I have written two times about the Residential Rental Income Tax two times. The first article was basically to introduce you to the fact that there is a new tax regime in Kenya that requires landlords to pay 10% (like tithe) of all incomes below shs 10,000 per annum gained from residential rental premises to KRA. The second article discussed some three schools of thoughts that emerged after the first article was published, concluding that it is very necessary for landlords to also pay income taxes to KRA, just like other businessmen and women do, especially given that there is a need for the Government to further broaden the tax base so as not to further burden the less than 1.5 million Kenyans who pay taxes.
Today I thought it is necessary for everyone to know all there is to know about the Residential Rental Income Tax, and to this end I will do the explanation through a question and answer format (FAQ) as provided to us by KRA. Below this article are contact information you may use if you need further information regarding the Residential Rental Income Tax. Here we go:
What is Residential Rental Income Tax?
The Finance Act 2015 introduced a new Section 6A in the Income Tax Act Cap 470 Laws of Kenya, which provides for a simplified tax regime on rental income. The tax to be known as residential rental income tax shall be payable by any resident person from income which accrued in or was derived from Kenya for the use of residential property and which does not exceed ten million shillings (Kshs. 10 million) during any year of income.
What is the effective date of the new Tax?
The new rate of 10% tax on gross rent is effective on 1st January 2016.
The first return for January 2016 (for rental income received from calendar month January 2016) was due by 20th February 2016.
Failure to file the monthly return and pay tax due by the monthly due date will attract punitive penalties and interest as specified in the Income Tax Act.
What is the rate applicable for the new simplified Tax?
Residential Rental Income Tax shall be charged at a rate of 10% on gross rent received on monthly basis. No expenses shall be allowed for deduction.
Will this be a final Tax?
Yes, the simplified tax at 10% will be a final tax. Landlords falling in this regime will not be subjected to further taxes on the residential rental income declared. In addition, eligible landlords shall not be required to file annual returns unless one has other incomes e.g. commercial rent, employment income, business income, farm income, etc.
What is the threshold for the new tax?
The Residential Rental Income Tax rate will apply only for persons whose rental income does not exceed Kshs. 10 million during any year of income.
When will the tax be payable?
The 10% tax on gross rent will be payable on monthly basis on or before the 20th day of the month following rent collection. Any tax not paid by the monthly due date will attract penalties and interest as specified in the current Income Tax Act.
Who is eligible for new tax?
The tax shall be payable by a resident person (Individual and Company) effective 1st January 2016.
Further, it applies to rental income that has accrued or is derived in Kenya for the use of residential property.
How will I compute the taxes due under this simplified tax regime?
Taxpayers are required to prepare a rent schedule for all let property showing the number of property, rent received per property and gross rent received.
Complete a monthly tax return online via iTax by declaring the gross rent and tax payable will be computed automatically at 10%.
Note: property owners shall not deduct any expenses incurred.
Will all persons with rent income of upto Kshs. 10 million per annum be subjected to this flat rate?
Yes, the tax applies to all persons (Individual or Company) whose rental income from residential property does not exceed Kshs. 10 million per annum. However, landlords who wish to remain in the current rental income tax regime can elect in writing to the Commissioner, to be taxed under the current tax rates.
Landlords who choose to remain in the current rental income tax regime shall pay instalment taxes (i.e. ‘graduated scale’ with tax rates ranging from 10% to 30%) and file annual returns as required.
If I receive my rent periodically, when will I be expected to file tax returns and pay?
The tax point for the residential rental income tax is when landlords receive rent from their tenants, either monthly, quarterly, semi annually or annually. However, returns must be filed monthly. Therefore, those receiving rent quarterly, semi annually or annually will be expected to pay when they receive rent and file nil returns as necessary.
Note – For any month when the landlord does not receive any rent he/she will file a nil return.
If I have both commercial and residential income can I join the simplified tax regime?
Yes, but the 10% simplified tax rate will only apply to income from residential property. Landlords earning Commercial rental income only will not be in this new tax regime. However, they will be required to declare their commercial rental income in their annual tax return.
Where one has both residential and commercial rental income, how will this be taxed?
Such landlords will be in both regimes. However, one may elect to remain in the current rental income tax regime, in which case such a person will continue to file one return for rent from both sources.
Will I be allowed to claim expenses incurred under the simplified tax regime.
No, under this regime no expenses will be deducted as the 10% rate applies to gross rent collected. If one wishes to claim expenses they can elect to remain in the current rental income tax regime.
If I am in the simplified tax regime, will it be possible to change to the current rental income tax regime?
Yes, if you are in the new tax, it will be possible to change back to the current rental income tax regime provided a taxpayer applies in writing to the Commissioner before 31st December each year. However, there will be no changing of regimes during the year.
Will I be required to file annual returns while in the simplified tax regime?
No, you will not be required to file annual returns if you do not have other incomes. The simplified tax will be a final tax and will be declared and paid on monthly basis.
How will I file my return and pay tax?
Eligible persons shall be required to file and make correct declaration through a simplified tax return via iTax System and pay tax by the 20th day following the month of receipt.
Hence, the first return for rent received in January 2016 was due by 20th February 2016.
Return must be filed online via iTax as follows;
- Log on to kra.go.ke
NB: To file return and pay online, first register with iTax via the iPage facility at KRA website.
- Download the residential rental income tax return form (NB: the return can also be completed online or offline).
- Fill-in the required details in the return.
- Upload the completed return/form and submit.
- Generate the electronic payment slip to use in paying the tax at any KRA appointed bank or via Mpesa/Airtel.
- To pay via Mpesa/Airtel, select payment option of ‘cash’ while generating the payment slip.
- To pay via Mpesa;
- Use the KRA Pay Bill Number 572572 and the Account Number is the Payment Registration Number quoted at the top right corner of the generated Payment Slip.
- To pay via Airtel;
- Dial KRA USSD code *572# to access the menu and select the E-slip generation self-service menu. Proceed to make payment using the E-slip number.
Note: For detailed step by step guide on the return filing and payment process, visit KRA website (webpage named: 2015 Landlords Legislation).
What if I do not receive any rent during a month?
For any month when the landlord does not receive any rent, he/she will file a nil return.
What are the exceptions for the Residential Rental Income Tax regime?
This tax regime will not apply to;
- Rental income from commercial property.
- Where a person who would otherwise pay tax under this regime elects by notice in writing to the Commissioner NOT to be subjected to the Residential Rental Income Tax.
- Non- residents (as per Income Tax Act definition) landlords.
- Landlords earning residential rental income of more than Kshs. 10 million per year.
What benefits will I get if I take advantage of the simplified tax regime?
- Simplified tax computation at 10% flat rate on gross rent instead of the 10% -30% rates in the current regime.
- Landlords shall not be required to produce complex expense records to account for expenditure incurred.
- This will be a final tax thus landlords will not be required to file annual returns if they do not have other incomes.
- Compliance will be easy and cost effective.
For further clarification, please contact:
- Maurice Okelo on Tel +254(020)2715540/2717611/2717642/2718513 Ext.2201 Email; [email protected]
- Rose Kiendi 2036, Email; [email protected]
- Josephine Mugure Ext 2025,Email; [email protected]
Enquiries can also be directed to the KRA Call Centre; Tel: +254 (020)4999999/+254 (0711) 099 999 or via email: [email protected]. You may also contact the KRA Help Desk on Tel: +254 (020) 2816095 or visit the Desk at Times Tower Building, Ground Floor or the nearest KRA Station for assistance. You can also communicate with KRA via email; [email protected]
More details on the Residential Rental Income Tax visit can also be found from the KRA website; www.kra.go.ke (web page named; 2015 Landlords Legislation)