Taxation of Residential Rental Income.

Annual rental income more than kshs 10 million

Under this category, the total collection of the residential rental income is over kshs 10 million per year. It is irrespective of whether the rent is from one building or from many buildings. It is also irrespective whether the buildings are permanent or temporally structures, the construction materials used, and the age of the buildings.

Tax Rate

The landlords pay income tax under the normal income tax rate structure. The tax rates are 30 % for residents and 37.5 % for non-residents.

Tax Determination

There is no flat tax amount to pay. The tax rate is determined by the following:

  1. Rented space.

  2. Rent amount.

  3. Expenses incurred in generating the rent.

  4. Any renovation works undertaken.

Tax Due Dates

The tax is paid on installment basis. The following are the installment due dates.

Once the audited accounts are done after the end of the year, any tax that should have been paid in the previous year is established. The balance of tax must be paid by 30th of the fourth month after year end. In case the balance of tax is more than 10 %, penalties and interests will be levied by KRA. Hence, it is important for the taxpayers to estimate the installments correctly.

Since the financial year for individual taxpayers is from 1st January to 31st December, the installments are supposed to be paid by the 20th of April, June, September and December. The balance of tax is payable by 30th of April the following year. Annual tax returns made by 30th June of the following year.

Estimation Method

The installment tax  payments are based on estimates. It is important that the estimates are calculated correctly. There are two methods of estimating the installments in Kenya:

a. 110 % of prior year’s tax – the tax to be paid is established by multiplying previous year’s tax by 110 %. The assumption is that there has been a 10 % growth in business.

b. Current year’s tax – this is the actual tax that should be paid. The taxpayers establish the income during the period under consideration,  deducts the allowable expenses and remits the correct amount of taxes.

It is important to establish the correct amount of installments payable since any variance by more than 10 % attracts penalties and interests. It is also a requirement to inform the Commissioner of the method of estimation that the taxpayer is using. In case of any changes, the Commissioner must be informed.

Annual Tax Returns

The landlord is supposed to file annual tax returns by 30th June the following year. Withholding Tax on Residential Rental Income

There are provisions of withholding rental income including residential rental income. The withheld amounts are remitted to KRA by the tenant. However, for the tenant to withhold any amount of the rent, they must be appointed as withholding agents by KRA. The tenants who are appointed are normally companies who rent many houses from a single landlord. It is an offence for anyone to withhold any rent unless they are appointed agents.

Withholding Tax Rates

For resident landlords, the withholding tax rate is 10 % of the total residential rent per month. The withheld tax is remitted by the 20th of the following month by the tenant who is the withholding agent. The monthly tax returns are made at the same time.

Non-resident Landlords

For non-resident landlords, withholding tax on residential rental income is at the tax rate of 30 %. The tax is payable by the 20th of the following month by the landlords appointed agents (or tenants). The tax returns are also made at the same time.

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