Residential rental income, also known as Monthly Rental Income (MRI)
refers to income derived from renting out residential properties for use or
occupation. This tax applies to individuals and corporates with
residential property only. Effective 1st January 2021, the Finance Act 2020 requires every resident landlord
receiving rent income of between Kshs. 288,000 (Kshs. 24,000 per month) and Kshs.
15 million per annum are obligated
to file and pay for MRI at
10% of the gross rent received either
monthly, quarterly, semi-annually or annually. The return must still be filed
monthly. No expenses, losses or capital allowances are allowed for deduction from
the gross rent at the time of filing the return. Therefore, a landlord earning
gross rent of Ksh. 100,000 in a month will be required to pay rental income tax
at the rate of 10%, that is 10%*100,000=10,000.
Taxpayers within this
bracket who wish to remain in annual rental
income tax regime may do so by requesting the Commissioner in
writing. The MRI return is filed on iTax or using the
new KRA
M-service App , on or before the 20th day of the following month.
For example, rent received in January is declared and tax paid on or before 20th February.
Further, any month that the landlord does not receive any rent, he/she is
required to file a NIL return. You can pay via Mpesa by
using KRA PIN number 572572 and the account Number been the Payment
Registration Number quoted at the top right corner of the generated
payslip.
Landlords with rental income below Kshs.
288,000 or above Kshs. 15 million per year and non-residents shall file
annual income tax returns and declare rental income together with income from
other sources.
Residential rental
income is final tax. This means that, any income from rent that is
subject to residential rental income tax is not liable to any other tax under
the Act and therefore, persons are not required to declare the same in their
annual income tax returns.
Late filing of MRI returns attracts a penalty
of 2,000 or 5% of the tax due whichever is higher for individuals and 20,000 or
5% of the tax due whichever is higher for corporates and
subsequent interest of 1% per month on the unpaid tax until payment is made in
full.
Penalty on late payment: 5% of the tax
due and late payment interest of 1% per month on the unpaid tax until the
tax is paid in full.
As you engage in real estate, its always important to consider the impact
of taxes on your transactions. To remain compliant, please consult your tax or
legal expert. For more information, please call David
Ndiritu on +254 721 949 580 or
via email on [email protected]
