PROPERTY AGENTS AND TENANTS MAY NOW BE APPOINTED AS
WITHHOLDING TAX AGENTS
Are you ready to be a tax collector?
If you are a landlord:
With effect from 1 January 2017, the
Commissioner for Domestic Taxes now has the
ability to appoint tenants as withholding tax
agents by virtue of changes introduced by the
Finance Act 2016. A person appointed as an
agent will be obliged to withhold 10% of the gross
rent payable (excluding VAT) due to their
landlord and remit it directly to the Kenya
Revenue Authority (KRA).
Your tenant becoming a tax collector is unlikely to
be a positive thing. You will immediately lose
10% of your cash flow. While it is the case
that the withholding tax you suffer is an advance
tax and can be offset against the final tax due
from you, this may prove problematic where you
are not in a tax paying position (due to deductible
interest payments or during periods when your
premises are not fully occupied).
Who qualifies to be appointed?
In highly leveraged situations you might need to
discuss this with your financier as your cash flow
projections may now become insufficient to fund
the interest repayments.
In November 2016, the KRA issued a public
notice which stated that property agents and
tenants may be appointed as withholding tax
agents pursuant to this new provision. In short,
the KRA appears to be largely targeting the
appointment of large corporate organisations,
such as supermarkets, banks and government
ministries. However, in theory any tenant could
be appointed to this role.
How is one appointed?
The changes introduced by the Finance Act 2016
stipulate that a person must be appointed in
writing prior to deducting any withholding tax
under this provision. It is an offence for any
person to withhold rental income from a landlord
without having been appointed by the
Commissioner in writing. The public notice issued
by the KRA in November 2016 further indicated
that such notices of appointment could be sent by
email to such tenants.
If you are a tenant:
If the KRA appoints you as a withholding tax
agent you have no ability to object. You should
You should seek to negotiate amendments to
your lease with the tenants to ensure that the
withholding tax is dealt with in the terms of the
lease. For example, you should seek to
incorporate terms that ensure that the failure to
make the withholding tax payment on time is a
breach of the lease itself. You should remain
vigilant to ensure that the withholding tax is paid
promptly as you will not be entitled to a
withholding tax certificate if your tenant withholds
10% of your rent but does not remit the amount
withheld to the KRA. Furthermore, you can only
claim a credit against your taxable income when
you have received a valid withholding tax
certificate.
When you file your annual tax return you can
claim credit for the withheld tax using the
withholding tax certificate.
Further changes and clarifications expected
A number of players in the property market have
requested the KRA to reconsider the withholding
also make yourself conversant with KRA’s iTax
portal through which withholding tax payment
requisitions and certificates are to be issued.
You should also closely review your lease to
ensure that withholding rent in this manner does
not cause you to be in breach of your contractual
obligations to your landlord. If complying with this
law and your appointment as a withholding tax
agent does put you in breach of your lease then
you should seek legal advice in relation to the
steps you should take.
tax in its entirety. Alternatively, they have
requested a reduction in the rate from 10% to
5%, in line with other types of withholding tax on
management and professional fees and in order
to mitigate the negative impact on cash flows as
discussed above.
Payment of tax withheld
We hope that these clarifications and changes
will be made in the Finance Bill 2017 which is to
be read later this year.
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Tax withheld is payable on or before the 20 day
of the following month on which the rest of the
rent was paid. As indicated above, payment will
be made through the iTax portal. Once paid, a
withholding tax certificate will be generated and
sent to the landlord.
Penalties for non-payment of withheld tax
It is important to note that failure to comply with
such an appointment notice would result in the
tenant being personally liable for the amount that
should have been withheld. Any tax not paid by
the due date will attract a penalty of 20% of the
tax payable and 1% interest per month (in
addition to the settlement of the principal tax that
should have been withheld).
Daniel Ngumy
Partner
[email protected]
Furthermore, it is unclear whether in addition to
rent, service charge should be the subject to
withholding tax as it does not strictly fall within
the meaning of rent.
Anjarwalla & Khanna’s tax team remains
available to provide an in-depth analysis of the
impact of these amendments and how this may
affect your business.
Should you have any queries or need any
clarifications with respect to the above, please do
not hesitate to contact Daniel Ngumy.
The content of this alert is intended to be of general use only and should not be relied upon
without seeking specific legal advice on any matter.