KRA recently requested Airbnb for details of its hosts in Kenya. Here is information related to the request from KRA.
The following information can help you get started in learning about
some of the tax requirements that might apply to you when providing short-term
accommodation in Kenya.
Tax can be tricky and it is important to ensure that you keep up to
date with your tax obligations and remain tax compliant. The timely
preparation, filing and payment of taxes are your responsibility. If you are
supplying short-term accommodation in Kenya, you should make sure that you
understand each of the following types of taxes, and pay the ones that apply to
you;
1.
Income Taxation via either:
a.
Monthly Residential Rental
Income Tax, or
b.
Regular Income Tax
2.
Minimum Tax
3. Value Added Tax
All income accrued in or derived
from Kenya, whether by a resident person or non-resident person (companies or
individuals), is subject to tax in Kenya. This is important to note because if
you host a property in Kenya, you are regarded to be an income-generating
business. The income you earn will therefore be subject to tax in Kenya. Below
is a brief outline of the taxes that may arise on income earned from short-stay
rentals in Kenya and some information on how this tax can be paid to the KRA.
If you are a Kenyan resident Host, your rental income generated from
providing short-stay accommodation in Kenya is in principle taxed with Monthly
Residential Rental Income Tax (''MRRIT'') if your rental income is between KES
280,000 and KES 15 million per annum. If you voluntarily choose not to be
subject to MRRIT, or if your annual rental income is below KES 280,000 or above
KES 15 million, your rental income is in principle taxed via the regular Kenya
income tax laws.
Monthly Residential Rental Income Tax (''MRRIT'')
Rental income from providing short-stay rentals in Kenya is in
principle taxed separately from business income and other types of incomes.
Income accrued by a resident person (resident companies or individuals) from
renting or letting out of residential property is subject to MRITT.
Where rental income earned is between KES 288,000 and KES 15 million
per annum, it will be deemed to fall within the MRRIT regime and will be
taxable at the rate of 10% on the gross rent received either monthly, quarterly
or semi-annually. This regime is only applicable to Kenya residents. MRRIT is a
final tax. This means that any income that is subject to MRRIT is not liable to
any other tax. Further, residents who are accounting for MRRIT are not required
to declare their rental income in their regular annual income tax returns.
Please note that no expense is deductible under the MRRIT regime. If you wish
to be exempted from the MRRIT regime you would need to elect not to be subject
to thereto by simple notice, in writing, to the Commissioner of Domestic Taxes
(''the Commissioner''). No reasons need to be given for the election. In this
case, the residential income earned will be subject to the regular Kenya income
tax. Where you do not meet the MRRIT threshold, you will be required to
maintain books of account and compute your profit and account for income tax.
Regular income tax in Kenya
The Kenyan tax year for individuals runs from 1 January to 31
December. Income tax returns for both companies and individuals are filed by
the last day of June following the year end. For example, the tax return for the income
earned between January and December 2023 must be filed on or
before 30 June 2024. On the other hand, companies are permitted to choose any
accounting period.
However, tax returns must be filed not later than the last day of June
following the end of the year of income. Tax returns are made on the KRA iTax
portal in the prescribed form. Individuals: income tax is chargeable on all
business income from any type of trade carried out by resident persons in
Kenya. The personal income tax rate in Kenya is at a graduated scale with the
maximum rate at 30% of the gross income of a person.
Ordinarily, business income for companies’ resident in Kenya is
subject to income tax at the rate of 30% on the adjusted taxable income.
However, businesses not resident in Kenya or that do not have a permanent
establishment in Kenya, are taxed at the rate of 37.5%. The adjusted taxable
income comprises of gross income earned or derived from Kenya after deducting
expenses wholly and exclusively incurred in the production of that income.
Certain expenses may be deductible in computing income tax. The
expenses that would be deductible against taxable income may include:
·
general operational expenses
·
interest payable on any loans utilised for
working capital requirements
·
salaries and wages
·
administrative costs and any
other expenses incurred wholly and exclusively for purposes of production of
the income Expenses not incurred wholly and exclusively for purposes of
production of the income and capital expenditure are not deductible. Capital
expenses would include costs for acquisition of the property (excluding repair
and maintenance costs which are allowed for deduction).
No deduction is allowed for depreciation either, however, wear and
tear allowances are allowed for furniture and fittings used in the production
of taxable income at the rate of 10% per year on reducing balance. Further,
where you are engaged in different types of business and earning income from
both rental and business income, the expenses that are deductible against
rental income are those that are directly and wholly incurred in the production
of that rental income and cannot be offset against other types of income.
Reporting tax in Kenya
Every person (resident companies or individuals), who is chargeable
to tax has an obligation to furnish the Commissioner with a return of income.
Income tax returns are to be filed not later than the last day of June
following the end of the year of income for both individuals and companies.
Since the tax year for individuals runs from 1 January to 31 December, the tax
return should be filed by 30 June of the subsequent year.
Income tax (exceeding KES 40,000 in a year of income) for companies
and individuals is paid in instalments via iTax . Instalment Tax is due on the
20th day of each period ending on the 4th, 6th, 9th and 12th month of the year
of income. Any balance of tax (which is the difference between the total
instalment tax paid in the year and the actual tax liability computed for the
year after the year-end) should be paid by 30 April of the subsequent year.
Individual income tax (for individuals whose tax liability is below
KES 40,000) is paid after filing the annual return online via iTax (which
should be filed before end of June of the subsequent year as highlighted
above). For all tax payments, a taxpayer (company or individual) is required to
generate a payment slip and present it at any of the appointed KRA banks (all
commercial banks in Kenya have a KRA bank account and can be used to pay the
tax due).
On the other hand, the MRRIT return is filed on iTax, on or before
the 20th day of the following month. For example, rental income received in
January is declared and tax paid on or before 20 February. Further, any month
that you do not receive any rental income, you are required to file a NIL
return. Failure to file individual income tax returns attracts a penalty at the
higher of KES 2,000 or 5% of the tax due while penalties for late filing for
companies is the higher of KES 20,000 or 5% of the tax due.
Reporting tax payment deadline
Late payment of tax (individual income tax, Instalment Tax and
MRRIT) is subject to 5% of the tax due and late payment interest of 1% per
month on the unpaid tax until the tax is paid in full. Where you have any doubt
regarding your taxes, you should consider seeking advice from a professional
tax advisor or accountant to assist in filing your tax return.
Minimum Tax
Minimum tax was introduced in Kenya with effect from 1 January 2021
and could potentially be applicable to your rental income if your rental income
is not subject to MRRIT. However, the Kenya High Court recently temporarily
suspended the levy of this minimum tax. At the time of writing of this
document, it is not clear whether the minimum tax will again be levied in the
future. Due to the uncertainties in relation with the minimum tax and due to
the fact that this document is not updated in real time, we strongly recommend
you to reach out to your local tax advisor to keep up to date in relation to
any developments in this regard.
Value Added Tax
Value Added Tax (''VAT'') is a consumption tax that is chargeable
whenever value is added to a supply. In Kenya, VAT is chargeable at the
standard rate of 16%. VAT can be complicated, and you should take time to
understand the rules as they may apply to you and your particular situation.
Most goods and services supplied in Kenya are subject to VAT. The supplier is
required to charge and collect VAT and remit the VAT to KRA. The supplier will
also be permitted to deduct the input
VAT incurred in providing that supply as the cost of VAT is the
burden of the final consumer at the end of the supply chain. Provision of
accommodation through serviced apartments, flats, holiday villas, beach
cottages and villas, bandas, safari camps for short stays of less than a month
are subject to VAT at 16%. Further, a serviced flat or apartment (although for
rent longer than one month) which is not under a lease or license is also
subject to VAT at 16%. However, provision of residential premises under a lease
or license for period longer than a month is excluded from VAT.
Should you make taxable supplies of at least KES 5 million within
any period of 12 months, you are required to register and account for VAT. Only
persons who are registered for VAT can charge VAT. Note that failure to
register for VAT where a person has met the VAT registration threshold is an
offence under the VAT Act subject to a fine not exceeding KES 200,000 or to
imprisonment for a term not exceeding 2 years or to both upon conviction.
The VAT charged (output VAT) can be offset against VAT incurred in
providing taxable supplies (input VAT). If you determine that you need to
charge VAT on the supplies that you make to guests, please keep in mind that
you have to collect this VAT from your guests and report and remit this VAT to
the KRA by the 20th day of the following month.
