Landlords in Kenya are required to account for tax on rental income either on monthly basis or annually depending on the nature of the rental income received.
Who is liable for monthly rental tax obligations?
With effect from 1st January 2016, landlords earning residential rental income ranging from KES 288,000 to KES 15,000,000 per annum are required to pay tax at 10% on gross rent received. This is a final tax and should be declared through a monthly return which should be filed and payment made by the 20th day of the following month.
Who is liable for annual rental tax obligations?
Landlords earning residential rental income of more than 15 million per annum, non-resident taxpayers or landlords earning commercial rent are required to pay tax on the profit (rent received less expenses) at graduated rates for individuals or at corporation tax rate for companies. Under this regime, tax is paid in instalment basis are due for payment on the 20th day of the 4th, 6th, 9th and 12th months after the year end. The balance of tax is payable by the end of the 4th month after the year end. Rent income should be declared in the annual return alongside other sources of income by 30th day of 6th month after the year end.
The penalty for late filing of the monthly / annual return is higher of 5% of the tax due or KES 2,000 (individuals) or KES 20,000 (company).
The penalty for late payment of tax on rental income is 5% of the tax due and accrues interest at 1% per month outstanding.
Taking advantage of Voluntary Tax Disclosure Program
There are instances where a landlord has inadvertently not made payment of the tax on rental income. In order to provide a platform for self-declaration and to encourage compliance, the government introduced a Voluntary Tax Disclosure Program (VTDP) with effect from 1st January 2021.
It is important to note that the VTDP does not apply to a taxpayer who:-
- is under audit, investigation or is a party to ongoing litigation in respect of the tax liability or any matter relating to the tax liability; or
- has been notified of a pending audit or investigation by the Commissioner.
The landlords who qualify for the VTDP will be required to;
- self-assess by carrying out a tax health check on all relevant tax heads (rental income amongst other tax heads with a view of quantifying any undeclared tax liabilities for the period from 1st July 2015 to 30th June 2020.
- Submit an application for VTDP in the prescribed form on iTax for the relevant tax head and period. This should include all the material facts which need to be disclosed along with the application.
- Agree with the Commissioner on the payment plan once relief for penalties and interest have been granted.
- Ensure the iTax ledger reconciliation has been done once application and payment has been processed.
Under the VTDP, the taxpayers stand to benefit with upto 100% relief from Penalties and interest, if the principal tax is disclosed and paid in 2021.
CM Advocates has a fully-fledged tax law advisory business unit that offers a vast range of tax services. Our highly qualified and experienced personnel will assist you with your tax matters and ensure that your business is tax compliant and assist you to analyse and mitigate any tax risks or exposure.
For more information and assistance on the above, please contact our tax advisory team through email at taxteam@cmadvocates.com.
