Withholding tax on rental income is charged under section 35(3)(j) of Income Tax Act and became effective on 1st January 2017.
Kenya Revenue Authority appoints Rent withholding tax agents to deduct and remit the tax on rent paid to resident landlords under section 35(3)(a) of Income Tax Act. The appointment of these agents is done via iTax and the selected agents are notified through a manual letter and i-tax generated notification. Thereafter, the necessary capacity building for the agents is done so as to facilitate compliance. KRA had previously prioritised private institutions with high compliance status and public institutions for appointment as agents. However, any person, duly appointed by the Commissioner should withhold tax on rental income.
This tax applies to rent payable for both residential and commercial property. The agents withhold tax at a flat rate of 10% of gross rent paid to resident landlords, excluding VAT where applicable, and remit it to KRA by 20th day of the month following rent payment.
Withholding tax is not a final tax for resident landlords. This means that once the tax due is paid; a withholding certificate is issued automatically to the landlord, and will be used to claim tax credits while filling the annual return or monthly rental income.
For non-residents however, the tax is withheld at a rate of 30% of the gross rent and is a final tax, which means that any income from rent shall not be liable to any further taxation. To withholding rent for non-resident the tenant need not be appointed agent since any tenant paying rent to non-resident is agent under section 35(1)(c) of Income Tax Act.
The payments are done via itax; Log in to iTax.kra.go.ke > Click on ‘Payment’ menu >Select ‘Payment Registration’ > Tax Head - Income Tax > Tax Sub Head - Income Tax – Rent Withholding. Provide the required landlord, property and gross rent details and submit to obtain the payment slip. Payments can be done through the bank or via Mpesa, the Pay bill number is 572572 and the account number is the payment registration number on the e-slip.