Muthoni Delima retweeted
By David Ndiritu Mwangi:
If your business uses Google Workspace, Microsoft 365, Zoom, Salesforce, or ANY cloud software from abroad, you NEED to read this.
The Finance Act, 2026 has quietly dropped a tax bomb that will hit your bottom line. The government has officially expanded the definition of "Royalty" under the Income Tax Act, and it now catches a broad range of software related payments.
What does this mean for you?
Previously, there was a grey area around whether software licenses, maintenance fees, and SaaS subscriptions were subject to withholding tax. That grey area is GONE.
The new law now explicitly classifies the following as Royalties:
- Payments for ANY software (whether custom-built or off-the-shelf)
-License fees, development fees, training fees, AND support/maintenance fees
- Payments related to digital payment networks (Visa, Mastercard, etc.)—even if called "service fees" or "processing fees"
The Cost Impact
Because these are now royalties, you are required to withhold tax at 20% for non-resident providers (or 5% for local providers).
Here is the painful part: Most global tech giants (like Google, Microsoft, and Salesforce) do NOT accept "net" payments. They want their full invoice amount.
As such you need to grossup the invoice amount.
Example:
Your Google Workspace annual bill: USD 1,200 (this is what Google must receive)
Withholding Tax due (20%): USD 300 (calculated on the grossed-up amount)
Gross amount YOU must pay: USD 1,200 ÷ 0.8 = USD 1,500
Amount paid to Google: USD 1,200
WHT paid to KRA: USD 300
That is a 25% increase in the real cost of your subscription!
Who is affected?
-SMEs and Startups relying on affordable cloud tools
-IT Consultants and Digital Agencies
-Banks and Fintechs using payment gateways
- Any company with a foreign software subscription
#FinanceAct2026 #KenyaTax #SaaS #DigitalEconomy #KRA #TaxUpdates #KenyanBusiness #StartupKE #Accounting #WithholdingTax #ITCosts #BusinessTips #TaxCompliance
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