Introduction:
Kenya has experienced rapid urbanization and economic growth in recent years, leading to an increased demand for housing and rental properties. As a property owner, it is essential to be well-informed about the taxation regulations surrounding rental income. This article aims to provide a comprehensive guide to Rental Income Tax in Kenya, helping property owners navigate the complexities of taxation and compliance.
- Definition of Rental Income:
Rental income refers to the payments received by property owners for the use of their properties. Monthly rental Income Tax (MRI) was first introduced through the Finance Act, of 2015 and came into effect on 1st January 2016. It is payable by any resident person (Individuals or Corporations) from income which is accrued in or derived from Kenya for the use or occupation of residential property, and which is in excess of Kenya Shillings two hundred and eighty-eight thousand (KES. 288,000/=) but does not exceed Kenya Shillings Fifteen Million Shillings (KES. 15,000,000/=) during any year of income.
The rate of tax is 7.5%, effective 1st January 2024, (Previously till December 31st, the rate was 10%) on the gross rent received and is the final tax. This income comes from residential properties, including houses, and apartments. In Kenya, the taxation of rental income is governed by the Income Tax Act CAP 470, Laws of Kenya, and its subsequent regulations.
2. Taxable Rental Income:
The Kenyan tax system considers rental income as part of an individual’s or company’s taxable income. Property owners are required to declare their rental income to the Kenya Revenue Authority (KRA) and pay taxes accordingly.
3. Filing and Payment:
Property owners are required to file their annual tax returns with the KRA, declaring their rental income and claiming applicable deductions. The tax year in Kenya runs from January 1st to December 31st. The filing deadline for individual taxpayers is typically June 30th of the following year, while companies have until the 20th day of the sixth month after the end of their accounting period.
However, for Monthly Rental Income, Landlords must file the Monthly Rental Income tax returns on or before the 20th of the following month. That is to say, for the rent received in February should be declared, and the tax amount should be remitted by the 20th of March.
Payments of tax on rental income are made through the KRA’s online platform, (iTax. https://itax.kra.go.ke/KRA-Portal/ ) and the landlord requires their KRA PIN number and password to log into the portal.
4. Non-Compliance
Failure to file returns or pay the Monthly Rental Income Tax on time will result in penalties and interest charges which include the following;
- 2,000 or 5% of the tax due, whichever is higher for individuals and KES. 20,000/= or 5% of the tax due, whichever is higher for body corporations;
- The late payment penalty is 5% of the tax and interest is 1% per month.
5. Exemptions
The following are exempted from payment of Monthly Rental Income Tax;
- Rental Income from Commercial Property
- Non-Resident Landlords
- Landlords who earn rental income over KES. 15,000,000 per year.
6. Withholding Tax on Rental Income:
In certain situations, tenants may be required to withhold tax on rental payments made to non-resident landlords. The withholding tax rate is typically 15% of the gross rental income, and the tenant is responsible for remitting this tax to the KRA on behalf of the landlord.
Conclusion:
Understanding the intricacies of Rental Income Tax in Kenya is vital for property owners to ensure compliance with tax regulations and optimize their financial position. Seeking professional advice from tax consultants, accountants or Legal Advocates can provide valuable insights tailored to individual circumstances, ensuring that property owners make informed decisions regarding their rental income and tax obligations.
DISCLAIMER;
The article published above is for informational purposes only and does not constitute legal advice. While every effort is made to ensure the accuracy and reliability of the information provided, legal matters can be complex and may vary depending on individual circumstances or jurisdiction.
Legal issues often require personalized attention and analysis based on specific facts and legal principles. Therefore, it is strongly recommended that you consult with us regarding any legal questions or concerns you may have.
For personalized legal advice tailored to your circumstances, please schedule a consultation with us at info@cfngugi@cfngugiadvocates.com
