Introduction
The following information regarding income tax for partnerships is derived from a discussion between Victoria Ngau, tax and accounting associate, and Wangeci Kanyeki, a small business owner:
What is a partnership for tax purposes?
A partnership is when two or more persons carry on a business with a view to earn profit
Do partnerships pay corporation tax?
Partnerships themselves do not pay corporate tax. Instead, profits (or losses) are distributed to the partners, who then include their share in their individual tax returns.
Who should file a partnership return?
Any business operating as a partnership (i.e. two or more people in business together, sharing profits) must file the partnership return.
It is not limited to large partnerships — all registered partnerships, regardless of size, are obliged to file
What documents or information is required for filing a partnership return?
- iTax credentials for the company
- PIN information for each partner
- Financial records of the partnership – Income statement / balance sheet – There’s no requirement for the partnership’s accounts to be audited (unless other laws or contracts require it) for regular partnerships.
- The partner’s profit-sharing ratios
- Each partner’s share of income
What are the steps for filing a partnership return?
The partnership files an Income Tax Partnership Return (IT2P).
Each partner must include their share of the profit (or loss) in their individual income tax return
Filing for individuals also happens between 1 Jan and 30 June of the following year for the previous year’s income.
What is the deadline for filing an ITP return?
Usually between 1 January and 30 June of the year, following year of income/financial year.
Year of Income / Accounting Period
The year of income is generally 1 January to 31 December (calendar year) for unincorporated businesses (including partnerships).
If a business (including a partnership) chooses a different accounting period end, that must be accommodated under law, but statutory rules apply. Section 27 of the Income Tax Act addresses accounting periods that do not coincide with the calendar year.
Partnerships & Accounting Periods
Partnerships are considered unincorporated, so the general rule is that their year of income is the calendar year unless there’s an accounting period prescribed or approved.
The partnership must prepare accounts covering 12 months (or another accepted period) for the year of income. For years shorter or longer than 12 months, the law allows adjustment.
First & Subsequent Accounting Periods
When a partnership starts part-way through a year, the first accounting period may be less than 12 months. Similarly, if there’s a change of accounting period end, there may be a short or long period for that transitional year.
Examples / Special Cases
If a partnership begins business on, say, 1 April, its first year of income could be from 1 April to 31 December (if using calendar year), or possibly to another date if a different accounting period is chosen & approved.
If the partnership wants its books to close on, e.g., 30 June each year, they’ll need to ensure that is acceptable, possibly apply for approval, and ensure the tax computations align with that accounting period under Section 27 rules
Changing Accounting Year End
A taxpayer can apply to the Commissioner of KRA for a change in their accounting period / year end. The rules governing this include needing approval.
The recent Finance Bill 2025 proposed that if the Commissioner does not respond within six months to a change‐accounting‐period application, the change will be deemed approved.
What are the consequences for late filing?
Penalty = 5% of the tax due, or Ksh.20,000, whichever is higher
If you are unable to manage compliance on your own, it is always good to speak to an expert. Get in touch, and we will be able to help you.
Disclaimer: Any advice in this publication is limited to the conclusions specifically set forth herein and is based on the completeness and accuracy of the stated facts, assumptions and/or representations included. In rendering our advice, we may consider legal authorities that are subject to change, retroactively and/or prospectively, and any such changes could affect the validity of our advice. We will not update our advice for subsequent changes or modifications to the law and regulations, or to the judicial and administrative interpretations thereof.
