A recent client recently inquired: Are directors’ fees subject to normal PAYE in Kenya, or do special rules apply?
In Kenya, directors’ fees are subject to normal Pay-As-You-Earn (PAYE) tax, just like other forms of employment income.
Section 5(2)(a) of the Income Tax Act outlines what constitutes employment income. While it does not specifically name “directors’ fees,” it clearly includes “fees… in respect of employment or services rendered.” This broad wording is sufficient to capture directors’ fees within the PAYE net.
This interpretation is consistent with the Kenya Revenue Authority (KRA), which explicitly references director’s fees within taxable employment income on its website. Taxable employment income includes all cash payments however described, and the value of non-cash benefits (exceeding 5000 Kenyan Shillings per month).
According to KRA guidance:
“Cash pay includes wages, salary, sick pay, leave pay, fees, commissions, bonuses, service gratuity allowances, director’s fees, overtime, pension, entertainment and other payments received in respect of employment.”
This confirms that director remuneration is treated the same as other taxable income and must be processed through PAYE.
“In Kenya, directors’ fees are fully subject to normal PAYE—no special exemptions apply.”
While directors’ fees fall squarely under normal PAYE, there are several supplementary rules that employers should be aware of. These do not change the PAYE obligation but may affect how certain benefits or payments to directors are treated.
Key sections of the Income Tax Act include:
These provisions highlight that while PAYE applies to directors’ fees, the tax treatment of other benefits may vary depending on the director’s status and the nature of the benefit.
