Penalties for non-compliance with Rental Income Tax
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.
Rental Income Tax Rates in Kenya
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.
Final tax
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.
Who is Exempt from Rental Income Tax in Kenya?
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.
How to file your Rental Income Tax in Kenya
- First of all, confirm whether you qualify for the Monthly Rental income Tax. Remember this applies to residential property landlords who earn less than kes 15 million monthly.
- Second, visit the KRA ( Kenya Revenue Authority) iTax Portal, enter your KRA pin, and complete the security checks to log in.
- Under the “Returns” menu, select “ File Returns”. Then click the dropdown menu, choose “Rent Income” and then click “Next”.
- Fill in the required Rental income details. You can fill out the form online or download and fill it.
- Upload the completed Return and generate the payment slip, then pay for the tax. You can pay through Mpesa or Airtel money or any other KRA-approved Bank.
