Rental income tax in Kenya for non residents

Many Kenyans in the diaspora proudly invest in property back home. It’s a powerful way to stay connected with their roots, build wealth, and create legacy. But while the bricks and mortar may be solid, the tax filings often aren’t, and that’s where costly mistakes creep in.

Thousands of diaspora landlords are unknowingly filing rental income under the wrong tax regime, drawing sharp penalties from the Kenya Revenue Authority (KRA).

The common error? Using the Monthly Residential Rental Income (MRI) tax option, even though the tax law doesn’t allow it.

A Costly Error: Real Case Example

In February 2025, a client contacted me. Let's call him Shisabula, after my former classmate. He lives in Dubai and owns an apartment in Runda that he has rented out for years. Believing he was doing everything right, he filed monthly MRI returns and faithfully paid all the resulting taxes every month, for over five years.

Unbeknown to him, KRA had cooked his goose and was ready for service.

As a nice guy, KRA patiently waited for him to finish enjoying his valentines. Then one hot Dubai afternoon, they airdropped him this bold letter.

Hey Shisabula, you owe us:

Tax due: KSh 2.7 million
Penalties and interest: KSh 1.3 million

Total demand: Over KSh 4 million.

Why, he asked. Because you filed under MRI, a lower rate tax regime strictly reserved for Kenyan tax residents. You are not a tax resident of Kenya.

But Shisabula is not alone. Across the world, many Kenyan landlords abroad are making the same mistake, believing that as long as they’re Kenyan citizens, they can use the 7.5% MRI tax option.

They can’t. And KRA is cracking down.

Let's me break it down.

Understand Rental Income Tax in Kenya

Kenya taxes rental income under two categories:

1. Commercial Rental Income – from shops, offices, Airbnbs, or business premises.

   • Taxed on net income (after operating expenses) at:

     • 10–35% (individuals)

     • 30% (companies)

2. Residential Rental Income – from residential homes or apartments.

   • Taxed under two regimes:

     • MRI: Monthly Residential Income Tax - at 7.5%

     • ARI: Annual Rental Income Tax

       • 10–35% (individuals)

       • 30% (companies)
         
         

Choosing the wrong regime has serious legal and financial consequences.

MRI vs ARI: What’s the Difference?

1. Monthly Rental Income (MRI) – 7.5% on Gross Rent

MRI is a simplified tax regime that:

• Applies a flat 7.5% tax on gross rent

• Allows no deductions for expenses

• Requires no further income tax

However, it’s only available to:

1. Tax residents of Kenya

2. With annual rental income between KSh 288,000 and KSh 15 million.
   
   

Legal basis: Section 6A(1), Income Tax Act (Cap 470):

“A tax to be known as residential rental income tax shall be payable by any resident person where the income is accrued in or derived from Kenya from the use or occupation of residential property, and is more than two hundred and eighty-eight thousand shillings but does not exceed fifteen million shillings during any year of income.”

The keyword is "resident." If you’re not a tax resident of Kenya, you’re not eligible.

So, Who Is a Kenyan Tax Resident?

Section 2 of the Income Tax Act defines a resident individual as someone who:

1. Has a permanent home in Kenya AND was present in Kenya during the year, or

2. Was present in Kenya for at least 183 days during the year, or

3. Was present for an average of 122 days in the year and the two preceding years.
   
   

Important: These are physical presence tests.
Owning a home, having Kenyan citizenship, or emotional ties do not make you a tax resident.

Let's break this down even further:

(a) Permanent Home + Presence

To qualify under this clause:

• You must have a permanent home in Kenya, and

• You must have been physically present in Kenya at least once during the year.

KRA interprets “permanent home” to mean:

• A home available to you continuously, not just owned;

• You must have control and regular access to it;

• It is not rented out or abandoned;

• It must be your main place of residence when you visit Kenya, not just an investment property.
  
  

If you own a house or a home in Kenya but have not set foot in the country at all during the year, you do not qualify under this clause, even if the house is vacant and not rented.

(b) 183-Day Test

You are considered tax resident if you were physically in Kenya for 183 days or more during the year.

(c) 122-Day Rolling Test

If you spent an average of 122 days or more in Kenya each year across the current year and the two preceding years, you qualify as a tax resident.

Important: All the three tests are based on physical presence.

Your citizenship, emotional ties, or property ownership do not automatically make you a tax resident.

Why So Many Kenyans Abroad Get It Wrong

After reviewing over 100 tax filings from diaspora landlords in the last 18 months, we found out:

• 80%+ were incorrectly filed under MRI

• Most had no idea about the residency requirement

• Many believed the 7.5% rate applied universally to all Kenyan landlords
  
  

But KRA treats these as invalid returns. The difference between what you paid and what you ought to have paid? That’s a tax evasion liability.

The Financial Impact: Real Numbers

Let’s take a case example:

Take a Kenyan landlord in UK
Has monthly rent from Nairobi apartment: KSh 500,000
Annual income: KSh 6 million

How would his taxes look like under both MRI and ARI?

• MRI : 7.5% of KSh 6M = KSh 450,000

• ARI: 10 to 35% of Ksh 6M = KSh 1,737,400

• Shortfall tax: KSh 1,287,400 per year. In 5 years, that's over KSh 6.4 million (excl. penalties).

Penalties? Add: