If you own a furnished apartment in Kilimani, a cottage at the Coast or a spare unit you list on Airbnb, there is a good chance you have been treating the money it earns as ordinary rental income, and paying tax on it at 7.5% under the Monthly Rental Income regime. It is an easy assumption to make. It is also, in the eyes of Kenyan law, the wrong one.
Under the statutes and the tribunal decisions now on the books, a short-term let is not a rental property at all. It is a hotel. That single word changes almost everything about how your Airbnb is regulated and taxed: it must be licensed by the Tourism Regulatory Authority, it attracts a tourism levy, it can fall into VAT, and its profits are taxed as business income, not at the gentle 7.5% many hosts expect. Get the classification wrong and you are not just underpaying. You are operating an unlicensed tourism enterprise, which is an offence.
This is not a scare piece. It is the current legal position, and once you understand it, compliance is very manageable. In this guide, Njane & Company walks you through it in plain language: why your Airbnb is a hotel, what licensing and levies apply, how VAT and income tax really work, the withholding tax the platforms already deduct, your obligations if you employ staff, and a practical checklist of what to do now.
Why your Airbnb is legally a “hotel”, not a rental
The whole tax treatment of a short-term let flows from one question: is the property a residential rental or a hospitality business? Two Acts of Parliament and two recent tribunal decisions all point the same way.
What the Tourism Act says
The Tourism Act (Cap. 381) defines a “hotel” very broadly. Section 2 describes it as a facility used to receive guests and travellers who want to stay or sleep there. There is no minimum number of rooms and no requirement for a reception desk or a restaurant. If people pay to spend the night, the facility fits the definition. The Ninth Schedule to the Act then lists the tourism activities it regulates, and the list reads like an Airbnb category page: service flats, service apartments, villas, homestays, beach cottages, holiday cottages, guest houses and hotels.
What the VAT Act says
The Value Added Tax Act (Cap. 476) is even more specific. Its definition of a hotel expressly names service flats, service apartments, beach cottages, holiday cottages, game lodges, safari camps, bandas, holiday villas and similar premises. Crucially, it excludes only lettings of one month or more, and even then, if the guest can leave early without penalty, the exclusion falls away. Because a typical Airbnb stay runs for a few nights or a couple of weeks, it sits squarely inside the definition of a hotel.
What the tribunals have decided
Two decisions of the Tax Appeals Tribunal put this beyond argument.
In Community Health Promotion Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E367 of 2025), the Tribunal set out a simple, powerful principle: the character of income is decided by the nature and use of the property that produces it, not by the label the owner chooses. The taxpayer there had declared everything as residential rent under the 7.5% regime, but part of the premises was actually let as offices. The Tribunal held that commercial premises fall outside the residential regime, and KRA was entitled to reclassify the income and tax it accordingly. Short-term hosting is a commercial use, so the same logic applies: calling it “rent” does not make it rent.
In KB Cottages Nairobi Limited v Commissioner of Domestic Taxes (Tax Appeal E1072 of 2024), the Tribunal confirmed that income from different sources must be worked out separately. KB ran a hotel but also received rent from a restaurant operating on part of the property. Relying on Section 15(7) of the Income Tax Act, the Tribunal held that the rental income had to be computed on its own, apart from the hotel income. The point for hosts is that if you mix streams, for example a long lease on one unit and short-term stays in another, each has to be accounted for separately.
Rental versus Airbnb, side by side
The difference between the two treatments is large, which is exactly why the classification matters:
- A true residential rental needs no tourism licence, pays no tourism levy, is exempt from VAT, and is taxed under the Monthly Rental Income regime at 7.5% of gross rent.
- An Airbnb or other short-term let must hold a TRA licence, pays the 2% tourism levy on its receipts, is standard-rated for VAT at 16% once turnover passes KES 5 million, and its profit is taxed as business income at graduated individual rates up to 35%, or 30% corporation tax for a company.
Step one: get licensed by the Tourism Regulatory Authority
Before the tax even begins, there is a licensing duty. Section 98(1) of the Tourism Act makes it unlawful to carry on any Ninth Schedule activity without a licence from the Authority, and Section 7(1)(c) gives the TRA the job of registering, licensing and grading tourism enterprises, including private residences offering guest-house services.
The Tourism Regulatory Authority (Tourism Enterprises) Regulations, 2025 (Legal Notice 200 of 2025) put flesh on this. Regulation 15(2) says no one may run a tourism enterprise without a valid licence, and Regulation 24(3) goes further: an unlicensed enterprise may not be listed on any booking or digital marketing platform at all. In other words, operating your Airbnb listing without a TRA licence is not a grey area. And note that the licence attaches to the activity, not the platform, so hosting through word of mouth, phone bookings or walk-ins does not exempt you either.
What the licence costs
The First Schedule to the 2025 Regulations sets category fees. A few common ones:
- Service flats and service apartments: application KES 1,000; annual licence from KES 12,000 for a single unit up to KES 65,000 for 21 units or more. A single serviced unit is commonly quoted at around KES 26,000 a year.
- Homestays: application KES 500; annual licence from KES 1,500 (economy) to KES 4,500 (executive).
- Villas: application KES 1,000; annual licence about KES 37,000.
- Guest houses: application KES 1,000; annual licence from KES 8,500 (1 to 2 beds) to KES 30,000 (13 beds and above).
- Beach cottages: KES 37,000 a year. Holiday cottages: KES 30,000 a year.
The other licensing duties hosts miss
- Association membership. Regulation 17 requires you to belong to a recognised sector or professional association for your category. Operating without it is an offence.
- Display the licence. Regulation 19 requires the licence to be shown at the premises, and its serial number or QR code to appear on your website and on any platform listing.
- Renew on time. Regulation 20 adds a penalty of 10% of the fee for every month a renewal is late.
- Standards, accreditation and grading. Regulation 4 sets mandatory hygiene, safety, security and service standards. Licensed enterprises apply for accreditation every two years (Regulation 6) and, for the higher classes, star classification every five years (Regulation 7). Failure to submit to these exercises is an offence carrying, under Section 112(2) of the Act, a fine of up to KES 100,000 or up to 18 months in prison, or both.
The tourism levy: 2% off the top
Section 105 of the Tourism Act allows a tourism levy on tourism businesses, paid into the Tourism Fund. For short-term rentals the levy is 2% of gross accommodation receipts, and it is due by the 10th of the following month. Late payment attracts a penalty. This is a levy on turnover, not profit, so it applies whether or not you make money in a given month.
Value Added Tax: watch the KES 5 million line
Because a short stay is “hotel” accommodation, supplying it is a taxable supply for VAT. The standard rate is 16%. What decides whether you charge it is the registration threshold in Section 34(1) of the VAT Act: you must register once your taxable turnover reaches, or is expected to reach, KES 5 million in any 12 months.
- Below KES 5 million a year: you do not register and do not add VAT to your rates.
- At or above KES 5 million a year: you must register, charge 16% on bookings, issue tax invoices, file a VAT return by the 20th of each month, and keep records for five years.
Do not assume you are safe just because you have not registered. In the Community Health Promotion case, the Commissioner registered the taxpayer for VAT because its own records showed it had crossed the threshold. Section 34 lets KRA do exactly that.
Income tax: this is business income, not 7.5% rent
Here is the point that catches most hosts. Short-term letting is a hospitality business, so the money is business income. The relationship with a guest is a licence to occupy for a few nights, not a lease that creates an interest in land. That means:
- The 7.5% Monthly Rental Income regime does not apply. It is reserved for genuine residential rent. Your Airbnb profit is taxed under the normal annual income tax rules: graduated individual rates up to 35% for a sole proprietor, or 30% corporation tax for a company.
- Different sources are computed separately. If you also earn long-term residential rent, Section 15(7) treats that rent as a separate “specified source”. You cannot lump it in with your hosting business, and a loss on one source cannot wipe out a profit on the other. Keep separate books for each stream.
The upside: you can deduct your costs
Unlike the flat 7.5% regime, which allows no deductions, taxing your Airbnb as a business means you deduct expenses that are wholly and exclusively incurred in earning the income (Section 15). Typical allowable costs include:
- Platform commissions charged by Airbnb or Booking.com
- Cleaning, laundry and consumables
- Utilities: water, electricity and internet
- Property management fees, repairs and maintenance
- Mortgage interest and insurance premiums
- Advertising and photography
- Depreciation on furniture and fittings
- Your TRA licence, accreditation and classification fees
One warning from the case law: in Community Health Promotion, the Tribunal disallowed a long list of expenses, including directors’ travel and allowances, because the taxpayer could not show they were really connected to earning the income. Keep clean records and a clear link between each cost and the letting business.
Turnover Tax: attractive on paper, awkward in practice
Turnover Tax (TOT) under Section 12C is a simplified 1.5% tax for resident businesses with turnover above KES 1 million but not more than KES 25 million a year. Many hosts fall inside that band and assume TOT is the easy option. In reality it can create a permanent headache.
The problem is arithmetic. The platforms already deduct 5% withholding tax from what they pay a resident host (more on that below), while TOT is only 1.5%. So the tax withheld is larger than the tax due, and you end up in a standing credit position, effectively having overpaid every single month. In theory Section 39(1) of the Income Tax Act lets that withholding be set off against your liability. In practice the monthly TOT return has no field for claiming it, so you are pushed towards the set-off and refund process under Section 47 of the Tax Procedures Act, which can take a long time and often invites a closer look at your file. With KRA now cross-checking eTIMS, bank and M-Pesa data, sitting in a constant refund position is not comfortable.
For most resident hosts, electing out of TOT (which Section 12C expressly allows, by written notice to the Commissioner) and being taxed under the normal business rules, with proper expense deductions, is the cleaner path. This is a decision worth taking with an adviser rather than by default.
The withholding tax the platforms already take
Under Section 10 of the Income Tax Act, as amended by the Tax Laws (Amendment) Act, 2024, operators of digital marketplaces must withhold tax on the payments they facilitate. For accommodation booked and paid through a platform, that means Airbnb deducts tax before it pays you. The rates are:
- 5% for resident hosts
- 20% for non-resident hosts
The law bases the rate purely on residence, not on whether you hold a KRA PIN. Platforms, however, apply their own rule: give them a valid PIN and they use 5%, otherwise they default to 20% to protect themselves. So registering your PIN with the platform is the single easiest way to avoid over-withholding. Whatever is withheld is not lost; under Section 35 it is a credit against your final tax bill.
One important nuance: if a guest pays you directly, by cash, M-Pesa, bank transfer or a gateway like Paystack or DPO, the platform has not facilitated that payment, so no withholding applies. That does not make the income tax-free. You still have to declare it and pay tax on it yourself.
Non-resident hosts
If you live abroad but let a property in Kenya, the income is still Kenyan-sourced and taxable here. The Finance Act, 2026 introduced a Non-Resident Rental Income Tax of 30% on gross rent, but that is a tax on rental income from immovable property. Because Airbnb hosting is business income rather than rent, that regime does not apply to it. Instead, a non-resident host is taxed under the business rules, and the 20% the platform withholds on digital-marketplace payments operates as a final tax on that facilitated income. Non-residents are also outside Turnover Tax, which is only for residents.
If you employ staff, you are now an employer too
Many hosts employ a cleaner, a caretaker or a manager. The moment you do, the full set of payroll obligations applies, all filed through the Unified P10 return on iTax and due by the 9th of the following month:
- SHIF: 2.75% of gross salary, remitted to the Social Health Authority. Late payment carries a 2% monthly penalty.
- Affordable Housing Levy: 1.5% from the employee and 1.5% from you, 3% in total, with a 3% monthly penalty for lateness.
- PAYE: deducted on the graduated bands (10% up to KES 24,000, then 25%, 30%, 32.5% and 35% on the higher bands), with the KES 2,400 monthly personal relief. Late payment penalties are steep.
- NSSF: 6% from the employee matched by 6% from you. From 1 February 2026 the Tier I limit is KES 9,000 (KES 540 each) and the Tier II limit is KES 108,000, for a maximum combined contribution of KES 12,960 a month.
- NITA levy: KES 50 per employee per month.
Payroll is where small operators most often slip up, so it is worth getting help before the penalties start.
Records, monthly data and enforcement
The 2025 Regulations add reporting duties beyond tax. Regulation 26 requires you to keep guest, employee and trainee records for at least five years. Regulation 27 requires a monthly data return to the Authority covering bed occupancy, visitors by country of origin and revenue. Failure to comply is an offence. On enforcement, Regulation 29 allows quality audits without notice and lets officers demand documents within seven days, and Regulation 30 allows the immediate closure of an enterprise that ignores a compliance notice or whose licence has been suspended or cancelled.
A quick worked example
Suppose you are a resident host with two serviced apartments earning KES 4.2 million a year through Airbnb.
- You are below the KES 5 million VAT threshold, so no VAT registration is needed yet, but you should watch the line as you grow.
- You need a TRA licence for each unit (roughly KES 26,000 a year each) and membership of a recognised association.
- You remit the 2% tourism levy, about KES 84,000 for the year, by the 10th of each month.
- Airbnb withholds 5% as you have registered your PIN, which is a credit against your final tax.
- Your profit, after deducting commissions, cleaning, utilities, management, licence fees and depreciation, is taxed as business income, and the 5% already withheld is set off against that bill. Given the 5% withheld usually exceeds a small operator’s actual liability, most hosts in this position are better off outside Turnover Tax.
Your compliance checklist
- Register the letting business and get a TRA licence for each property, plus association membership.
- Add your KRA PIN to every platform so withholding is 5%, not 20%.
- Set up monthly routines: tourism levy by the 10th, VAT (if registered) and Turnover Tax by the 20th, payroll by the 9th.
- Decide, with advice, whether to elect out of Turnover Tax and be taxed on actual profit.
- Keep separate books for short-term hosting and any long-term rent, and hold records for five years.
- File the TRA monthly data return and display your licence and its number on your listings.
How Njane & Company can help
Short-term rental tax in Kenya is more involved than most hosts realise, but it is very workable once it is set up properly. Njane & Company helps property owners get compliant and stay that way: TRA licensing and renewals, VAT and Turnover Tax decisions, monthly filings, structuring your books so each income source is handled correctly, payroll for your staff, and dealing with KRA if a query or audit arises. Whether you run one unit or a portfolio, we will get you onto the right footing and keep the penalties away.
Talk to us before the next filing deadline, and we will map out exactly what your properties need.
Disclaimer: This article reflects Kenyan tax and tourism law as at August 2026 and is for general information only. It is not legal or tax advice, tax laws change, and every situation is different. Please speak to a qualified professional about your specific circumstances.