Non-resident companies are taxable at the rate of 37.5%.
KENYA REVENUE AUTHORITYPRESENTATION TO REAL ESTATE DEVELOPERS AT HF AND KRA FORUM BY COMMISSIONER, DTD-MST ALICE OWUOR, OGW SANKARA HOTEL, NAIROBI 21ST NOVEMBER 2012
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
INTRODUCTIONTaxation of income in Kenya is governed bythe provisions of the Income Tax Act (Cap.470), which became effective on 1st January1974.
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.
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).
Income from Real Estate BusinessesReal 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
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.
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. 10
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
VAT on Commercial RentWho 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.
Property Developers Tax Obligations1. 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;
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.
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
Records & Information to be Maintained Cont’d.…• Loan agreements• Bank and loan statements• Number of rentable units and rent perunit• Related expenses (invoices and receipts to support expenses)• Lease/tenancy agreements etc.
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.
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.
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.
Withholding Tax Cont’d…. The payees should be issued with withholding certificates. Tax so withheld can be offset against payee’s taxes.
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%
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” 22
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% . 23
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.
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.
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.
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.
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.
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.
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.
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.
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; email@example.com Countrywide Taxpayers’ sensitization seminars.
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. 33
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