Paying Your Foreign Parent Company From Kenya Without a Tax Treaty

A Kenyan subsidiary that wants to pay its foreign parent company, whether for a dividend, a management fee, a loan, or the use of the parent’s brand, runs straight into Kenya’s non-resident withholding tax rules. Where a tax treaty is in force, those rules can be softened. Where it is not, as is currently the case between Kenya and Nigeria, the full domestic rate applies to every payment, with nothing to negotiate around.

The Four Ways Money Moves to a Foreign Parent

Section 35 of the Income Tax Act requires the Kenyan payer to withhold tax before money leaves the country for a non-resident parent that has no permanent establishment in Kenya. The Third Schedule, Head B, paragraph 3 sets the rates:

Dividends: 15% of the amount paid.
Management, professional, training, consultancy or agency fees: 20% of the gross sum, though a consultancy fee paid to a citizen of an East African Community partner state is reduced to 15%.
Royalties (including for the use of the parent’s trademark, software or know-how): 20% of the gross amount.
Interest on an intercompany loan: 15% where it arises from a qualifying government bearer bond, 25% on other bearer instruments, or 7.5% on a bearer bond of at least two years issued outside Kenya. Ordinary intercompany loan interest not falling within a bearer-instrument category is taxed under the general non-resident interest rules; get specific advice on the applicable rate for your loan structure before assuming a figure.

Whichever category applies, section 35(5) requires the tax withheld to be remitted to the Commissioner within five working days of the deduction, together with a return. This is a short window, and it means withholding tax cannot be treated as an afterthought once the payment has already gone out.

Why “No Treaty” Matters So Much Here

Where a double tax treaty is in force, section 41 of the Income Tax Act allows its terms, including reduced withholding rates on dividends, interest and royalties, to override the domestic rate. Where there is no treaty, as with Nigeria, none of that machinery is available. The domestic rates above apply in full, there is no treaty-based relief to elect into, and there is no mutual agreement procedure to resolve a dispute about which country’s tax should take priority if both Kenya and the parent’s home country tax the same payment. Any double taxation that results is a cost the group has to plan around commercially, not a technical problem with a treaty-based fix. See our guide on checking whether your country’s treaty with Kenya is actually in force before assuming any relief applies.

The difference is not academic. A group paying substantial management fees or royalties to a parent resident in a country with an in-force Kenyan treaty may qualify for a reduced rate on that specific category of payment, subject to that treaty’s own terms and its beneficial ownership conditions. A group paying the same fees to a parent in a non-treaty country, Nigeria included, has no such reduction available on any category of payment: the 20% rate on fees and royalties and the 15% rate on dividends apply in full, regardless of how the group structures the payment. Check the actual reduced rate under the specific treaty that applies to your parent’s jurisdiction rather than assuming a uniform discount, since treaty rates vary by payment category and by country.

Getting the Category Right

The rate depends entirely on how a payment is genuinely characterised, not on the label put on the invoice. A “management fee” that in substance represents a distribution of profit to the parent is a dividend for withholding tax purposes regardless of what the contract calls it, and KRA can and does recharacterise payments on audit. Intercompany pricing for genuine services, royalties and loans must also be set on an arm’s length basis under Kenya’s transfer pricing rules; see our guide on whether Kenya’s transfer pricing regime applies to your subsidiary. Getting the substance and the paperwork to match matters more with no treaty in place, since there is no treaty-based fallback if KRA disputes the characterisation.

Subsidiary or Branch: Different Mechanics, Same Underlying Question

A subsidiary sends money to its foreign parent through the payments described above: dividends, fees, royalties and interest, each separately withheld. A Kenyan branch of the same foreign parent moves money differently. It cannot pay itself a dividend, and under section 18(5) of the Income Tax Act it cannot even deduct interest, royalties or management fees paid to its own head office when calculating its taxable profit. Instead, since 2024, a branch pays a separate 15% tax on its repatriated income under section 7B, calculated by a net-asset formula rather than on each individual payment. We compare the two structures in full, including a worked tax example, in our guide to how Kenya taxes a branch versus a subsidiary. The choice of vehicle changes which of these two regimes applies to money moving to the parent, but neither vehicle escapes Kenyan tax on the transfer, treaty or no treaty.