The realities of the introduction of Section 6B and non-resident rental income tax
By: Kevin Titus Wamae
The introduction of Section 6B in the Income tax act by the Finance Bill 2026 aggressively tightens the noose on rental income earned by non-resident property owners. For years, enforcing tax collection on non-resident landlords operated in a regulatory gray area. While provisions for withholding rental income at a 30% rate existed, they were not automatic. They only applied if a KRA Commissioner explicitly appointed a tenant or property manager as a withholding agent. Without that appointment, the system relied on self-declaration, creating two distinct advantages that non-resident landlords exploited depending on how much they earned;
Exploitation of the Resident Monthly Rental Income Frame1work
- Exploitation of the Resident Monthly Rental Income framework
- Strategic tax minimization via expense deductions
The Monthly Rental Income (MRI) framework is an optional regime for residents earning Rental Income between Ksh 288,000 and Ksh 15,000,000 annually. Under this regime monthly rental income is taxed at a flat rate[i] of 7.5% on the gross rent.[ii] The prior lack of a specific regulation for non-resident landlords created a workaround where non-resident investors simply acquired a KRA PIN and quietly filed their taxes under the resident Monthly Rental Income framework. By doing so, they unlawfully treated their tax obligation as a final tax, paying a remarkably low resident rate of just 7.5% on their gross income.
Section 6B and the 30% Tax on Gross Rent
Previously, non-resident landlords could register under the resident Monthly Rental Income (MRI) regime using a KRA PIN. Section 6B closes this loophole by mandating a flat 30% tax on gross rent for non-residents [iii]. Consequently, Ksh 1,000,000 in monthly residential rental income now incurs a tax liability of Ksh 300,000. Compared to the previous MRI liability of Ksh 75,000, this represents a Ksh 225,000 increase, effectively quadrupling the investor’s tax burden.
Strategic Tax Minimization via Expense Deductions
The second advantage capitalized on expense deductions for properties earning outside the resident MRI bracket of Ksh. 15,000,000. If the non-resident landlords earned above Ksh 15,000,000 they were pushed into the standard annual income regime, where they pay 30% Corporate Income Tax (CIT) or file individual returns but get to deduct operational expenses from their revenue first. This allowed them to declare massive operational expenses such as property management fees, extensive repairs, and mortgage interest. By deducting these costs, they drastically shrank their taxable net profit, minimizing the actual cash they owed when the 30% tax rate was finally applied.
Impact of Section 6B on Tax Liability
Consider a non-resident landlord with a gross annual rental income of Ksh 15,000,000 and operational expenses such as maintenance, property management fees, and mortgage interest totaling Ksh 8,000,000. Under the old system, the landlord would deduct the Ksh 8,000,000 in expenses from their revenue, leaving a taxable net profit of Ksh 7,000,000. Applying a 30% tax rate to that net profit resulted in a total tax bill of Ksh 2,100,000.
Section 6B fundamentally changes this by eliminating the right to deduct any operational expenses. Now, the 30% tax rate is applied strictly to the gross income of Ksh 15,000,000. This results in a total tax liability of Ksh 4,500,000. By eliminating the ability to deduct business expenses, the government has effectively more than doubled this investor’s tax liability from Ksh. 2,100,000 to Ksh 4,500,000, forcing the landlord to pay tax on gross revenue rather than net profit.
Legitimate Structures to Reduce the Tax Burden
While recent legislative changes eliminate regulatory grey areas for foreign landlords, the 30% default gross tax rate is not set in stone. By utilizing legitimate, legally sound structures including incorporating local corporate vehicles or establishing tax residency , foreign investors can significantly lower this overall tax burden potetialy reverting to the 7.5% rate or even lower.
[i] Flat rate refers to a fixed percentage charged on the total rent collected, without any expense deductions.
[ii] Income Tax Act, Third Schedule, Paragraph 1(10).
[iii] Income Tax Act, Third Schedule, Paragraph 3(c).
