A foreign licensor receiving royalties from a Kenyan licensee, or a Kenyan business licensing its own IP abroad, has to clear two separate compliance layers before money actually moves: withholding tax on the royalty itself, and the foreign exchange mechanics of remitting it out of or into Kenya. Neither layer is exotic, but getting either wrong is what causes payments to stall at the bank or trigger a KRA query months later.

The Default Withholding Tax Rate on Royalties

The Income Tax Act, Cap 470, defines a royalty broadly enough to cover most IP licensing: payment for the use of, or the right to use, copyright in a literary, artistic or scientific work, a patent, trademark, design or model, plan, formula or process, or industrial, commercial or scientific equipment or know-how, along with gains from the sale of the underlying right. Where the recipient is resident in Kenya, the withholding rate is 5%, creditable against the recipient’s own tax liability. Where the recipient is a non-resident with no permanent establishment in Kenya, the rate is 20%, and it is a final tax, meaning the non-resident has no further Kenyan filing obligation once it has been withheld and remitted.

Double Tax Treaties Can Reduce the Rate, But Not Always as Much as Assumed

Kenya’s double tax treaties can lower the 20% non-resident rate, but the reduction varies more than licensors sometimes expect, and in a few cases there is no reduction at all. As of the most recent published summary, royalty rates under Kenya’s treaties run from 10% (India, South Africa, Seychelles, the United Arab Emirates, Qatar, France, South Korea, Iran) to 12.5-15% (the United Kingdom, Canada, Germany) to a full 20% under the treaties with Denmark, Norway and Sweden, which do not reduce the royalty rate below the ordinary non-treaty rate at all. Zambia is the outlier, at 0%, provided the income is subject to tax there instead. There is, notably, no double tax treaty between Kenya and the United States, so a US licensor is stuck at the ordinary 20% non-treaty rate regardless of how the licence is structured. Treaty relief is not automatic; it depends on the licensor holding a valid tax residency certificate from its home jurisdiction and the payer applying the treaty rate at source rather than the licensor reclaiming the difference afterwards.

The Foreign Exchange Mechanics: No Central Bank Approval, But the Bank Will Want Paperwork

Kenya liberalised current account transactions in the 1990s, and royalty payments fall within that liberalisation: there is no Central Bank of Kenya approval required for the remittance itself, and no annual ceiling on the amount that can be sent out. In practice, though, the payment still has to move through an authorised dealer bank, and that bank will not process an outward royalty payment on request alone. It will typically want to see the underlying licence agreement, the invoice supporting the specific payment, and evidence that the applicable withholding tax has actually been deducted and remitted to KRA, consistent with the documentary support the Central Bank’s own foreign exchange guidelines expect authorised dealers to hold for outward current account payments. This is a bank compliance step rather than a discretionary government approval, but it is a real practical gate: a payment without a KRA withholding tax certificate to show for it is likely to be delayed at the bank rather than declined outright.

Practical Sequencing

The workable order is to deduct the withholding tax at the point of payment, remit it to KRA promptly rather than waiting until a return is due, obtain the KRA withholding tax certificate, and only then present the licence, invoice and certificate to the remitting bank. Trying to remit first and sort out the tax position afterwards is the more common way this goes wrong, since banks increasingly ask for the certificate as a condition of processing rather than as an afterthought.

Licence agreements drafted outside Kenya often assume the licensor receives the full contractual royalty and leave withholding tax as an afterthought, or worse, include a gross-up clause requiring the Kenyan licensee to bear the tax on top of the stated royalty. A gross-up clause is enforceable under Kenyan law, but it changes the economics materially at a 20% non-treaty rate, and licensees who sign a foreign-drafted licence without checking for one sometimes only discover the effect when the first payment is due. Whichever party bears the withholding tax should be stated explicitly in the licence itself, not left to be inferred from a generic “payments net of taxes” clause that may not have been drafted with Kenyan withholding tax specifically in mind.

How We Can Help

Clay & Associates Advocates advises on structuring and documenting cross-border IP licences from Kenya, including the withholding tax and foreign exchange mechanics of getting royalty payments actually paid. Our guide to IP due diligence for cross-border M&A and investment covers the related question of verifying licence terms during a transaction. Contact our Intellectual Property practice to structure a cross-border IP licence involving Kenya.

Sources: Income Tax Act, Cap 470; Kenya Revenue Authority, public notice on withholding tax on royalties; PwC Worldwide Tax Summaries, Kenya corporate withholding taxes (reviewed 23 December 2025); Central Bank of Kenya, Guidelines on Foreign Exchange.

Frequently asked questions

What is the withholding tax rate on royalties paid to a foreign licensor?
20% by default, reduced where a double tax treaty applies, though several of Kenya’s treaties do not actually reduce the royalty rate below 20%.

Is there a reduced treaty rate for US licensors?
No. Kenya has no double tax treaty with the United States, so US licensors are subject to the ordinary 20% non-treaty rate.

Do we need Central Bank of Kenya approval to send a royalty payment abroad?
No. Royalty payments fall within Kenya’s liberalised current account regime and do not require Central Bank approval, though the remitting bank will require documentary evidence of the underlying licence and the withholding tax already paid.

Is withholding tax on a royalty paid to a non-resident a final tax?
Yes. Once withheld and remitted, the non-resident recipient has no further Kenyan filing obligation on that royalty income.