Withholding tax is a retention tax that requires the payer of certain incomes to deduct tax at source from payments made and remit the deducted tax to Kenya Revenue Authority (KRA). The withholding tax rate varies depending on the nature of the income earned and on whether one is a Kenyan resident or a non- resident.
We discuss below withholding tax on rent payments.
Withholding tax on rental payments to non-resident landlords
Section 35 (1)(c) of the Income Tax Act provides that any person making payment to any non-resident person not having a permanent establishment in Kenya is required to withholding tax on payments of a rent, premium or similar consideration for the use or occupation of property, except aircraft or aircraft engines, locomotives or rolling stock.
The withholding of tax rate on payments to non-residents is at 30% of the gross rent. This is a final tax, and as such there is no further tax on due on this rent income. The tenant does not need not be appointed as a withholding tax agent since any tenant paying rent to non-resident is agent under section 35(1)(c) of Income Tax Act.
Withholding tax on rental payments to resident landlords
Section 35 (3)(j) a person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya is required to withholding tax on payments in respect of rent, premium or similar consideration for the use or occupation of immovable property.
The Kenya Revenue Authority appoints rent withholding tax agents to deduct and remit the tax on rent paid to resident landlords under section 35(3)(a) of Income Tax Act. The appointment of these agents is done via iTax and the selected agents are notified.
The agents withhold tax on rent payments to resident persons is at a flat rate of 10% of gross rent paid to resident landlords, excluding VAT where the same is applicable.
Withholding tax is not a final tax for resident landlords. The resident landlord is required to account for tax and utilize the credits as per withholding certificate received while filling the annual return or monthly rental income.
The due date for withholding tax on rent payments
Withholding tax is payable to the KRA by 20th day of the month following rent payment. The penalty for late payment of WHT is 5% of the tax due and accrues interest at 1% per month outstanding.
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