As a landlord in Kenya, comprehending the residential rental income tax framework is vital for ensuring regulatory compliance and optimizing financial outcomes. At FNJ & Associates, we offer specialized expertise to assist property owners in navigating these requirements with precision.
This article highlights the core elements of Monthly Rental Income (MRI) tax applicable to residential properties, providing a comprehensive yet accessible overview.
Overview of MRI Tax
The MRI tax regime, effective from January 1, 2016, represents a streamlined approach to taxation for landlords deriving income from residential properties.
As per the Finance Act, 2020, the annual gross rental income threshold was increased from KES 10 million to KES 15 million. Landlords within this bracket are subject to a flat tax rate of 7.5% on gross rental income, with no provisions for deducting expenses.
Further refinements were introduced by the Finance Act, 2023, which reduced the rental income tax rate to 7.5% effective January 1, 2024. The tax is payable by any resident person who accrues or derives income from the use or occupation of residential property in Kenya.
Applicability and Thresholds
The MRI regime specifically pertains to resident persons with annual residential rental income exceeding KES 288,000 but not surpassing KES 15 million. This targeted scope ensures that small to medium-scale landlords benefit from the simplified system, while larger operations may fall under alternative frameworks.
Compliance entails filing monthly tax returns through the i-Tax system, with payments due on or before the 20th day of the subsequent calendar month. In this context, a month is defined as a calendar month.
Landlords preferring the traditional taxation method, may choose to write to the Commissioner to be taxed at normal tax rates. Upon approval, such landlords must adhere to installment tax payments and standard filing procedures.
Additionally, the Finance Act, 2023, introduced section 42C of the Tax Procedures Act, empowering the Commissioner to designate rental income tax agents. These agents facilitate the collection and remittance of taxes on behalf of taxpayer.
Exemptions from MRI
Several categories are exempt from the MRI obligations. Notably, rental income from commercial properties—such as shops, office spaces, or warehouses—falls outside this regime. Similarly, landlords generating annual residential rent below KES 288,000 or above KES 15 million are not subject to MRI.
Non-resident landlords are also exempt.
Compliance Benefits and Recommendations
Adherence to MRI regulations not only averts potential penalties but also fosters transparent financial management, contributing to sustainable property investment. By leveraging the simplified rate and digital filing, landlords can achieve greater predictability in their tax liabilities.
At FNJ & Associates, we recommend regular reviews of rental income to confirm eligibility and optimize tax strategies. For tailored consultations on MRI compliance or related fiscal matters, our team is prepared to provide professional support, ensuring your property portfolio remains compliant and profitable.