Kenya Introduces a New Tax Regime for Non-Resident Landlords

The Finance Act, 2026 has introduced a significant change to the taxation of rental income earned by individuals who live outside Kenya.

Effective 1 July 2026, Kenya has created a new tax category known as Non-Resident Rental Income Tax, specifically targeting rental income earned from property located in Kenya by persons who are not tax residents in the country.

This marks a major shift in the way Kenya taxes rental income earned by the diaspora and other foreign property owners.

Who Is Affected?

The new tax applies to individuals who:

• Are not tax resident in Kenya;

• Own property situated in Kenya; and

• Earn rental income from that property.

Unlike the existing residential rental tax regime, the new tax applies to income from both residential and commercial properties.

Who Is a Non Resident for Tax Purposes in Kenya?

Whether you are subject to the Kenya Non-Resident Rental Income Tax depends on your tax residency status, not your citizenship or immigration status.

Under the Income Tax Act, an individual is generally considered a resident for tax purposes if they:

• Have a permanent home in Kenya and are present in Kenya at any time during the year of income;

• Do not have a permanent home in Kenya but are present in Kenya for 183 days or more during the year of income; or

• Are present in Kenya for part of the year and for periods averaging more than 122 days in each of that year and the two preceding years.

If you do not satisfy any of these tests, you are generally treated as a non-resident for Kenyan income tax purposes.

This means that a Kenyan citizen living and working abroad may be regarded as a non-resident for tax purposes, while a foreign national living in Kenya may qualify as a resident if they meet the statutory residency tests. Tax residency is determined by the Income Tax Act, not by citizenship, passport, or immigration status.

How Is the New Tax Different from Residential Rental Income Tax?

Kenya has operated a simplified Residential Rental Income Tax (MRI) regime for several years. The Finance Act, 2026 does not replace that regime. Instead, it creates a separate tax framework for non-resident landlords.

The key differences are summarized below.

The introduction of the new regime means that the tax treatment now depends not only on the type of property, but also on the landlord's tax residency status.

Key Compliance Requirements

Non-resident landlords are now required to:

• Register for the Non-Resident Rental Income Tax regime.

• Register their rental properties with the Kenya Revenue Authority (KRA).

• File a monthly tax return by the 20th day of the following month.

• Pay tax at the prescribed rate on the gross rental income.

Failure to comply with these obligations may result in penalties and interest under the Income Tax Act.

Tax Is Charged on Gross Rental Income

One of the most significant aspects of the new regime is that the tax is calculated on gross rental income, rather than on net profit.

This means that expenses incurred in earning the rental income cannot be deducted before calculating the tax.

Examples of non-deductible expenses include:

• Property management fees;
• Security costs;
• Repairs and maintenance;
• Cleaning expenses;
• Insurance; and
• Other operating costs associated with managing the property.

Landlords should therefore assess how the new rules will affect the overall profitability of their Kenyan property investments.

Example

Consider a Kenyan living in the United Kingdom who owns a commercial building in Nairobi.

The building generates KSh 1,000,000 in monthly rental income.

During the month, the landlord incurs:

• Property management fees of KSh 100,000; and
• Security costs of KSh 50,000.

Although these expenses amount to KSh 150,000, the tax is computed on the entire KSh 1,000,000 of rental income.

The operating expenses do not reduce the taxable amount under the new Non-Resident Rental Income Tax regime.

Why This Matters for Kenyans Living Abroad

Many in the diaspora have invested in residential apartments, commercial buildings, shopping centres, offices, and mixed-use developments across the country.

The introduction of the Kenya Non-Resident Rental Income Tax creates a dedicated tax framework for these investments and introduces new monthly compliance obligations.

Property owners living abroad should review their tax residency status, understand whether the new regime applies to them, and ensure they are properly registered with KRA.

Early tax planning will become increasingly important, especially where the rental property has significant operating expenses that are no longer considered in determining the tax payable under this category.

Effective Date

The Non-Resident Rental Income Tax took effect on 1 July 2026 following the enactment of the Finance Act, 2026.

In conclusion

The introduction of the Non-Resident Rental Income Tax represents a major shift in Kenya's tax landscape. Non-resident property owners should familiarize themselves with the new registration, filing, and payment obligations to avoid unnecessary penalties and ensure continued compliance.

As with any major tax change, early planning and a proper understanding of the new rules can help landlords manage their obligations more effectively.

How ClearTax Consultancy Can Help you

Determining whether you are a tax resident, understanding your obligations under Kenya's new Non-Resident Rental Income Tax, and ensuring full compliance can be complex.

ClearTax assists diaspora property owners with:

• Tax residency assessments.

• Registration under the new tax regime.

• KRA compliance and monthly filing obligations.

• Cross-border tax advisory.

• Tax planning for Kenyan property investments.

If you own rental property in Kenya while living abroad, obtaining professional advice early can help you save taxes, remain tax compliant and avoid unnecessary penalties as the new rules take effect.

Book a Tax Planning Consultation Now