What is Rent?
Rent means payments received from a right granted to another person for use or occupation of immovable property which includes premium or similar consideration received for the use or occupation of property.
Overview of Monthly Rental Income (MRI)
A simplified tax regime on residential rental income known as Residential Rental Income Tax (popularly known as Monthly Rental Income or MRI was introduced through the Finance Act 2015 and came into effect on 1st Jan 2016.
Who is eligible for MRI?
MRI is payable by a resident person (individual or company) on rental income accrued or derived in Kenya for the use or occupation of residential property.
Following the enactment of the Finance Act 2020, MRI is applicable to persons earning rental income which is in excess of two hundred and eighty thousand shillings but does not exceed fifteen million shillings during any year of income. with effect from 1st January 2021.
However, a person may elect, by notice in writing to the Commissioner, not to be taxable under MRI in which case the annual income tax regime shall apply to such a person.
Property owners with rental income above Kshs. 15 million per year will be required to declare the rental income together with incomes from other sources (if any) while filing their annual income tax returns.
What is the MRI tax rate?
The rate of tax is 7.5%, effective 1st January 2024, on the gross rent received and is final tax (the current rate is 10% until 31st December 2024). No expenses, losses or capital deductions are allowed for deduction from the gross rent.
Exemptions from MRI
- Rental income from commercial property
- Non-resident landlords
- Landlords who earn rental income in excess of 15,000,000 per year.
APPOINTMENT OF RENTAL INCOME TAX AGENTS
The Finance 2023 Act has introduced a provision for appointment of rental income tax agents for the purposes of collection and remittance of rental income tax to the Commissioner (effective 1st July 2023.) The tax shall be charged at 7.5% effective 1st January 2024 and remitted by the fifth working day after the deduction was made. Further, the Commissioner may revoke this appointment at any time.
When is MRI Return and Payment Due?
Where a person deducts MRI he shall within five working days after the deduction was made remit the amount so deducted to the Commissioner together with a return in writing of the payment of the amount of tax deducted.
Are there penalties applicable to MRI?
Late filing of MRI returns attracts a penalty of:
- 2,000 or 5% of the tax due; whichever is higher for individuals Kshs. 20,000 or 5% of the tax due; whichever is higher for body corporates
- Late payment penalty is 5% of the tax
- Late payment interest is 1% per month or part of the month.
How to Register a Property for MRI
- Registration is done online via https://itax.kra.go.ke
- Under the registration tab , click on the very last option: Register Property Details.
- Click on next.
- There are two sections, section A that has auto-filled details of the landlord and section B, which should be filled by the taxpayer depending on the type of property. There are three options of property
- New property - for a taxpayer who has never registered any property even prior to this enhancement
- Update property - for updating property details.
- Deregister property - for taxpayers wishing to cancel already filled registration details
- After selecting the type of property, proceed to fill out a PIN of a tenant of the said property.
- The system will auto-populate the name of the taxpayer.
- Fill out the needed details depending on the selected option, and enter an “estimated monthly rental income”
- Then click on ‘add’.
- Enter any remarks under ‘Application Remarks’ and click on ‘Submit’.
- You will receive an ‘Acknowledgement Receipt’ for registered property details.
How to file MRI
- Returns are submitted online via iTax https://itax.kra.go.ke
- Under the returns tab, click on ‘File Return’
- Select the obligation “Income Tax - Rental Income” and click on There are two sections:
Select whether you are filing an Original Return or an Amended Return.
- The total number of properties will be auto-populated based on the number of properties If for none, this field will need to be entered.
- Enter your monthly rental income.
- The Tax on rental income will be automatically computed.
- Where you have any rental withholding certificates and credits for the month in reference, the system will auto-populate. The tax due will also be calculated factoring in all the credits where any apply
- The final step is to click the ‘Submit ‘ button
- MRI is a final tax; therefore, persons are not required to declare the same in their annual income tax
How to pay for MRI
After filing the MRI return, generate a payment slip as follows;
- Payment registration number is generated through itax via https://itax.kra.go.ke
- Under the tab ‘Payments’, select ‘New Payment Registration’.
- Select the tax head as Income Tax and Tax sub-head as Income tax -rent.
- Select the payment type as Self-Assessment Tax where the return has already been filed and proceed to enter the tax periods (year and month).
- After selecting the radio button, click on the ‘Add’ button then select the payment mode as appropriate.
- Press ‘Submit’ and retrieve a unique payment registration number, which will be used for either mobile payments or payments through
Gross Rent income for the year:
Property A - 5 units*Kshs. 20,000*12months 1,200,000
Property B - 10 units*Kshs. 15,000*12months 1,800,000
Total Rent income in Kshs. 3,000,000
Less: Allowable expenses (Kshs.):
Land Rent/Rates 10,000
Agent's fees 30,000
Loan interest 85,000
Net taxable rent income (Kshs.) 2,635,000
How do I file for Residential Rental Income?
Rental Income is filed on or before the 20th of the following month. For example, rent received in January is declared and tax paid on or before 20th February.
Complete a monthly tax return online via iTax by declaring the gross rent and tax payable will be computed automatically at a rate of 10%.
For any month that the landlord does not receive any rent he/she shall file a NIL return.
Residential rental income is final tax therefore, persons are not required to declare the same in their annual income tax returns.
You can now also file and pay your monthly rental income tax using the new KRA M-service App.