Monthly Rental Income Tax in Kenya

Should every landlord pay rental income tax to the Kenya Revenue Authority (KRA)? This is one of the frequently asked questions about the monthly rental income tax regime in Kenya. Tax compliance is important to every taxpayer, including landlords and residential property owners. Landlords who pay taxes correctly avoid severe penalties, maintain a credible reputation for their properties, and contribute to the stabilization of the economy, which positively affects the real estate market.

That’s why it’s crucial to stay up-to-date with the monthly rental income (MRI) tax regime. In this guide, we will tell you everything you need to know about this tax regime, including the tax rates, who is exempted by law, deadlines, penalties and interests, how to register for MRI and file monthly returns.

What is the Monthly Rental Income (MRI) Tax in Kenya?

As the name suggests, monthly rental income tax is a tax imposed on the gross monthly rent an individual or company earns from renting out residential property. It is popularly known as MRI in simple terms. MRI is a final tax. The taxpayer is not allowed to deduct any deductions, including mortgage payments, property repair costs, and other services. Is every landlord expected to pay MRI in Kenya? Not really.

While paying the MRI tax is a legal requirement for all landlords in Kenya, some are exempted by law. This exemption arises due to the threshold of the rental income, the nature of properties, and being subject to a different tax regime. We will talk more about those exempted from MRI later in this post.

Who is Required to Pay the MRI Tax in Kenya?

Are you a new property owner wondering if MRI applies to you? You should only pay MRI if:

• You earn a residential income (rent) from a residential property in Kenya.
• Your annual rental income is between 288,000 and Ksh. 15 million.

Who is Exempt from the MRI Tax in Kenya?

You can be a landlord or a property owner earning rental income in Kenya and be exempted from paying monthly rental income tax. However, being exempt from paying MRI doesn’t mean you’re not required to pay taxes. It means your income falls under a different tax regime, such as the regular income tax regime. Below are examples of MRI tax exemptions:

• Your annual rental income is below Ksh. 288,000 (Ksh. 24,000 per month) or above Ksh. 15 million (Ksh. 1.25 million per month)
• Your rental income is derived from commercial property, not residential property.
• Your rental income is already subject to a different tax regime, such as the normal income tax.
• You are a non-resident landlord/property owner.

Note: If you’re unsure of whether you’re eligible for the MRI tax in Kenya, consult a tax consultant for professional advice.

Monthly Rental Income Tax Rates in Kenya

MRI is one of the simplest tax regimes in Kenya. It’s calculated on a flat rate of 7.5% of the gross income, since January 2024. For instance, if your monthly rental income is Ksh. 500,000, the payable tax will be:

7.5% of Ksh. 500,000

=Ksh. 37,500.

MRI Tax Timelines and Deadlines

One of the core aspects of tax compliance is filing returns and making payments on time. Late filing and payments attract penalties and interest. That’s why it’s important to note the MRI tax timelines and due dates.

According to KRA, MRI returns should be filed on or before the 20th day of the following month. For instance, the MRI returns for January 2025 should be filed on or before 20th February, 2025.

KRA Appointed MRI Tax Agents

The Finance Act, 2023, introduced a provision that allows KRA to appoint tax agents for deduction and remitting the MRI tax. These tax agents include tenants and property managers.

So how does it work?

An MRI tax agent is required to withhold MRI tax on behalf of the landlord. For example, if the monthly rental income is Ksh. 100,000, a tenant can withhold Ksh. 7,500 as tax, based on the given MR1 tax rate of 7.5%. They will pay Ksh. 92,500 as rent to the landlord, then remit the Ksh. 7500 to KRA.

Note: The deadline for remitting any withheld MRI tax is 5 working days. The MRI tax agent should also submit a written return or report to KRA that shows the amount they deducted from the rental income and paid to KRA.

MRI Tax Penalties and Interests

The MRI tax regimes contain various penalties and interests. For instance, failing to file a monthly tax return attracts a penalty. Additionally, late filing and tax payments attract penalties. Below are the various penalties and interests associated with the monthly rental income tax regime:

Penalties

• Late Filing Penalty: -5% of the tax due or Ksh. 2000, whichever is higher for an individual

-5% of the tax due or Ksh. 20,000, whichever is higher, for companies.

• Late Tax Payment: 5% of the due tax.

Interests

• Late Tax Payment: 1% of the outstanding tax balance per month.

Declaring Monthly Rental Income and Registration

Under Kenya’s tax laws, it’s the taxpayer’s duty to self-assess, register a tax obligation, and pay due taxes. If you are a new landlord, you need to register your property under the MRI tax regime. Here is the step-by-step guide to register for Monthly Rental Income (MRI):

1. Go to https://itax.kra.go.ke/KRA-Portal/ and log in to your taxpayer account.
2. Navigate to Registration.
3. Select Register Property Details from the drop-down menu.
4. Your taxpayer PIN and name will be autopopulated. Click Next.
5. There are two sections: Section A and Section B. Section A is already autopopulated, but you need to fill in Section B appropriately. Required details include the type of property, tenant details, and estimated monthly rental income. Click Add when done.
6. If you would like to add any remarks, add them under Application Remarks.
7. Click Submit.

That’s all. You’ll receive an Acknowledgment Receipt from KRA. You have successfully registered for the MRI tax.

How to File MRI Tax Returns

As we mentioned earlier, MRI returns are filed monthly, on or before the 20th of the next month. They are filed online via iTax. Follow these steps to file MRI tax returns:

1. Log in to the iTax portal and navigate to Returns.
2. Select File Return.
3. Under tax obligation, select Income Tax-Rent Income.
4. Choose whether it’s an original or amended return under Section A.
5. Go to Section B and fill out the required information.
6. Click Submit.

Congratulations! You have successfully filed an MRI tax return. You’ll receive an Acknowledgement Receipt on iTax.

How to Pay MRI Tax

Making PRI payments is the final step of MRI compliance in Kenya. After filing your MRI return, you need to generate a payment slip, then pay the due tax via M-Pesa or bank transfer. Follow these steps to generate the payment slip via iTax:

1. Log in to iTax and navigate to Payments.
2. Select Payment Registration.
3. Choose Income Tax under the tax head, and Income Tax- Rent under the tax subhead.
4. Select Self Assessment under Payment Type.
5. Select preferred mode of payment.
6. The payment details will be auto populated. Click Add after confirmation.
7. Confirm the mode of payment, and then click Submit.
8. A payment slip will be autogenerated by the system.
9. Use the payment slip to make your payment, either through mobile money (M-Pesa), online banking, or cheque deposit.

Note: M-Pesa is the most convenient way to pay monthly MRI taxes. KRA’s M-Pesa Paybill Number is 572572. The Account Number is the Payment Registration Number (PRN Number) on the iTax-generated payment slip.

How to Stay Compliant with the Monthly Rental Income Tax in Kenya

Want to stay fully compliant with the MRI tax laws and avoid tax disputes? Follow these tips:

1. File returns every month: Just because you didn’t earn any rental income or earned less than the threshold doesn’t mean you should not file a return. Instead, file a NIL return if there was no income for a particular month.
2. Set reminders to avoid missing the deadlines.
3. Maintain clean records, including monthly income, occupancy status, and filed returns.
4. Stay on top of all relevant changes, such as property details changes, income threshold, and new units.
5. Calculate taxable income based on the gross rent, without any deductions.
6. If you use property agents/managers, ensure they deduct and remit MRI on time.
7. Keep rental income separate from other income sources.
8. Engage a tax consultant, especially if you own multiple rental units.

Let’s Simplify Your MRI Taxes

Are you looking for a reliable tax agent to handle your monthly rental income taxes? At Gichuri & Partners, we offer professional tax management and advisory services to help you stay compliant with all your MRI obligations. This is how we simplify your MRI taxes:

• MRI tax registration and onboarding
• Filing MRI returns every month on your behalf
• Bookkeeping and organizing your monthly income records
• Handling KRA audits and assessments on your behalf
• Responding to KRA requests and notices on your behalf
• Tax advisory to save on taxes and minimize liability

Our tax experts are here to simplify your MRI taxes. Don’t hesitate to reach out for a free consultation. Contact us for timely and reliable MRI compliance support.