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Taxes -15/2/2016

“But in this world nothing can be said to be certain, except death and taxes” Albert Einstein

 

With the March deadline given to Landlords to submit their rental taxes by KRA soon coming to a close, we figured what better time to look at:

 

a)    Residential Rental Income Tax

b)    Other types of Taxes

c)    Tax Incentives available

Residential Rental Income Tax

The finance Act 2015 has introduced a new Section 6A in the income Tax Act Cap 470 Laws of Kenya which aims to simplify and ease the process of landlords paying their residential income tax. According to this Law, residential rental income tax will be paid at a flat rate of 10% of gross rent received. This will replace the current regime, where KRA has been charging individuals landlords a 10% tax on the first net annual rental income of Ksh121,968 ,15% on Ksh 236,880  20 % on Ksh351,792 while those raking in a net of Sh466,704 paid 25 per cent tax.

The KRA commissioner General announced a grace period during which landlords will enjoy 100% waiver on any principal tax, interest and penalties on rental income due for 2013 and prior. Any penalties and interest on tax on rental income for 2014 and 2015 will also be waived on condition the individual landlords or company voluntarily disclose all undeclared rental income for 2014 and 2015 and pay all principle taxes due. This is expiring in March.

What you need to know about Residential Rental Income

 

1)    It is payable by any resident person (individual or Company) from income accrued in or derived from Kenya for the use or occupation of residential property

2)    The 10% tax rate shall be payable by a resident person (individual or company) and will apply to rental income that has accrued or derived in Kenya for the use of residential property where rent does not exceed Ksh 10 Million pa

3)    Landlords who wish to stay in the current regime, have the option to do so by writing to the Commissioner, and shall pay in instalments and file returns in the normal way

4)    Partnerships are not taxable as per the income tax act. However the individual is taxed based on his or her share of income from the partnership.

5)    Tax points for the residential rental income tax is when the landlords receives rent from the tenants, either monthly, quarterly or annually. However , returns are to be filed monthly, therefore those receiving rent periodically are excepted to pay when they receive the rent and file nil for other months

 

-Eligible persons are expected to file their taxes by the 20th of every month through the iTax.

Direct Taxes

Income Tax Department administers various direct taxes, which have different rates:

a) Pay As You Earn (PAYE)

PAYE is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee's salary or wages on each payday then remit the tax to the Authority. This relieves the employee from paying taxes at the end of the year and shifts the responsibility to the employers.

Below are the current income tax rates

 The annual rates are as follows:
          First KShs. 121,968 @ 10%
          Next KShs.114, 912 @ 15%
          Next KShs.114, 912 @ 20%
          Next KShs.114, 9120 @ 25%
          Above KShs. 466,704 @ 30%.

b) Corporation Tax

Corporation tax is a form of income tax that is levied on companies. Resident companies are taxable at a rate of 30% w.e.f (with effective from) year of income 2000 while non - resident companies are taxable at a rate of 37.5%.w.e.f year of income 2000.

c) Withholding Tax

Withholding taxes are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining, sporting or diverting an audience.

 

Withholding tax rates

2000

2001

2002

2003

a)

Resident withholding tax rates in respect of: -

       
 

i)

Divided Income:

10%

10%

10%

10%

 

ii)

Qualify Divided which is also the final tax

5%

5%

5%

5%

 

iii)

Interest, discount, or original issue discount arising from:

       
 

-

Bearer instruments

       
 

-

(W.e.f 11th June, 1998)

25%

25%

25%

25%

 

-

Government Bearer Bond

15%

15%

15%

15%

 

iv)

Qualifying interest arising from: -

       
 

-

Housing bonds:

10%

10%

10%

10%

 

-

Bearer Instruments (w.e.f 1st July, 1996)

20%

20%

20%

20%

 

-

In any other case (w.e.f 1st July 1996)

-

15%

15%

15%

 

v)

Commission payable by Insurance Companies to:

       
   

Insurance Brokers

5%

5%

5%

5%

   

Insurance Agents

10%

10%

10%

10%

   

Presumptive Income Tax in respect of gross proceeds from certain specified Agricultural produce. W.e.f 1.1.2000 - 15.6.2000

2%

-

-

-

 

vii)

Royalties

5%

5%

5%

5%

 

viii)

Consultancy, Agency fees

2%

2%

10%

5%

   

Contractual fee

   

5%

3%

b)

 

Non-resident withhold tax rates in respect of

       
 

i)

Management and Professional Fees

20%

20%

20%

20% except commission to overseas agents for flower exports

 

ii)

Royalties

20%

20%

20%

20%

 

iii)

Rent, premium or similar considerations for the use or occupation:

       
 

-

Of immovable property:

30%

30%

30%

30%

 

-

Of movable property

15%

15%

15%

15% except aircraft leasing

 

iv)

Dividend Income:

10%

10%

10%

10%

 

v)

Interest other than ix) below:

121/2%

121/2%

15%

15%

 

vi)

Pension or Retirement annuity

5%

5%

5%

5%

 

viii)

An appearance or performance for purposes of diverting an audience

20%

20%

20%

20%

 

ix)

Supporting, assisting or arranging an appearance

20%

20%

20%

20%

 

x)

Management and Professional fee(see Para 5(2)(g) 9th schedule)

121/2%

121/2%

121/2%

121/2%

 

xi)

Interest (see Para 5 (2)(h) 9th schedule):

10%

10%

10%

10%

 

xii)

Interest on bearer instruments

 

20%

20%

20%

d) Advance Tax

Advance tax is applicable to Matatus and other Public Service Vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or a commercial vehicle is registered or licensed.

The current rates are:

  • For vans, pickups, trucks and Lorries Kshs.1, 500 per ton of load capacity per year or Kshs.2, 400 whichever is higher.
  • For saloons, station wagons, mini-buses, buses and coaches, Kshs.60 per passenger capacity per month or Kshs.2, 400 whichever is higher

 

 

 

 

Tax Incentives

1)    Mortgage relief

·         This relief provides for a deduction of mortgage interest of up to sh 150,000 pa or 12,500pm against one’s taxable income. To qualify for the relief one should be an occupant of the premises

 

2)    Home Ownership Saving Plan

·         This is meant to cater for those planning to own a home. Under HOSP one is entitled to a deduction against one’s taxable income on saving up to sh 4,000 pm for 10 years. In addition to the deduction, interest of up to sh 3 million earned on the saving is exempt from tax. Any premature withdrawal will however be subject to claw back of the deduction. The savings plan must be  with a registered saving plan registered with the KRA

 

 

3)    Life Insurance

·         Kenyan Citizen are entitled to insurance relief in respect to premiums paid to local insurance service providers on the following

·   Life policy taken on or after 1st Jan 2003

·   An education Policy with  a maturity period of at least 10 years taken on or after 1st Jan 2003

·   Health policies taken on or after 1st Jan 2003

 

The insurance relief is calculated at 15% of the combined premiums paid but restricted to Kshs 60,000p pa.

 

4)    Tax Incentive to Real estate developers

·         Real Estate Investment Trust (REITs)

 

·         This is a vehicle that allows investors to pull resources together to invest in real estate. The share holder of REITs acquire units which are tradable at the stock market.

 

·         The mode of taxation is the same as that of Units Trust which are tradable at the stock market

 

·         VAT remission on Low Income Housing Project.

 

·         The incentive is meant to encourage housing provision to low income earners.

 

·         A low income earner means a person whose monthly gross earning amount to Kshs. 35,000 or less.

 

·         A low income house means a house put up at a construction cost of not more than Kshs. 1,600,000 and of plinth area of not less than 30 square meters.

 

·         A Low income housing project means a project of not less than 20 housing units intended for low income earners.

 

·         Industrial Building Allowance on the cost of construction 

·   10% on cost for building leased and used for manufacture.

·   5% on cost for rental residential building in planned residential area approved by Minister for Housing.

·   25% on cost for rental residential building in planned residential area approved by Minister for Housing where the owner has put up roads, water, power, sewer and other social infrastructure.

 

 

(Regnum Consultants http://www.regnuminvest.com/ )

 

 

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