Tax Alert: Withholding Tax On Rental Income

Withholding tax on payments to non-resident landlords Section 35 (1)(c) of the Income Tax Act provides that any person making payment to any non-resident person is required to withhold tax on payments of rent, premium or similar consideration for the use or occupation of property. The withholding tax rate on payments to non-residents is 30% of the gross rent and is final tax. The tenant does not need not be appointed as a withholding tax agent to have this obligation. Withholding tax on payments to resident landlords Section 35 (3)(j) of the Act provides that a person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya, is required to withhold tax on payments in respect of rent, premium or similar consideration for the use or occupation of immovable property. The Kenya Revenue Authority appoints rent withholding tax agents to deduct and remit the tax on rent paid to resident landlords. The appointment of these agents is done via iTax and the selected agents are notified. These agents are required to withhold tax on rent payments to resident landlords at a flat rate of 10% of gross rent paid, excluding VAT where applicable. Withholding tax is not a final tax for resident landlords. The landlord is required to account for tax and utilize the credits as per the withholding tax certificate received while filling the annual tax return or monthly rental income. Withholding tax is payable to the KRA by the 20th day of the month following rent payment. The penalty for late payment of WHT is 5% of the tax due and accrues interest at 1% per month outstanding. CM Advocates offers fully-fledged real estate tax advisory services. Our highly qualified and experienced personnel will assist you with your tax matters and ensure that you are tax compliant and assist you to analyse and mitigate any tax risks or exposure. Kindly get in touch with us for any clarifications and assistance on the above by contacting our Tax Advisory Business Unit members via +254716209673 or on email via taxteam@cmadvocates.com.