Pensions & tax
Tax on Side Hustles and Rental Income in Kenya: Worked Examples, eTIMS, MRI and SEPT
Kenya does not tax a side hustle differently because it is a side hustle. Freelancing, online selling, consulting and renting out a bedsitter are all income. What changes is the regime: the annual income-tax return for most self-employment, and a flat 7.5% Monthly Rental Income tax for qualifying residential rent. This guide works through each with real numbers, and flags what we could not confirm.
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Demystifying KRA Taxes: Side Hustles, Digital Incomes and Rentals. A practical, visual guide to eTIMS, MRI, SEPT and annual tax filings in Kenya.
Side hustles are taxed as income
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What people think matters (crossed out): paid in cash, paid via mobile money, a part-time setup.
What actually matters: having a KRA PIN, and earning taxable income.
The only difference is the regime you fall under: annual income tax or MRI.
Income from freelancing, consulting, content writing, digital services, online selling and other self-employment must be declared in your annual income-tax return. It is added to your other taxable income and taxed under the individual bands. A side hustle does not become tax-free because it is informal, paid in cash or paid into M-Pesa.
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Primary employment income and freelance or business income flow into one funnel, past personal relief (KES 28,800 a year, or KES 2,400 a month), into a final taxable pool taxed in graduated bands. The first KES 288,000 is taxed at 10%.
For a resident individual the annual bands are below. Personal relief of KES 28,800 a year (KES 2,400 a month) is then subtracted from the tax.
| Annual taxable income | Rate |
|---|---|
| First KES 288,000 | 10% |
| Next KES 100,000 (to KES 388,000) | 25% |
| Next KES 5,612,000 (to KES 6,000,000) | 30% |
| Next KES 3,600,000 (to KES 9,600,000) | 32.5% |
| Above KES 9,600,000 | 35% |
Worked example: Amina, salary plus freelance design
Amina earns KES 600,000 a year from employment and KES 240,000 from freelance design, so her taxable income is KES 840,000.
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Base employment income KES 600,000 + freelance income KES 240,000 = total taxable income KES 840,000. Tax before relief KES 189,400, less personal relief (KES 28,800) = annual income tax payable KES 160,600.
| Item | Calculation | Amount (KES) |
|---|---|---|
| Employment income | 600,000 | |
| Freelance income | 240,000 | |
| Total taxable income | 840,000 | |
| Tax at 10% | 288,000 × 10% | 28,800 |
| Tax at 25% | 100,000 × 25% | 25,000 |
| Tax at 30% | 452,000 × 30% | 135,600 |
| Tax before relief | 189,400 | |
| Personal relief | (28,800) | |
| Annual income tax payable | 160,600 |
The side hustle is not taxed at a special rate. Her salary alone would have been taxed at KES 117,400 before relief, so the freelance work adds KES 72,000, which is exactly 30% of KES 240,000. Her employer’s PAYE already covers the salary part, so the balance to account for on her return is the side-hustle tax.
Profit, not turnover: allowable expenses
A side hustle is taxed on profit: income less expenses incurred wholly and exclusively in producing it. Typical allowable costs are internet and data, software subscriptions, advertising, stock and packaging, delivery, business rent and depreciation on qualifying assets. Household shopping, personal travel and personal phone use do not qualify.
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Allowable (wholly and exclusively incurred in producing that income): internet and data, software subscriptions, advertising, stock and packaging, delivery, business rent, depreciation.
Not allowable (personal or non-business): household shopping, personal travel, personal phone use.
Worked example: Brian, online thrift seller
Brian has turnover of KES 1.2 million, with stock of KES 700,000, packaging and delivery of KES 60,000, and internet and advertising of KES 40,000. His taxable profit is KES 400,000.
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Turnover KES 1,200,000 − stock 700,000 − packaging 60,000 − internet and ads 40,000 (total expenses 800,000) = taxable profit KES 400,000. Tax KES 57,400 less personal relief KES 28,800 = KES 28,600 annual tax payable.
| Item | Amount (KES) |
|---|---|
| Turnover | 1,200,000 |
| Stock purchases | (700,000) |
| Packaging and delivery | (60,000) |
| Internet and advertising | (40,000) |
| Taxable business profit | 400,000 |
| Tax before relief (28,800 + 25,000 + 3,600) | 57,400 |
| Personal relief | (28,800) |
| Annual tax payable | 28,600 |
This is Brian’s only income. If he also had a salary, the profit would sit on top of it and be taxed at the higher bands, as with Amina. Rent under MRI works differently: that tax is charged on gross rent with no deductions.
eTIMS: no invoice, no deduction
eTIMS, KRA’s Electronic Tax Invoice Management System, is not only for VAT-registered companies. KRA says all persons engaged in business, including the informal sector and non-VAT businesses, must onboard and issue electronic tax invoices, and that its eTIMS solutions are free. For a side hustle that has two consequences.
- Sales records. Issue invoices or receipts through an eTIMS solution rather than relying on WhatsApp messages, Word invoices or handwritten books.
- Expense claims. From 1 January 2024, business spending without a valid electronic tax invoice is generally not deductible for income tax. Exceptions include salaries and wages, airline tickets, imports and loan interest.
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Effective 1 January 2024, KRA requires all persons in business, including informal and small businesses, to generate electronic invoices. A business expense (for example KES 100,000 of stock plus KES 20,000 of ads) connects to a tax deduction across the eTIMS bridge. Without eTIMS invoices from suppliers, the deduction is disallowed and taxable profit is higher.
Suppose Brian buys KES 100,000 of stock and KES 20,000 of advertising without eTIMS invoices. If KRA disallows the KES 120,000, his profit rises from KES 400,000 to KES 520,000, and his tax payable from KES 28,600 to KES 64,600. The missing paperwork costs him KES 36,000, which is 30% of the disallowed amount.
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eTIMS is not just for VAT-registered companies. Generate invoices and receipts digitally rather than relying on WhatsApp messages or handwritten books. Use *222# (eTIMS Lite) on a phone, or the eCitizen web-based solution. Did you know? If your supplier is a small business (under KES 5 million turnover), you as the buyer can issue the electronic invoice on their behalf.
Small suppliers with annual turnover of KES 5 million or less often cannot issue an invoice themselves. KRA’s buyer-initiated route lets the buyer raise it through eCitizen, and the seller approves it through eCitizen or *222#. Use it when a market trader or small shop has no eTIMS.
SEPT and digital services
Kenya’s 1.5% Digital Service Tax was repealed and replaced by the Significant Economic Presence Tax (SEPT), section 12E of the Income Tax Act, effective 27 December 2024. SEPT is aimed at non-resident providers of services over the internet or an electronic network to users in Kenya. It treats 10% of gross turnover as profit and taxes that at 30%, an effective 3% of turnover.
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The 1.5% Digital Service Tax was repealed and replaced by SEPT under section 12E. Good news: SEPT is primarily for foreign platforms, not a new flat tax on Kenyan freelancers.
- Kenyan freelancers: invoicing foreign clients, you are taxed under normal Kenyan income tax. You are exempt from SEPT.
- Foreign platforms: non-resident platforms providing internet services to users in Kenya are taxed under SEPT.
So a Kenyan freelancer invoicing a foreign client is taxed under the normal rules above, not under SEPT. The Finance Act 2025 removed the former KES 5 million turnover threshold from 1 July 2025, so a non-resident can be in scope from its first sale. SEPT does not apply to income already subject to withholding tax, and the SEPT Regulations are dated 12 August 2026.
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Gross turnover KES 10,000,000 → deemed profit (10% of gross) KES 1,000,000 → SEPT at 30% of profit KES 300,000. Result: an effective tax rate of 3% of gross turnover.
| Item | Calculation | Amount (KES) |
|---|---|---|
| Kenyan gross turnover | 10,000,000 | |
| Deemed taxable profit | 10% × 10,000,000 | 1,000,000 |
| SEPT payable | 30% × 1,000,000 | 300,000 |
| Effective rate | 300,000 ÷ 10,000,000 | 3% |
Rental income: the 7.5% MRI regime
Residential Rental Income tax, known as Monthly Rental Income (MRI), is a simplified regime for resident individuals and companies with residential rent above KES 288,000 a year (KES 24,000 a month) and up to KES 15 million. The rate is 7.5% of gross rent, in force since 1 January 2024. It is a final tax: no expenses, losses or capital deductions come off the gross rent, and the income is not declared again in your annual return.
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MRI is a simplified 7.5% flat tax on gross residential rent. It applies to resident landlords earning between KES 288,000 and KES 15 million annually. File and pay by the 20th of the following month (September rent is due 20 October). Nil returns are required for empty months.
No deductions. You cannot deduct repairs, agent commissions, water bills, security or mortgage interest.
Returns and payment are due by the 20th of the following month, and you file a nil return for a month with no rent.
Worked example: David, three units
| Item | Calculation | Amount (KES) |
|---|---|---|
| Monthly gross rent | 3 × 25,000 | 75,000 |
| Annual gross rent | 75,000 × 12 | 900,000 |
| Monthly MRI at 7.5% | 75,000 × 7.5% | 5,625 |
| Annual MRI | 5,625 × 12 | 67,500 |
David cannot deduct repairs, agent commissions, water bills, security or mortgage interest first. The 7.5% applies to the full KES 75,000.
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David (long-term, 3 units): gross 3 × KES 25,000 = KES 75,000 a month (KES 900,000 a year). MRI 7.5% of 75,000 = KES 5,625 a month.
Wanjiru (short-stay Airbnb): average gross KES 60,000 a month (KES 720,000 a year). MRI 7.5% of 60,000 = KES 4,500 a month (KES 54,000 a year).
Crucial for Airbnb hosts: MRI is charged on gross receipts, not your profit after cleaning, furnishing, utilities or platform fees.
When MRI does not apply
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- Is the property residential? No: commercial rent, taxed under annual income tax or corporate tax.
- Are you resident? No: non-resident rental regime.
- Is annual rent below KES 288,000? Yes: annual income tax.
- Is annual rent above KES 15 million? Yes: annual income tax.
- Otherwise: qualifies for MRI at 7.5%.
A taxpayer within the MRI band may elect in writing to opt out and use the annual income-tax regime if their deductible expenses make it more efficient.
| Situation | Tax treatment |
|---|---|
| Residential rent below KES 288,000 a year | Outside MRI; taxed under annual income-tax rules |
| Residential rent from KES 288,000 to KES 15 million a year | MRI at 7.5% of gross rent, unless you elect out |
| Residential rent above KES 15 million a year | Declared with other income in the annual return |
| Commercial rent (shops, offices) | Not MRI; annual income-tax or corporate regime |
| Non-resident landlord | Not MRI; non-resident rental income regime |
To elect out, give the Commissioner written notice. It can pay off when costs are large: gross rent of KES 1.2 million with KES 900,000 of deductible costs leaves KES 300,000 of profit, which can be taxed far lower than 7.5% of KES 1.2 million. Our rental calculator below compares the two for your numbers.
The housing levy on rent
The draft and slide 14 add a 1.5% Affordable Housing Levy on gross rent on top of MRI. This is the least certain claim in the guide. In May 2024 a KRA regional letter reported by the press demanded 1.5% of gross rental income from landlords, due on the 9th of each month, and press coverage of KRA’s 2026/27 rental guide in October 2026 repeats it. We could not open KRA’s own guide, and the KRA MRI pages we read do not mention the levy. We also could not confirm whether landlords below the MRI threshold owe it. Treat the figures below as what KRA has reportedly asked for, and confirm with KRA before you pay or stop paying.
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Eligible landlords must account for the Affordable Housing Levy at 1.5% of gross rental income, in addition to the 7.5% MRI, effectively creating a 9% gross outflow before any other expenses. On KES 100,000 a month: levy KES 1,500, MRI KES 7,500, net rent kept KES 91,000. Total monthly obligation KES 9,000 (9% effective rate).
| Levy or tax | Calculation | Monthly (KES) | Annual (KES) |
|---|---|---|---|
| MRI | 100,000 × 7.5% | 7,500 | 90,000 |
| Affordable Housing Levy (reported) | 100,000 × 1.5% | 1,500 | 18,000 |
| Total | 9,000 | 108,000 |
Calculators
Side-hustle tax: how much does it add?
Taxable side profit
–Extra tax from the side hustle
–Total annual tax after relief
–Rate on side profit
–Uses the annual bands above for a resident individual. The extra tax is before personal relief, which you get once, and the total is after it. Expenses without an eTIMS invoice are treated as disallowed. It ignores PAYE already paid, other reliefs, the housing levy and payroll rounding, and is an illustration, not a tax computation.
Rental income: MRI or the annual regime?
MRI at 7.5%
–Annual regime (extra tax)
–Cheaper route
–Reported housing levy
–MRI is 7.5% of gross rent, final. The annual regime adds rent minus your costs to your other income and taxes the increase at the bands; personal relief is the same either way. The housing levy of 1.5% of gross rent is shown separately because we could not confirm it. MRI applies only to resident landlords with residential rent from KES 288,000 to KES 15 million a year. An illustration, not tax advice.
How to comply
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| Filing and tools | The core rule | |
|---|---|---|
| Active side hustles | File via the annual individual return on iTax. Track expenses via eTIMS (mandatory). | Deductibility requires perfect documentation. |
| MRI (residential rentals) | File via Income Tax – Rental Income on iTax. Due by the 20th. Nil returns if empty. | Simplicity (flat 7.5%) in exchange for zero deductions. |
KRA’s policy logic: trade deductibility for simplicity on rentals, but demand strict digital documentation for business deductions. The system does not care if you are informal; it only cares if your income is declared and your expenses are documented.
- Side-hustle income. Declare it in your annual individual income-tax return on iTax, alongside any employment income. See our iTax walkthrough and filing a return as an employee.
- Rent under MRI. Register each property on iTax, then under Returns choose File Return, Income Tax – Rental Income, enter the month’s gross rent, submit, and pay through Payments by the 20th of the next month. File a nil return for empty months.
- Records. Keep eTIMS invoices for every business expense, and bank and M-Pesa statements for sales.
- Payslip job as well? Your employer’s PAYE is separate. Our payslip guide explains how it is worked out.
Frequently asked questions
Do I pay tax on a side hustle in Kenya?
Yes. Income from freelancing, online selling, consulting and other self-employment is taxable, however informal or small, and is declared in your annual return. It is added to your other income and taxed at the individual bands.
How is a side hustle taxed on top of a salary?
Your side-hustle profit is added to your salary and taxed at the bands, so it usually lands in your top band. With a KES 600,000 salary, KES 240,000 of freelance income adds KES 72,000 of tax at 30%.
Am I taxed on turnover or on profit?
On profit, which is income less expenses incurred wholly and exclusively to earn it. Rent under the MRI regime is the exception: it is taxed on gross rent with no deductions.
Do I need eTIMS for a side hustle?
KRA says all persons in business, including informal and non-VAT businesses, must onboard to eTIMS. Since 1 January 2024, business expenses generally need an electronic tax invoice to be deductible, and the eTIMS solutions are free.
Does SEPT apply to Kenyan freelancers?
No. SEPT is charged on non-resident providers of digital services to users in Kenya, at an effective 3% of gross turnover. A Kenyan freelancer invoicing a foreign client is taxed under the normal income-tax rules.
How much is tax on rental income in Kenya?
Residential rent from KES 288,000 to KES 15 million a year is taxed at 7.5% of gross rent under MRI, with no deductions. It is due by the 20th of the following month, and you file a nil return for empty months.
Can I opt out of MRI?
Yes. Give the Commissioner written notice and you are taxed under the annual regime instead, where costs can be deducted. It can be cheaper when your deductible expenses are large.
Do landlords also pay the Affordable Housing Levy?
KRA has reportedly asked landlords to pay 1.5% of gross rent, but we could not confirm it on a KRA page we could open, or whether it applies below the MRI threshold. Confirm with KRA before you pay or stop paying.
How we researched this guide
This is an independent, source-based guide. We recalculated every example ourselves. We read KRA’s residential rental income and MRI overview pages, KRA’s eTIMS page, Bowmans’ notes on buyer-initiated invoicing and on the 2026 SEPT Regulations, and press reports of KRA’s 2026/27 rental guide and its May 2024 housing-levy letter. The research draft and slides had three errors that we corrected: the tax on Amina’s KES 840,000 (KES 160,600 payable, not KES 123,600), the tax on Brian’s KES 400,000 profit (KES 28,600, not KES 31,200) and the SEPT payable on KES 10 million (KES 300,000, not KES 3,000,000). We redrew the Amina slide and Brian’s callout. We could not open KRA’s 2026/27 rental guide itself, so the housing levy on rent and the KES 288,000 floor rest on press reports and the Act, and a KRA web page we opened prints KES 280,000. No page we read covers short-stay letting, so its treatment under MRI is the draft’s reading. We did not state a filing deadline because sources and site guides differ. We have no commercial relationship with KRA or any platform named. Contact the editor to report an error.
Sources
- KRA, Residential rental income (7.5% on gross rent, no deductions, opt-out, iTax steps; prints KES 280,000)
- KRA, Overview of Monthly Rental Income Tax 2024 (rate from 1 January 2024, exemptions)
- Pulse Kenya, Landlords earning below Sh288,000 annually exempted from rental tax, KRA says (20 October 2026, KRA 2026/27 rental guide as reported)
- The Star, Housing levy: KRA demands 1.5% from landlords’ gross rental income (7 May 2024, a KRA regional letter)
- KRA, What is eTIMS (all persons in business, free solutions, expense rule from 1 January 2024)
- Bowmans, KRA publishes the reverse invoicing guidelines (buyer-initiated invoices for sellers up to KES 5 million, *222#, deductibility rule)
- Bowmans, Kenya significant economic presence tax regulations 2026 published (10% deemed profit, 30% rate, 3% effective, no threshold)
- Tech-ish, KRA SEPT digital tax doubled 2026 (DST repealed December 2024, threshold removed 1 July 2025, exemptions)
- WeCompare, iTax walkthrough (filing your return)
- WeCompare, payslip deductions explained (PAYE on a salary)
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