Not complying with tax laws and regulations in Kenya may lead to fines among other consequences. The penalty for not complying with the Rental income tax in Kenya is a fine of KES 2000 or 5% of the tax due, whichever is higher for individuals. The penalty for corporations is KES 20000 or 5% of the tax due, whichever is higher. The penalty for late payment of the Monthly Rental Income is 5% of the tax. Late payment also attracts an interest of 1% per month or part of the month.
The current tax rate for rental income taxes as of May 2024 is 7.5%. This means that the total amount of rent you collect before you deduct any expenses. Note that this only applies to residential properties. Commercial properties, non-resident landlords, and landlords with very high rental income ( over Kes 15 million) are subject to different taxes. The 7.5% tax rate is a decrease from 10% on rental income tax in January 2024. However, note that this only applies to landlords who earn less than Kes 15 million annually.
It is important to understand that the 7.5% tax rate is on the total rent that you collect. This means that you cannot deduct any expenses from your rental income before you pay taxes, which may include repairs, maintenance, or property taxes. Landlords who have lots of expenses might find that they have to pay quite more.
Individuals or companies earning less than Kes 280,000 annually are exempt from the Monthly Rental Income tax. This also applies to landlords who do not live in Kenya. However, these landlords might be subject to different tax rules. Commercial properties are also exempt from the monthly rental income tax. Landlords with very high incomes (Kes 15 million and above annually) also do not pay monthly rental income tax. They however must declare their income and are taxed under the regular income tax, where they can deduct allowable expenses.
The monthly rental income tax is a simplified tax for residential landlords who fall under a certain tax bracket, that is, above Kes 280000 annually and below Kes 15 million annually. As discussed above, non-resident landlords and commercial properties are exempted from this tax and rather pay normal income tax. Non-resident landlords are subject to other tax obligations. This depends on the status of their residency or if there are any other double taxation agreements between Kenya and the country they reside in. Commercial property landlords who own office spaces or shops pay regular income tax where they can also deduct allowable expenses.
As a property owner, you need to keep a clear record of your Rental income and other expenses. You can identify where a lot of your money is spent and make decisions such as cutting costs or increasing rent. It is also important to note that even under Rental tax, you still have to file Tax Returns. Having a clear record of all your income will make it easy for you to do so. Being able to track your financial records will help you see where you are financially as an investor, that is, is your property making you profits or do you lose money to it?
The online filing systems provided by the Kenya Revenue Authority have made filing returns so much easier and you have no excuse not to e.g. iTax portal. Here are some benefits;
From what we’ve discussed above, you can see how crucial it is to keep records and more importantly, accurate ones. It might not be easy to keep a record of all your income and that is where property management software comes in. Most property software performs calculations automatically and saves you the manual work. The software also helps to keep a record of all your income as well as generate reports. Some software is also very developed and can integrate with the KRA portal and file your taxes automatically. One of the approved property management software that you can try is Bomahut.
For non-resident landlords, The Kenya Revenue Authority places the responsibility for filing taxes on the tenants. This means that tenants deduct 30% of their rent and pay it to KRA by the 20th of every month. Tenants who pay rent to non-resident landlords act as agents under section 35 of the Income Tax Act. Also, the 30% tax is the final tax for non-resident landlords, which means that their income won't be taxed further.
If you have a problem filing taxes, you can always look for a professional to help you do so quickly because they are qualified for that. They will guide you through any tax benefits, deductions, or updates through their expertise. It will also take the responsibility off your chest and allow for your peace of mind.
You must stay updated on any tax regulation changes as a landlord in Kenya. Some of the ways you can know about any updates are through the KRA website, consulting Tax professionals, or through News and publications. Staying updated will help you get any tax benefits and allow you to comply with the tax laws easily.
File taxes on time. This will prevent you from facing legal penalties. It will also make your life make your life so much easier to operate as a landlord.
A: The current tax rate on Rental income for residential properties is 7.5% as of May 2024.
A: Not paying your taxes and complying with tax laws attracts a penalty of Kes 2000 or 5% of the tax due, whichever is higher for individuals.
A: Filing Rental Income has been made using online systems by the KRA. Log into your iTax portal to file your taxes.
Book a demo with us to learn how Bomahut can help you improve rent collection and save time on property management tasks.
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