The document summarizes information presented by the Kenya Revenue Authority (KRA) to real estate developers regarding their tax obligations. It outlines the types of income from real estate that are taxable, such as business income, rental income, and employment income. It also discusses taxpayer obligations like record keeping, filing returns, and payment deadlines. The presentation provides details on tax rates, reliefs, incentives, and KRA facilitation measures to help taxpayers comply voluntarily.

1. KENYA REVENUE AUTHORITY
PRESENTATION TO REAL ESTATE
DEVELOPERS
AT
HF AND KRA FORUM
BY
COMMISSIONER, DTD-MST
ALICE OWUOR, OGW
SANKARA HOTEL, NAIROBI
21ST NOVEMBER 2012

3. Scope of Presentation
۩ Introduction
۩ Types of Income Chargeable to Tax
۩ Taxpayer Obligations
۩ Tax Relief
۩ Tax Incentives
۩ Key Observations to Note
۩ KRA Taxpayer Facilitation Measures
۩ Conclusion

4. INTRODUCTION
Taxation of income in Kenya is governed by
the provisions of the Income Tax Act (Cap.
470), which became effective on 1st January
1974.

5. INTRODUCTION Cont’d……..
 The Finance Minister, in the budget
statement tabled in Parliament on 14th of
June 2012 emphasized the focus on
taxation of Real Estate Sector by KRA.
 The Minister did not introduce a new tax.
 Real Estate and Rental Income have been
subject to taxation since the enactment of
the Income Tax Act.

6. Types of Income Chargeable to Tax
 Business Income from any trade or profession
(including Real Estate Development).
 Income from employment or services
rendered.
 Rent Income.
 Pensions Income.
 Investment income - dividends and interest
among other incomes.
(For Others please see Section 3(2) of Income tax Act, Cap 470).

7. Real Estate Development

8. Income from Real Estate Businesses
Real Estate Development
 This is a business of developing and selling
property.
 Tax is chargeable on the net profit after
deducting allowable expenses.
 This Profit is not considered Capital Gains

9. Rental Income
 Rental Income is taxable.
 In addition, rent on non-residential buildings
(Commercial) is VATable under the VAT Act
Cap 476 Laws of Kenya.

10. Income from Employment (PAYE)
 Real Estate Development firms are supposed
to pay PAYE for all their employees who earn
above the minimum threshhold of Shs.11,135
per month.
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11. Income from Employment (PAYE) Cont’d
 Resident taxpayers are taxable on their
worldwide employment income.
 Non-resident taxpayers are taxable on
employment income earned from a resident
employer or an employer with a permanent
establishment

12. VAT on Commercial Rent
Who qualifies to register for VAT on
commercial rent?
 Taxpayers with a turnover of Kshs.5 million
and above per annum.
 Note: Rental income on commercial
buildings earned by VAT registered
persons should form part of the taxable
supply.

13. Property Developers Tax Obligations
1. Voluntary registration for all relevant
taxes.
2. Voluntary disclosure of income earned by
real estate developers and rental income
earners.
3. Keeping of proper records and any other
relevant information for tax purposes;

14. Tax Obligations Cont’d……
4. Timely filing and payment of the self assessed
taxes by real estate developers and rental
income earners, i.e. Installments and balance
of tax.
5. Deduction of withholding tax at source from
payments due to certain payees (contractors,
consultants, etc) and remitting the tax so
deducted to the Commissioner.

15. Records and Information
to be Maintained
 Proper records should be maintained for all
projects as well as property rented out
indicating the following:
• Land reference (L.R.) number
• Year of construction
• Date of purchase of buildings rented out
• When first let and certificate of occupation
• Cost of construction
• Building plans

16. Records & Information to be
Maintained Cont’d.…
• Loan agreements
• Bank and loan statements
• Number of rentable units and rent per
unit
• Related expenses (invoices and
receipts to support expenses)
• Lease/tenancy agreements etc.

17. Filing of Returns & Payment of Tax
 Taxpayers can file their returns on-line
through; www.kra.go.ke/portal. Incase of
difficulties, manual returns can be submitted.
 Payments can currently be made through
National Bank of Kenya (NBK), Kenya
Commercial Bank (KCB), Co-operative Bank
of Kenya and Equity Bank.
 For HF and other banks, discussions are
underway and once finalized they will soon be
part of the approved banks.

18. Installment Tax
 Tax due is payable in quarterly installments,
also known as ‘Installment Tax’.
 The installment payments are spread evenly
@ 25% of the tax due and payable on or
before the 20th day of the 4th, 6th, 9th and 12th
month of the accounting period or year of
income.

19. Withholding Tax
 The payer of certain incomes is responsible for
deducting tax at source from payments due to
certain payees.
 This includes payments made to contractors
and professionals including Quantity
Surveyors, Architects, Civil engineers,
Electrical engineers, among other consultants.

20. Withholding Tax Cont’d….
 The payees should be issued with withholding
certificates. Tax so withheld can be offset
against payee’s taxes.

21. Withholding Tax Rates
 Management or Professional or Training fees:
• @ 5% for Residents.
• @ 20% for Non-Residents.
 Contractual fee (in respect of building, civil or
engineering works):
• @ 3% for Residents.
• @ 20% for Non-Residents.
 Rents received by Non-Residents @ 30%

22. Income Tax Rates
 Different rates of tax are applicable to individuals and
corporate entities depending on residential status.
 For resident individuals, the annual tax rates (on
total annual income including net rent income) are as
follows:
On the first, Kshs.121,968 .....................10%
On the next, Kshs.114,912 .....................15%
On the next, Kshs.114,912 .....................20%
On the next, Kshs.114,912 .....................25%
On all income over, Kshs. 466,704.........30%
Note: The above scales are referred to as
“graduated”
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23. Rates of Tax Cont’d.......
 Resident companies are taxable at a rate
of 30%
 Non-residents (for tax purpose) -
withholding tax @ 30% on gross rent as a
final tax.
 Estate of deceased landlords - chargeable
at resident corporate tax rate of 30%.
 VAT on non-residential Rental Income
(Commercial rent) - charged at 16% .
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24. Tax Due Dates
 Withholding tax deducted must be
remitted to the Commissioner on or before
the 20th day of the following month.
 VAT is payable on or before 20th day of the
following month.
 PAYE payable on or before 9th day of the
following month.

25. Tax Reliefs
 Personal relief for Resident Individuals @
KShs.13,944 per annum.
 Relief on premiums paid for Life,
education (w.e.f 1st January 2003) and
Health insurance policies (w.e.f 1st January
2007) for Resident Individuals.@ 15% of
premiums paid subject to a maximum of
KShs.60,000 per annum.

26. Tax Incentives
 Deduction of interest paid on mortgage for
owner-occupied property, subject to a
maximum of Kshs.150,000 per year.
 Deduction of funds deposited under a
Registered Home Ownership Savings
Plan, subject to a maximum of
Kshs.48,000 per annum.

27. Tax Incentives Cont’d…..
1. Industrial Building Allowance on:
 Cost of construction of Normal Industrial
Buildings - at the rate of 10% w.e.f 1 st
January, 2010.
 Residential buildings constructed in a
planned development area approved by
the Minister for Housing - at the rate of
5% w.e.f 1st January 2008.

28. Tax Incentives Cont’d…..
2. Commercial and Residential buildings
allowance on the cost of construction at
the rate of 25% (w.e.f 1st January 2010)
where roads, power, water, sewer and
social infrastructure are provided for by the
investor.
3. Wear and Tear allowance on machinery
and equipment.

29. Incentives to Real Estate Developers
 Under the VAT Act, investors in low income
housing projects qualify to apply for VAT
remission (effective from 15th June 2007).
A low income house - construction cost not
more than Kshs.1.6M with a plinth area of not
less than 30 sq metres.
A low income housing project should have
not less than 20 housing units.

30. Key Observations to Note
 After selling the houses some developers stay
on as agents and collect service charge –
agency fee earned is also taxable.
 Some developers register a new company for
each property developed – each of those
companies are taxable on income earned.
 Some property developers retain some houses
for rent purposes and therefore earn rental
income. This income should be declared for
tax purposes.

31. Facilitation Measures
 To facilitate and encourage taxpayers to
voluntarily comply the following measures have
been put in place:
• Help desks set up at Times Tower and in all
Domestic Taxes Department stations country
wide including satellite stations.
• To provide Taxpayers with relevant
information on Real Estate and Rental Income,
a webpage has been created on the KRA
website.

32. Facilitation Measures Cont’d....
 Information pack containing information on what
Taxpayers need to know to comply and answers
to Frequently Asked Questions (FAQs) are
available on the web page.
 The following email address created to enhance
communication between KRA and Taxpayers on
areas of concern; rentalincome@kra.go.ke
 Countrywide Taxpayers’ sensitization seminars.

33. KRA Expectations
 Voluntary disclosure of income earned by Real
Estate developers and Rental Income earners.
 Timely filing and payment of the self assessed
taxes by Real Estate developers and Rental
Income earners.
 Keeping of proper records and any relevant
information for tax purposes.
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34. CONCLUSION
 Taxpayers are encouraged to comply with
the provisions of the relevant laws to avoid
penalties and interest that may accrue due
to non-compliance.
 Taxpayers are encouraged to get relevant
assistance from KRA.
 For professional advice Taxpayers are
encouraged to contact ICPAK (
www.icpak.com). and other relevant
professional bodies

36. Tulipe Ushuru, Tujitegemee!
THANK YOU