Withholding tax on rent paid by Kenyan tenants
When a Kenyan business tenant withholds tax from rent, the rates KRA lists for resident and non-resident landlords, and the penalty for not deducting.
By Achekam · · 4 min read · For Running a business businesses in Kenya
For most businesses, rent is the simplest bill of the month. The lease says how much, the landlord sends an invoice, and the money goes out on the first. So it comes as a surprise when an auditor, or a letter from KRA, asks why the business has been paying its rent in full without withholding any tax.
Kenya uses tenants to collect tax on rental income in certain cases. Whether your business has to withhold depends on whether it has been appointed to do so and on where your landlord lives. This article sets out the rates KRA lists, who the appointed agents are, the special case of non-resident landlords, the cost of getting it wrong, and the lease clauses worth checking.
Withholding rates on rent
KRA's withholding tax FAQ lists residential rent under the Monthly Rental Income regime at 7.5% for residents and 30% for non-residents. KRA's withholding tax page shows 7.5% withholding on rental income by tax agents with effect from 1 January 2024.
Most business tenants rent offices, shops or warehouses rather than homes. For rent on buildings, or immovable property more generally, KRA lists 30% where the rent is paid to a non-resident, and the Income Tax Act's Third Schedule sets resident withholding on rent for immovable property at 7.5%. An older KRA listing shows a 10% resident rate for building rent; the current Act's 7.5% is the figure that applies. These are the rates at the time of writing; rates change, so confirm them with KRA before each new lease rather than relying on a printout kept on file.
How the landlord's own tax on commercial rent works is explained in how commercial rental income is taxed in Kenya.
Appointed rental income tax agents
The withholding duty for resident landlords comes through appointment. KRA says rental income tax agents were appointed under the Finance Act 2023, from 1 July 2023. Those agents deduct tax at 7.5%, from 1 January 2024, and remit it within five working days after the deduction.
So the first question for any business tenant is simple: has KRA appointed us as a rental income tax agent? If it has, every rent payment to a resident landlord is made net of the 7.5%, and the tax goes to KRA within five working days. If you are not sure, find out before the next rent payment rather than after. KRA's rental income tax page explains the regime, the agents' role and the deduction, and is the place to start. The agents' wider duties are set out in duties of rental income tax agents.
Non-resident landlords
Some business premises in Kenya belong to landlords who live abroad: a diaspora family that owns a commercial building, or a foreign company with property in Nairobi. KRA lists withholding on rent for buildings paid to non-residents at 30%.
That is four times the resident rate, and the difference is large enough to change the economics of the lease. Find out where your landlord is resident at the start of the lease, record it, and ask again if the landlord changes, for example when a property is sold or inherited.
The penalty for not deducting
KRA is specific about the cost of skipping the deduction. It says failure to deduct withholding rental income tax attracts a penalty of 10% of the tax involved. Separately, late payment of any withholding tax attracts 5% of the tax due.
A worked example in words: an appointed tenant pays its landlord the full rent for a year, never deducting the 7.5%. When KRA notices, the tenant faces a penalty of 10% of all the tax it should have deducted, while the landlord has already been paid in full. Recovering that money from the landlord afterwards is awkward at best. The deadline for paying over tax you have deducted is covered in when to remit withholding tax you deducted.
Recording net rent payments in Achekam
In Achekam, the landlord's invoice is recorded as a supplier bill, line by line with VAT where the rent carries it. A bill without a purchase order waits for approval before it posts, and it can be paid in full or in parts from the bank account you choose.
When rent is paid net, agree with your accountant how the bill is settled: the landlord receives the net rent, and the withheld tax should show as owed to KRA until it is remitted, not as rent still unpaid to the landlord. Once the Kenyan rules in the workspace are approved, Achekam computes Kenyan withholding tax among its other Kenyan tax computations, which gives you a figure to check each deduction against.
Lease clauses to check
Leases are often drafted without withholding in mind. Read yours for these points, and raise them at renewal if they are missing:
- Does the rent clause say whether rent is gross, with withholding deducted from it, or net, with the tenant bearing the tax?
- Does the lease record the landlord's KRA PIN, so withheld tax is credited to the right person?
- Does it say where the landlord is resident, and require the landlord to tell you if that changes?
- Does it oblige the tenant to provide evidence of the tax withheld?
- Does it deal with VAT on the rent separately from withholding?
A lease that says "net" without thinking about tax can leave the tenant bearing the cost. Check your current lease this month, and if your business has been appointed as an agent, make sure the next rent payment goes out net.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
