How commercial rental income is taxed in Kenya
Why rent from shops, offices and warehouses stays out of Kenya's monthly rental regime, how it is declared each year, and what late filing costs.
By Achekam · · 5 min read · For Running a business businesses in Kenya
Owners of shops, offices, godowns and other business premises in Kenya often hear about the monthly rental income tax and assume it covers them. It does not. Rent from commercial property follows a different path: it goes into the annual income tax return, and it is taxed at the normal rates rather than a flat monthly percentage.
Getting this wrong has two costs. A landlord who pays the monthly tax on commercial rent has used the wrong regime, and one who waits for a monthly prompt that never comes may miss the annual deadline altogether. This article sets out what KRA says, who it applies to, and how to keep the figures ready for the return.
Commercial rent sits outside the monthly regime
KRA describes a Monthly Rental Income regime for landlords, but it draws clear lines around it. KRA says the regime does not apply to:
- rent from commercial property;
- non-resident landlords;
- landlords earning more than Kshs 15,000,000 a year.
If any of those describes you, the monthly regime is not your route. A landlord with both residential and commercial units needs to keep the two streams of rent apart from the start, because they are treated differently. For the choice some residential landlords have between the monthly and annual routes, see electing the annual regime for rental income.
Normal rates, declared in the annual return
KRA says commercial rental income is taxed at the normal annual income tax rates and declared in the annual income tax return by the last day of the sixth month after the end of the accounting period, whatever the amount. There is no threshold below which commercial rent can be left out.
For a company with a 31 December year-end, that points to the end of June the following year. A business with a different year-end counts six months from its own year-end.
KRA explains this on its page about filing and paying taxes for companies and partnerships, which covers the annual return deadline and how commercial rental income is declared. Rates change, so check the current position there at the time you file.
Because the rent is part of normal taxable income, the costs of earning it matter too. Keep the invoices for repairs, service charges, insurance and agents' fees with the rental records, so the return reflects the profit from the property and not just the rent received.
Non-resident landlords and withholding
Where the landlord is not resident in Kenya, the tenant is in the picture as well. KRA lists withholding tax on rent for buildings (immovable property) paid to non-residents at 30%. A Kenyan business renting premises from an overseas owner therefore deducts the tax from each payment and pays it to KRA.
Resident landlords can also see withholding on their rent. The current Income Tax Act sets resident withholding on rent for immovable property at 7.5%, and some older KRA pages show a different figure, so confirm the rate with KRA before you rely on it. The tenant's side is covered in withholding tax on rent paid by tenants.
The late filing penalty
KRA says late filing of a company or partnership income tax return attracts a penalty of 5% of the tax due or Kshs 20,000, whichever is higher. Late payment of income tax by non-individuals attracts 5% of the tax due plus interest of 1% per month.
Note the "whichever is higher". A property company that owes very little tax still faces the fixed minimum if it files late. Filing on time is cheaper than any argument about the amount.
Instalment tax on rental profits
Annual does not mean once a year for payment. KRA says instalment tax is payable by every person subject to tax, except turnover tax payers, and that individuals pay it where their tax not covered by PAYE is over Kshs 40,000 for the year. KRA says the instalments fall by the 20th day of the 4th, 6th, 9th and 12th months of the year of income. A landlord who only thinks about tax at the return can find that instalments on the rental profit were due along the way. The rules and estimates are explained in instalment tax in Kenya.
Keeping property income in Achekam
Good records make the annual return a matter of reading figures off the books rather than rebuilding a year from bank statements.
Separate accounts. Each business has its own double-entry ledger with a standard chart of accounts, and accounts can be added or renamed. A landlord can add a rental income account for commercial premises, and another for residential units if it has them, so the two regimes never mix.
Rent invoices that post themselves. A rent invoice is created as a draft and, when issued, takes the next number in the sequence and posts to the ledger as debtors, sales and any output VAT. Tenants' balances, the rent earned and the books stay in one place, with no separate rent roll to reconcile.
Reports for the return. Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, both built from the business's own journals and exportable as PDF or CSV. One thing to watch: the year-to-date preset starts on 1 January, not on the business's own year start, so a business with another year-end should pick its own dates.
Tax computations. Once its rules have been approved, Achekam computes Kenyan corporation tax and instalment tax, among others. A person still files the return on iTax.
A short checklist for commercial landlords
- Confirm that each property is commercial or residential, and record it that way.
- Keep commercial rent in its own income account, with its costs coded beside it.
- Check whether any tenant is withholding tax from your rent, and collect their certificates.
- If you pay rent to a non-resident owner, deduct and pay the withholding tax.
- Diarise the annual return for the last day of the sixth month after your year-end.
- Review instalment tax during the year, not after it.
Start by splitting your rent into the right accounts this month. Every later step depends on knowing which rent is commercial.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
