Tax on your bonus
13th-month + bonus, instant
Freelancing is not automatically taxed less than employment. Compare salary with profit after genuine business costs, not with the total value of invoices. A contractor also funds downtime, equipment, retirement savings and other costs an employer may cover.
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Employee income
An employer deducts PAYE from employment income and accounts for the relevant payroll contributions. A salary offer may also include employer-funded pension contributions, paid leave or medical cover. Those benefits matter when comparing a job with an invoice rate.
Freelance business income
A sole trader generally accounts for taxable business income under the individual income-tax rules, with allowable business expenses supported by records. This is not a blanket 30% tax on every freelancer’s turnover. Personal costs do not become deductible merely because they are paid from the business bank account.
Withholding tax is not always the final bill
Where a client deducts non-final withholding tax, obtain the certificate and reconcile it with the annual liability. Do not assume that a percentage withheld by a client settles all tax on your business profit. The treatment depends on the income type, residence and applicable rules.
Do not assume turnover tax applies
KRA’s turnover-tax regime covers eligible resident businesses above KES 1 million and up to KES 25 million annual turnover, but expressly excludes management, professional and training fees, among other income. A professional freelancer should not choose turnover tax simply because the headline 1.5% appears cheaper.
Where turnover tax does apply, it is on gross sales with no expense deduction. A low-margin business can therefore face a significant tax cost relative to profit. VAT, invoicing and other obligations must be considered separately; turnover tax does not cancel them.
Build a like-for-like comparison
| Employment offer | Freelance equivalent to budget |
|---|---|
| Monthly gross salary | Revenue less genuine business costs |
| Paid leave | Unbilled weeks |
| Employer pension contribution | Self-funded retirement provision |
| Employer equipment | Equipment, maintenance and software |
| Predictable payroll | Late payment and bad-debt exposure |
For illustration, KES 100,000 invoiced less KES 25,000 business costs leaves KES 75,000 before personal taxes and contributions. It is not equivalent to a KES 100,000 salary. Keep a reserve for taxes using your actual regime and cashflow, not an unsupported universal percentage.
Records and filing
Keep invoices, receipts, payment records and withholding certificates. The annual return may need both employment and business income if you do both. Check the filing-deadline guide for the 2027 change and keep the two income streams identifiable in your records.
Sources and review date
Reviewed on 21 October 2026. Use the rules for the period being calculated; historical payslips may use different limits.