In Kenya, property income is categorized into residential, commercial, and hotel. However, many Airbnb hosts mistakenly identify as landlords, when in fact, they are considered hoteliers under the law. A landlord-tenant relationship typically involves monthly payments and longer-term occupation of an unfurnished or semi-furnished unit. On the other hand, a hotel-guest relationship involves charging per night, check-in and check-out, cleaning, and linen changes between guests, with fully furnished and equipped units.
The VAT Act defines a "hotel" to include service flats, service apartments, holiday cottages, and villas, with an exception for leases or licences of not less than one month where the lessee cannot terminate without penalty. Airbnb guests typically book for a few nights and have the freedom to cancel, which aligns with the definition of a hotel-guest relationship. As a result, the law lists serviced apartments, homestays, and villas as regulated tourism activities, and hotel accommodation is excluded from the definition of "residential premises" under the Income Tax Act.
The 7.5 percent monthly rental income tax (MRI) applies only to residential property, and not to commercial property, serviced apartments, Airbnb, or hotels. In contrast, VAT at 16 percent is applicable once annual turnover exceeds Sh5 million, and registration is mandatory. Residential rent is VAT-exempt, while MRI tax only covers residential property. This distinction is crucial for property owners to understand their tax obligations.
For non-resident landlords, the 7.5 percent MRI tax is not available, and withholding tax does not automatically end the non-resident's obligations. Under Section 35(1)(c) of the Income Tax Act, a tenant must withhold 30 percent of gross rent paid to a non-resident and remit it to the Kenya Revenue Authority (KRA). However, from July 1, 2026, Section 6B places a direct obligation on the non-resident.
Non-resident landlords must register on iTax, file, and pay by the 20th of the month if the tenant pays them directly by bank transfer. If a resident agent receives the rent on the non-resident's behalf, withholding replaces the filing duty. Property owners must be aware of these changes to avoid costly mistakes.
Property owners with multiple types of rental income, such as commercial rent, residential rent, and Airbnb, must compute their taxes separately. Anyone claiming expenses for an Airbnb operation, such as cleaning, internet, commissions, and furniture, must keep invoices, M-Pesa statements, contracts, and proof of payment. Accurate record-keeping is essential for tax compliance.
In conclusion, property owners in Kenya must understand the tax laws and regulations to avoid confusion and costly mistakes. The Tax Appeals Tribunal and the High Court have settled the matter, but property owners must take steps to comply with the law. By understanding their tax obligations, property owners can ensure they are meeting their responsibilities and avoiding unnecessary penalties.
Key points
- The 7.5 percent monthly rental income tax (MRI) applies only to residential property in Kenya.
- Airbnb hosts are considered hoteliers under Kenyan law, not landlords.
- Non-resident landlords have different tax obligations than resident landlords.
