Revised Residential Rental Income Tax

Kenya Revenue Authority (KRA) revised the rental income tax for landlords of residential property. The revised taxation regime was effective from  in January 2016. All 2014 and 2015 rental income tax will therefore follow the previous graduated rate system.

The previous graduated rate system, introduced in 2013 calculated tax on the net rental income received per year, after deduction of “allowable expenses” related to maintenance of the property.

However, most landlords declaring their rental income for 2014 were not able to determine or claim how much precisely they spent on allowable expenses incurred on maintenance during the year, due to a lack of sufficient documentation. This is what triggered the revision ;to provide an easier system of calculating tax owed by allowing landlords to be taxed a percentage on the gross rental income as opposed to the net income.

The revised system which was announced during last year’s budget reading decrees that rental earnings received from residential houses that are below Sh10 million per year will attract a 10 per cent tax on the gross income, irrespective of the area in which they have invested or the minimal earnings one gets from their houses. The simplified tax regime only applies to landlords who live in the country. Non -residential landlords (Kenyans in the diaspora) will pay 30 per cent on gross rental income.

A review of the tax bracket is underway for landlords earning minimal annual rental income, with a view to exempting them from paying this tax. The revisions will be included in a Parliamentary Bill which will also state the rules for the new simplified tax regime.

KRA also introduced flexible payment options for the rental income tax. One can pay either on a monthly, quarterly, semi-annual or annual basis. However, they are required to pay their dues by the 20th day of the following accounting month. Landlords paying their returns on quarterly, semi-annual and annual basis are expected to record nil on the consecutive months. There is a reprieve for residential landlords whose property does not attract any income for a period of time either due to lack of a tenant or due to maintenance and renovation works.

Although the new simplified tax regime is now effective, there are landlords who choose to remain under the previous tax regime in order to pay rental tax on the net income received, and that option remains available. Those who choose to remain under the previous tax regime are required to write and notify the Commissioner of Domestic Taxes of their resolution and it will be approved.

The corporate and commercial landlords tax regime remained unchanged. They are taxed 30 per cent of their net a

nnual profit after allowable expenses such as cost of land, cost of surveyors, engineers and architects as well as cost of building maintenance that includes, labour and materials.


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