It is said that death and taxes are the only things that are inevitable in life. Tax compliance can be extremely complex undertaking especially due to the ever changing income tax laws in Kenya.
On annual basis during the budget making process, the Minister of Finance normally comes up with fiscal and monetary measures aimed at boosting the economic growth. This includes changes in taxes and tax rates to generate revenue.
Our team of qualified Tax Experts is always prepared to help you determine the kind of tax obligation that is appropriate for your business. We’ll also work with you to prepare accurate tax returns on monthly or annual basis with a view of minimizing business risks of unforeseen tax liabilities.
The following are main taxes in Kenya;
a) Corporation Tax: Corporation tax in Kenya is a form of income tax that is levied on companies and branches. Resident companies are taxable at a rate of 30% while non – resident companies and branches are taxable at a rate of 37.5%. Corporate tax is paid in instalments.
b) PAYE: Pay as you Earn in Kenya is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee’s salary or wages on each payday then remit the tax to the Authority. This relieves the employee from paying taxes at the end of the year and shifts the responsibility to the employers.
c) Withholding Tax: Withholding taxes in Kenya are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, training, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining, sporting or diverting an audience.
d) Value Added Tax (VAT) system in Kenya: Value Added Tax (VAT) is a tax on consumer expenditure introduced in Kenya in January 1990 to replace Sales Tax, which had been in operation since 1973. VAT is levied on consumption of taxable goods and services supplied or imported into Kenya and are collected by registered persons at designated points who then remit it to the KRA.
If you run a business, determining when goods you have supplied are subject to VAT is complex and time consuming. In addition, the Kenya Revenue Authority requires you to withhold VAT at source if appointed as VAT Withholding agent. This is charged on eligible goods supplied or services provided in Kenya and on importation of taxable goods or services into Kenya. VAT is collected by registered persons at designated points who then remitted to the KRA. To ensure that your business is VAT compliant, we’ll support you to:-
- Submit monthly VAT returns online on iTAX.
- Submit a NIL return where no VAT to be declared.
- Generate an E-slip that will be used to make physical payments of the tax due.
e) Advance Tax in Kenya: Advance tax is applicable to Matatus and other commercial Vehicles. Any advance tax paid in Kenya becomes credit available for offset against the corporate tax liability.
f) Residential Rental Income Tax (MRI): The landlords pay residential rental income tax under a special category of tax specific to their needs. The taxpayers are not allowed any expenses or capital expenditure. It does not matter whether the taxpayers are individuals, corporate organizations, male, female, religious organization etc. The tax rate under this special category is 10 % of monthly rental income. The rental tax is based on the gross rental income collection per month and is payable by 20th of the following month.
Monthly Rental Income
Processing and remitting taxes charged on rental income is not only tiresome, time consuming but it also complex. Monthly Rental Income Tax only affects residential rental income. As a landlord, you are required to pay rental income tax at a rate of 10% on the gross rent received and is payable when landlords receive rent from their tenants either monthly, quarterly, semi-annually or annually. Our team works with you to ensure that:
- Your rental income received is correct and accurately computed.
- Payment slip are generated and landlord advised on tax amount to pay.
- Ensure that tax payments are made on or before 20th of the following month and filed online on iTAX.
The following are the questions and answers for Residential Rental Income Tax (MRI)
A. Effective date of Monthly Rental Income Tax?
With effect from 1st January 2016.
B. Legal framework governing the Monthly 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 (individual or company) from income which accrued in or derived from Kenya for the use or occupation of residential property’
C. What are the advantages of the simplified regime?
- Taxed at a flat rate of 10%
- No complex book-keeping and record keeping required, thus very cost effective.
- Monthly Residential Rental Income Tax is final tax.
I. What do I do if a client (appointed withholding rental income tax agent) withholds 10% rent?
You need to offset the withholding tax credit(s) from the total liability payable for the month in question.
J. When do I pay the Monthly Rental Income Tax?
MRI becomes payable when you receives the rent cash. This may be monthly, quarterly, semiannually or annually. MRI becomes payable by 20th of the following month from the date of receipt i.e. Rent received in January 2016 was payable by 20th of February 2016.
K. Should I file nil returns for months not receiving Rent?
Yes, a Nil return should be filed to cover the months not receiving rent.
L. Should I disclose Monthly Rental Income when filing my annual return?
Monthly Rental Income Tax is final tax and should not be disclosed again when filing the annual returns. If no other income other than the MRI, an individual should file a Nil return.
M. Can I pay via MPESA?
Yes, once you generate the e-slip, select Lipa na Mpesa, Paybill #,572572, for account number, select the payment registration (PRN) number, then enter the amount, then pay.
N. What is the Information required for the Monthly Rental Income (MRI) Tax Payer?
- LR No.
- List of current Tenants
- Amount payable for the Month
- Physical Location of the houses i.e Street/ Road, City, County, District, Tax Area, nearest land mark
- O Box & Postal Code
- Name of the Building
- PIN of Tenants (not a mandatory field)
D. Who is eligible to pay the Residential Rental Income Tax?
Both individuals and corporates earning residential rental income tax income less than Kshs.10m per annum.
E. What happens if I have both Commercial and Residential Income?
Simplified rate of 10% tax on gross will only apply to the Residential Rental Income Tax segment subject to the lower and upper limits. Rental income from commercial properties shall be assessed using the old regime i.e. one has to prepare the Profit and Loss Account to ascertain the gains for the year, then effect income tax at the rate of 30% for corporates.
F. What is the rate of Residential Rental Income Tax?
The tax rate is 10% on the gross tax rent collected during the month. Please note that you are not allowed to offset any cost (both direct and indirect).
G. What are the exemptions from Residential Rental Income Tax?
- All persons earning less than Kshs.12,000 per month or Kshs.144,000 p.a. (lower limit) or earning higher than Kshs.10m per year (higher limit) are not eligible to pay the MRI.
- Rental income from a commercial property is also exempted from MRI.
- Non-resident landlords
- Upon writing to the commissioner giving grounds opting out of the simplified regime.
H. How do I compute Residential Rental Income Tax from Partnership Income?
Each partner is eligible to pay 10% of the Gross monthly rental income share received, however the individual shared income must be over Kshs.144,000 per annum but less than Kshs.10 m.
