Landlords in Kenya are subject to taxation on their rental income. The Kenya Revenue Authority (KRA) offers two primary regimes for compliance: the Monthly Rental Income (MRI) tax and an annual tax on rental income. The applicable regime depends on the landlord’s total annual rental income.
Legislation:
The Income Tax Act, Section 6, ‘Income from the use of property,’ states: ‘For the purpose of section 3(2)(a)(iii) of this Act, “gains or profits” shall include any royalty, rent, premium or similar consideration received for the use or occupation of property.’
and
The Income Tax Act, Section 6A, ‘Imposition of residential income tax,’ states: ‘…a tax to be known as residential rental income tax shall be payable with effect from the 1st January, 2016, by any resident person from income which is accrued in or derived from Kenya for the use or occupation of residential property, and which is in excess of two hundred and eighty-eight thousand shillings but does not exceed fifteen million shillings during any year of income.’
1. Monthly Rental Income (MRI) Tax (also known as Residential Rental Income Tax or RRI)
For the majority of individual landlords, the Monthly Rental Income (MRI) tax is the applicable regime. As of 2025, this simplified tax is levied at a rate of 7.5% on the gross rental income received each month. This is a final tax, meaning no further tax is charged on this income.
Key features of the MRI tax include:
Applicability: It is mandatory for resident landlords earning annual rental income between Kshs 288,000 and Kshs 15,000,000 per annum.
No Deductions: Landlords under the MRI regime are not permitted to deduct any expenses incurred in generating the rental income. The 7.5% tax is calculated on the total rent received.
Filing and Payment: The MRI tax return must be filed and the tax paid on or before the 20th day of the month following the month in which the rent was received. This is done through the KRA’s iTax portal or the newly introduced Electronic Rental Income Tax System (eRITS). Property owners can access the eRITS system by logging into either the Gava Connect API portal for system integration or the eCitizen platform.
Penalties
Late Filing Penalties: For individuals, late filing of Monthly Rental Income (MRI) returns attracts a penalty of KShs 2,000 or 5% of the tax due, whichever amount is higher.
For body corporates (companies), the penalty for late MRI returns is KShs 20,000 or 5% of the tax due, whichever is higher.
Late Payment Penalties and Interest: A penalty of 5% of the tax due is charged for late payment. Additionally, late payment interest of 1% per month, or part of the month, is charged on the unpaid amount, commencing from the due date until the tax is fully paid.
Exemptions from Monthly Rental Income (MRI)
Certain categories of rental income or landlords are explicitly exempt from the MRI regime and are instead subject to the Annual Income Tax regime or other specific tax treatments:
- Rental income from commercial property.
- Non-resident landlords.
- Landlords who earn residential rental income in excess of KShs 15 million per year.
- Landlords earning residential rental income less than KShs 288,000 annually.
- Landlords who qualify for MRI but formally elect in writing to the Commissioner to be taxed under the annual tax regime.
2. Annual Tax on Rental Income:
Landlords are required to declare their rental income annually. This income is then taxed at the graduated scale rates applicable to individuals or the corporate tax rate for companies.
Who it applies to:
- Landlords earning residential rental income below KShs.288,000 or above KShs. 15,000,000 annually.
- Landlords earning commercial rental income (regardless of the amount).
- Non-resident landlords (who are generally subject to withholding tax at 30% of gross rent, which is a final tax).
- Landlords who qualify for MRI but elect in writing to the Commissioner to be taxed under the annual income tax regime.
How it works: These landlords declare their rental income along with income from other sources in their annual income tax returns. They are allowed to deduct expenses directly related to the rental income. The taxable income is then subjected to the applicable individual graduated tax rates or the corporate tax rate (currently 30% for resident companies).
Payment frequency (Instalment Tax): Yes, landlords under this regime are generally required to pay instalment taxes. These are estimated income taxes paid periodically in anticipation of the annual tax liability.
Due dates: Instalment taxes are typically paid in four equal installments by the 20th day of the 4th, 6th, 9th, and 12th months of the year of income.
Calculation: Instalment tax is usually calculated as the lower of:
110% of the previous year’s tax liability.
The taxpayer’s own estimate of the current year’s tax liability.
Balance of tax: Any remaining balance of tax (the difference between instalment tax paid and the actual tax liability) is payable by the end of the 4th month after the year-end (e.g., by April 30th for a December year-end).
A general penalty of 5% of the unpaid tax is also charged for late payment, along with an interest charge of 1% per month on the unpaid amount. Additionally, a penalty of 20% is levied for underestimating your instalment tax.
Key aspects of the annual tax regime:
Graduated Tax Rates: For individuals, the rental income, after deduction of allowable expenses, is added to their other sources of income and taxed at the prevailing individual income tax rates, which range from 10% to 35%.
Allowable Deductions: Unlike the MRI regime, landlords under the annual tax system can deduct expenses wholly and exclusively incurred in the production of the rental income. These may include:
- Land rates and rent
- Insurance costs
- Agent’s fees
- Repairs and maintenance costs
- Interest on a loan used to acquire or improve the property
- Capital allowances (wear and tear) on furniture and fittings if the property is furnished.
Filing and Payment: The annual income tax return, which includes the rental income, must be filed by June 30th of the following year.
Withholding Tax on Rental Income
The KRA has appointed rent withholding agents to deduct and remit tax on rent paid to landlords. These agents, who can be property managers or other designated entities, are required to withhold tax at the applicable rate and remit it to the KRA. MRI tax rate was significantly reduced from 10% to 7.5% on gross rent by finance Act 2023 effective January 1, 2024 and remittance is within five working days of receiving payment on behalf of the landlord.
Election to Join the Annual Tax Regime
Landlords who fall within the MRI bracket but prefer to be taxed under the annual regime have the option to make a written election to the KRA Commissioner. If approved, they will be required to file an annual tax return and will be eligible to claim allowable expenses.
Key Compliance Points for Landlords:
Registration: All landlords are required to have a KRA PIN.
Accurate Records: Maintaining proper records of rental income and expenses is crucial for accurate tax reporting.
Timely Filing and Payment: Adherence to the monthly (for MRI) or annual filing and payment deadlines is essential to avoid penalties and interest.
eRITS Platform: Landlords are encouraged to familiarize themselves with and utilize the new Electronic Rental Income Tax System for streamlined filing and payment.
The KRA continues to enhance its surveillance and data-driven approach to ensure all landlords are tax compliant. It is therefore imperative for property owners to understand their obligations and comply with the prevailing tax laws to avoid potential legal and financial repercussions.
Contact your tax advisor for further insights.
