New tax requirements are in store for Kenyan freelancers utilizing Upwork, as VAT will now be levied and forwarded by Upwork to the Kenyan government. Those eligible for tax relief must supply a valid tax certificate. It’s still unclear how other freelancing platforms will respond in terms of tax adherence.
For years, the Kenyan government has advocated for youth to explore online employment opportunities post-high school or college. Various initiatives have been launched to aid graduates in securing online employment. A prominent example is the Ajira digital program, which offers training and mentorship in digital proficiencies like software development, graphic design, and copywriting. Numerous students who have participated in Ajira’s training express being motivated to seek online employment on platforms such as Upwork.
In Kenya, Upwork has gained popularity, serving as a resource for many freelancers looking for employment. Creating an Upwork profile in Kenya is a straightforward process, allowing you to establish your rates, and explore jobs that fit your qualifications and skills. Once a suitable job is discovered, a proposal can be sent to the prospective client. If your proposal captures the client’s interest, you’re hired. Many Kenyans on Upwork specialize in technical writing, often fulfilling assignments for Western students, a phenomenon known as ‘contract cheating.’
Freelancers in Kenya using this platform will tell you that they previously had no tax obligations to the Kenya Revenue Authority (KRA). All income generated from the platform was tax-free, but this is set to change as users have been prompted to add their KRA PIN to their profiles in a recent update.
A notice on Upwork’s website states, “Kenya mandates Upwork to collect and remit VAT to the Kenyan government. VAT is a levy on goods or services, inclusive of our services to you, and remit signifies the act of money transfer as payment.”
What this means
Your tax info becomes a requirement when you’re requested to provide your KRA PIN. Accordingly, Kenyan Upwork freelancers must brace themselves to begin remitting income tax on their earnings. With Kenya’s VAT rate set at 16% of the total service cost liable to taxation, freelancers providing services on Upwork, whose client is based in Kenya, are obligated to pay an extra 16% of the service cost as VAT to the Kenyan government. Upwork states, “In Kenya, the VAT rate stands at 16% of the service cost that is taxable. For instance, if freelancer service fees amount to $100, an additional $16 tax will be imposed, totaling $116. This estimated tax amount will be visible when you checkout, and on your invoices and transaction history.”
Once the tax is withheld from a freelancer’s income using your KRA PIN, the tax authority is immediately notified of their earnings, which are documented in their account. At the end of the fiscal year, these users must declare at least the same amount to the KRA. This effectively rules out the possibility of filing nil returns.
Upwork emphasizes, “We are mandated to adhere to the tax laws of the countries where we conduct business to continue operations in those countries. Kenya obliges us to collect VAT on Upwork services and remit them to your government.”
Freelancers are therefore advised to factor in this VAT rate when setting their prices or negotiating with clients to maintain compliance with the local tax regulations.
What about temporary residents?
VAT must be collected by Upwork, even from freelancers with temporary residences in Kenya. If a freelancer relocates to another country, they can update their account information. Subsequently, Upwork will automatically adjust its VAT to correspond with the prevailing rates in the freelancer’s new country of residence. If no VAT or similar tax exists in the new country, Upwork will discontinue the collection of such taxes.
Freelancers eligible for VAT exemption are required to submit a valid tax exemption certificate to Upwork. Upon receipt and validation of your certificate, Upwork will stop levying VAT. Just providing your VAT ID does not qualify a person for tax exemption; the essential requirement is the submission of a valid tax exemption certificate.
So far, Upwork is the only platform that has announced the Kenyan tax update. Numerous other freelancing platforms exist for freelance work, and it remains to be seen whether the tax authorities will target them for tax compliance in the near future.