Landlords, Beware: The New Residential Rental Income Tax Provisions in the Finance Act, 2015

By Lena Onchwari

Groundbreaking in many ways the Finance Act, 2015 (the Act) has had an impact on several sectors of the Kenyan economy. For instance, the statute has introduced a new tax known as “residential rental income tax” by inserting a new Section 6A in the Income Tax Act (Cap 470).

Residential rental income tax is now payable by any resident person (either individual or company) from income which is accrued in or derived from Kenya for the use or occupation of residential property, which does not exceed KES 10 million in a year. Landlords who wish to remain in the pre-existing tax regime (before the introduction of the residential rental income tax) can elect in writing to the Commissioner General of Kenya Revenue Authority(KRA), to be taxed under the normal tax rates.

The new residential rental income tax will be payable at the rate of 10% on gross rent received with effect from 1st January, 2016 and applies to rental income received from January, 2016. It is for this reason that KRA has given a deadline of the end of March 2016, requiring landlords to pay the residential rental income tax due on the rental income received from January, 2016, failure to which KRA will issue an estimated residential rental income tax assessment from the property information available and take various enforcement measures provided in the law.

Tax Amnesty

The Finance Act, 2015 also inserted a new Section 123C. This new section effectively gives landlords a 100% amnesty on principal taxes, penalties and interest for the year 2013 and prior periods. In addition, landlords will get an amnesty on penalties and interest for the years 2014 and 2015. However, in order to be entitled to this amnesty, landlords have to file returns and pay taxes for the years 2014 and 2015 on or before 30th June 2016.

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