfairly terminated employee can be awarded compensation of up to 12 months’ gross pay (Employment Act, s. 49(1)(c), checked 2026-09-29). Payroll costs follow: NSSF at 6% from each side on pensionable earnings up to KES 108,000 a month since February 2026 (Pulse Kenya, checked 2026-09-29), and a 1.5% employer Housing Levy on top of the employee’s 1.5% (Pulse Kenya, checked 2026-09-29).
Keep engagements scoped to deliverables, let the contractor set their hours and use their own equipment, allow other clients, and invoice against milestones rather than a fixed monthly retainer where you can.
Contract and IP
- A written services agreement with the individual or company: deliverables, rate, invoice currency, payment terms, and whether fees are exclusive of VAT.
- An express IP assignment. Under the Copyright Act, copyright in a work commissioned by someone who is not the author’s employer is deemed transferred to the commissioner, subject to any agreement excluding or limiting the transfer (s. 31), and an assignment must be in writing and signed by the person transferring the rights (CIPIT, Strathmore University, checked 2026-09-29). The default helps a client, but a written, signed assignment removes any argument over whether the work was commissioned, and it catches carve-outs in the contractor’s own terms.
- Independence markers: the contractor’s own equipment and schedule and the right to serve other clients, which speak to the control and integration tests.
On your side, pay gross against the invoice. Kenyan withholding on professional fees (5% once fees reach KES 24,000 a month) is deducted by payers such as a Kenyan subsidiary (Income Tax Act s. 35(3)(f); KRA, checked 2026-09-29); if you pay from abroad with no Kenyan entity, confirm your position with a Kenyan adviser. US payers collect a W-8BEN (W-8BEN-E from a company) and file no 1099; services performed in Kenya are foreign-source income (irs.gov, checked 2026-09-29), and Kenya is not on the IRS list of treaty countries (irs.gov, checked 2026-09-29).
How to pay contractors in Kenya
| Method | What the contractor sees | Notes |
|---|---|---|
| Transfer with local KES payout | Shillings in their Kenyan bank account | No conversion by the receiving bank |
| M-Pesa | Shillings in their wallet | KES 250,000 per transaction; wallet holds at most KES 500,000 |
| SWIFT (USD) | Dollars in a USD account, less any deductions | Receiving banks charge an inward fee, e.g. KES 600 at KCB |
| Payoneer or PayPal | USD balance, withdrawn to a bank or, for PayPal, to M-Pesa | Conversion fees apply on withdrawal in shillings |
Rails, fees, documents and a comparison of platforms are on our page on how to pay contractors in Kenya.
Contractor of Record in Kenya
Because Kenyan courts weigh control and integration over the contract’s label, a Contractor of Record is most useful for long, full-time engagements with one client, where those tests already lean toward employment. 4dev acts as Contractor of Record — the contracting party for each contractor — which reduces reclassification risk. Other providers sell Contractor of Record products as well; read the liability clause in the contract, not the product name. Where the relationship is really employment, use an Employer of Record instead. Compare providers in our COR rating.