Ultimate Guide to Rental Income Tax in Kenya
Taxes can be complex. But
rental income taxes do not need to be. Here, we break down what rental income
is and how to make payment.
First, rental income is in
two forms:
I.
Income from a residential premise (Residential
Rental Income Tax)
II.
Income from a commercial premise (Commercial Rental
Income Tax)
Tax on residential rental
income is payable either monthly or annually depending on the amount payable.
More on this later. Income from a commercial property is assessed annually and
is payable at a rate of 30% for companies and a graduated scale for
individuals. If you have income from both commercial and residential premises,
you may opt to treat these sources of income separately or simply opt for
making unified returns.
1. (Monthly)Residential Rental Income Tax
The Tax is payable if you
receive rental income from residential property which is more than Kshs. 24,000 per month but does not exceed Ksh. 15,000,000
during any year of income. For the rent received, you pay to KRA a flat rate of
10%.
For a partnership, each
partner is responsible for reporting their share of the gross rental income
received subject to the Ksh 24,000 per month or 15M annual limit.
No expenses, like repairs,
cleaning, electricity for common areas, repainting or so is allowed for
deduction from the gross rent.
The returns for this are
done on Itax on a monthly on or before the 20th of
the following month. For example, rent received in February is declared and
paid on or before 20th March.
If in any month you do not
receive any rental income, you still need to file a return, but a NIL return.
Residential rental income
is final tax therefore, you do not need to declare the same in your annual
income tax returns.
The above Residential Rental Income
Tax does not apply to non-residents and landlords who wish to make annual returns.
What is the penalty for late filing and late
payment of Monthly Residential Rental Income Tax in Kenya?
Late filing of Monthly Residential Rental Income Tax returns attracts a penalty of:
·
2,000 or 5%
of the tax due whichever is higher for individuals
·
20,000 or 5%
of the tax due whichever is higher for corporates
Late payment of Monthly Residential Rental Income Tax returns in
Kenya attracts a penalty of.
·
5% of the tax due and
· late payment
interest of 1% per month on the unpaid tax until the tax is paid in full.
Residential Rental Income Tax for non-residents in Kenya
Rental income received by a non resident is chargeable
to tax at a rate of 30% of the gross rent received. Additionally, non-residents are not entitled to
deduct any expense to arrive at a taxable income. The Tax is collected under
the Withholding Tax (WHT) mechanism of the tenant.
Where within a building you
have both commercial and residential rental income;
·
if the gross annual
rental income is above Kshs. 288,000 or less than Kshs. 15 million, all
rental income is combined in the annual Income Tax return.
·
Where the gross annual rental income is from the
commercial tenants and or combined (residential & commercial) and is more
than Kshs. 15 million, this part of the income is accounted for as the
commercial rental income and taxed at either individual graduated scale or
corporate rate of 30%. Remember withholding Tax on the Rental Income will also
apply.
Ultimate Guide to Monthly Residential Taxation of Rental income in Kenya
Withholding Tax On Rental
Income
A tenant or an agent,
appointed in writing by the Commissioner, is required to withhold 10% WHT on all
rental made to a resident landlord for the use or occupation of immovable
property. As a landlord you offset your final tax liability by any amount already and submitted to KRA by your tenants.
2.
Annual rental income tax returns
This is filed by landlords
with rental income below Kshs. 24,000 per month or above Kshs. 15 million per
year and is reported together with income from other sources annually before
June 30.
·
Rent is
charged on actual amount received
·
Expense
incurred to generate rent is allowed under section 15 of the Income Tax Act.
·
Tax is
calculated under individual graduated scale or corporate rate of 30%
·
In addition,
rent on non-residential buildings (Commercial) is taxable under the VAT Act(No.
35 of 2013) – Laws of Kenya.
Processing and remitting
taxes charged on rental income is not only tiresome, time consuming but it also
complex. In case you need aby help, call us on 0726982982.