What happened

KRA released fresh guidance this week that revises the tax treatment of rental income earned by Kenyan landlords who live outside the country. The agency said the rules will apply to all properties generating rent in Kenya, regardless of the owner's physical location. Under the new framework, non‑resident landlords must submit annual tax returns for their Kenyan rental earnings and may be required to register for a KRA PIN if they do not already have one. KRA also warned that failure to comply could trigger penalties, interest and possible legal action. The announcement was published on the KRA website and highlighted on Kenyans.co.ke, signalling the agency’s intent to close a long‑standing revenue gap.

Context and background

The Kenya Revenue Authority has long struggled to capture tax from the diaspora community that owns rental properties back home. Historically, many overseas Kenyans relied on local agents to collect rent and remit taxes, but the system lacked clear enforcement mechanisms. In recent years, the government has increased scrutiny on offshore income streams, driven by the need to broaden the tax base and fund the national development agenda. The latest rules stem from a broader fiscal reform agenda announced in the 2023 budget, which called for tighter reporting on all sources of income, including those earned by non‑resident individuals.

KRA’s decision follows several high‑profile investigations where landlords living abroad were found to have under‑declared rental income, resulting in significant revenue losses. The authority cited internal audits that revealed a pattern of non‑compliance, especially among owners of residential units in Nairobi, Mombasa and Kisumu. By requiring non‑resident landlords to obtain a personal identification number (PIN) and file returns, KRA hopes to create a transparent trail of payments that can be cross‑checked against tenant records and bank statements.

The new guidance also aligns Kenya with international tax standards, such as the OECD’s Base Erosion and Profit Shifting (BEPS) recommendations, which encourage countries to tax income where it is generated. While Kenya is not yet a full participant in the global automatic exchange of information, the KRA’s move signals a willingness to adopt best practices and deter tax avoidance by the diaspora.

Compared with what is normal

Previously, rental income earned by non‑resident landlords was often treated informally, with many owners relying on informal agreements that did not require a formal tax filing. The standard practice for resident landlords is to declare rental earnings on the annual income tax return and pay tax at the applicable marginal rate, typically ranging from 10% to 30% depending on total income. Under the new rules, non‑resident owners will face the same filing obligations, but KRA may impose a withholding tax at source if the tenant fails to collect the tax themselves. This represents a shift from a largely unmonitored system to one where the tax liability is documented and enforceable.

• Earlier approach: informal reporting, low enforcement, occasional voluntary compliance.
• New approach: mandatory PIN registration, annual filing, possible withholding at source.
• Impact on cash flow: landlords must budget for tax payments before receiving net rent.
• Enforcement: penalties up to 200% of tax due for deliberate evasion.
• Compliance timeline: returns due by 30 June each year, with extensions possible on request.

Why it matters

For Kenyan SMEs that rent out office space, warehouses or shop units, the change could affect tenancy agreements and cash‑flow projections. Landlords who previously relied on agents to handle tax matters may now need to engage tax professionals or directly interact with KRA, adding administrative costs. Tenants may also see a shift in rental invoices, as landlords incorporate tax liabilities into the rent schedule or request tenants to withhold tax at source.

From a macro perspective, the new rules are expected to boost government revenue by capturing an estimated billions of shillings that have historically slipped through the net. More accurate reporting will also improve data quality for policy makers, enabling better planning for housing and infrastructure projects. However, the transition may create short‑term friction for diaspora investors who must adjust to Kenyan tax compliance requirements while managing assets from abroad.

Practical steps

Landlords and finance teams can take immediate action to ensure they are ready for the upcoming filing season. The following checklist outlines the most important tasks to complete within the next few weeks.

• Verify that you have a valid KRA PIN; if not, register online through the iTax portal.
• Gather all rental receipts, bank statements and agent commission records for the previous tax year.
• Calculate the total gross rental income earned in Kenya and determine the applicable tax rate based on your overall taxable income.
• Engage a qualified tax adviser to review your filing obligations and avoid potential penalties.
• Communicate any changes in tax treatment to your tenants, updating lease agreements if necessary to reflect withholding obligations.

By following these steps, landlords can avoid surprise penalties and ensure that their rental income remains compliant with the new KRA rules.

Beavoren Ventures offers a specialised Tax Planning & Compliance service that can help diaspora landlords navigate the new filing requirements, optimise tax positions and stay ahead of penalties.

Book a consultation with Beavoren Ventures today and let us handle your compliance, books, and advisory in one place.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.