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 payments.
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 the 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.
Withholding Tax On Real 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.
