What Directors Owe on Their Pay and Benefits
A director owes tax on pay the same way staff do. Fees, salary, bonuses and most benefits are employment income, and the company must deduct PAYE on them, even if you own the company. Cars, housing, medical cover and low-interest loans each have their own rule, set out below.
What counts as pay
Section 5(2) of the Income Tax Act covers wages, salary, fees, commission, bonus and allowances. KRA’s PAYE guidance names directors’ fees directly. It also says PAYE reaches both residents and non-residents.
Benefits count too. Any benefit, advantage or facility is taxable once its total value reaches KES 60,000 a year (section 5(2)(b)). KRA puts this as benefits above KES 5,000 a month.
Reimbursed costs are treated differently. If KRA is satisfied that an allowance only repays money spent wholly and exclusively on the work, it is left out. Up to KES 10,000 per day is treated this way when you are away from your usual workplace on official duties, and mileage at the Automobile Association of Kenya rate is too.
Two kinds of director
The Act separates two groups, and the difference affects housing and medical cover:
- Whole time service director: must give substantially all their time to the company in a managerial or technical role, and does not control more than 5 percent of its shares or votes.
- Any other director: this includes most owner-directors and non-executive directors.
How each benefit is valued
| Benefit | Taxable value | Section |
|---|---|---|
| Company car | The higher of KRA’s set value and 2% per month of the company’s initial cost. If hired or leased, the cost of hire or lease. KRA may set a lower rate if you prove restricted use | 5(2B), 5(2C) |
| Housing, whole time service director | The highest of 15% of employment income, market rent and the rent the company pays | 5(3)(b) |
| Housing, any other director | The highest of 15% of total income, market rent and the rent the company pays | 5(3)(a) |
| Life insurance premiums | The premium paid for your or your dependants’ benefit, with exceptions for pension schemes and some group cover | 5(2)(f) |
| Club entrance and subscription fees | Taxable where the company deducted the cost | 5(2)(fa) |
The housing value goes down for rent you pay the company, and for part-year occupation.
Medical cover. Medical services or approved medical insurance for a full-time employee are not taxed as pay under section 5(4)(b). This includes a whole time service director and a director who controls more than 5 percent. For a director who is not whole time service, the amount is subject to a limit set by the Cabinet Secretary. Confirm the current limit with KRA before relying on it.
Loans from the company
If the company lends you money at less than the market rate, it pays fringe benefit tax under section 12B. This is a tax on the employer, not on your payslip.
- The taxable amount: the gap between the interest at the market rate and the interest you actually pay.
- The market rate: the average 91-day Treasury bill rate for the previous quarter.
- The tax rate: the resident corporate rate, which is 30 percent (Third Schedule).
- When it is due: section 12B says by the 10th of the following month. An older KRA article says the 9th, so paying with PAYE keeps you within both.
An overdrawn director’s loan account at no interest can be caught by this. If you draw money from the company, record each amount as pay, a dividend or a loan, since each is taxed differently. Our guide on mixing business and personal money shows how to keep this clean.
Where directors are personally exposed
- Unpaid PAYE: if the company deducts tax and does not remit it, section 37A makes every director and officer concerned with management guilty of an offence, unless they prove they did not know and took all reasonable steps. The fine is KES 10,000 to KES 200,000, or up to two years in prison, or both.
- Missing deductions: under section 37(2), the company can face a penalty of 25 percent of the tax or KES 10,000, whichever is greater.
- Arrangements that leave the company unable to pay tax: under section 18 of the Tax Procedures Act, directors and controlling members can become jointly liable for the company’s tax, subject to limited defences.
What to do
- Put every director on payroll. This includes those paid only fees. See our employer’s guide to payroll deductions.
- List every benefit the company gives each director, value it using the table above, and add it to monthly PAYE.
- Check the director’s loan account at each month end, and work out any fringe benefit tax.
- Pay and file PAYE by the 9th of the next month.
- File your own return. From 2027, individuals file by 30 April under section 18 of the Finance Act 2026, and the fees and benefits on your P9 should match it.
Also check that anyone you pay as a consultant is not really an employee. Our accounting team can set up a payroll that handles director benefits each month.
Frequently Asked Questions
Do directors' fees attract PAYE in Kenya?
Yes. KRA's PAYE guidance lists directors' fees as employment income, and the Income Tax Act includes fees in gains from employment. The company must deduct PAYE and pay it to KRA.
How is a company car taxed for a director?
The benefit is the higher of the value set by KRA and 2 percent per month of what the company first spent on the car. If the car is hired or leased, the benefit is the cost of hiring or leasing it.
Can a director be personally liable for unpaid PAYE?
Yes. Under section 37A of the Income Tax Act, where a company fails to remit deducted tax, directors and officers concerned with management commit an offence unless they prove they did not know and took reasonable steps.
Not sure where you stand on PAYE?
Our tax experts will check your position and tell you what to do next, so you stay compliant.
General information, not professional advice. Last updated 25 Aug 2026. Tax rules change, so check the current position before acting.