{"id":14361,"date":"2025-04-04T13:13:51","date_gmt":"2025-04-04T13:13:51","guid":{"rendered":"https:\/\/property254.co.ke\/blogs\/?p=14361"},"modified":"2025-04-04T13:28:56","modified_gmt":"2025-04-04T13:28:56","slug":"vat-on-sale-of-commercial-buildings","status":"publish","type":"post","link":"https:\/\/property254.co.ke\/blogs\/vat-on-sale-of-commercial-buildings\/","title":{"rendered":"Court of Appeal clarifies\u00a0on VAT on sale of commercial buildings"},"content":{"rendered":"\n

A recent ruling by the Court of Appeal has cleared up a long-standing question in Kenya\u2019s real estate world: Should VAT apply to the sale of commercial buildings?<\/strong><\/p>\n\n\n\n

Spoiler: Yes, it should.<\/strong> Even if the land itself is VAT-exempt.<\/p>\n\n\n\n

Let\u2019s break it down.<\/p>\n\n\n\n

Section 5 and Paragraph 8 of Part II of the First Schedule of the VAT Act (VAT Act) exempts the sale, rental, hiring or leasing of land and residential premises from VAT (save for hotels and holiday accommodations).<\/p>\n\n\n\n

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So, What Happened?<\/h3>\n\n\n\n

In the case of Kenya Revenue Authority v Ndegwa [2025]<\/strong>, the Court of Appeal made a big decision that changes how we look at VAT in commercial property deals.<\/p>\n\n\n\n

Here\u2019s the story:
David Mwangi Ndegwa bought a piece of land from Standard Chartered Bank. That land came with commercial buildings on it. The total value? About KES 70 million<\/strong>.<\/p>\n\n\n\n

KRA stepped in and said, \u201cHold up \u2014 you owe KES 11.2 million in VAT<\/strong> (16% of the total value).\u201d
Ndegwa disagreed and paid under protest, then went to court asking for a refund.<\/p>\n\n\n\n

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What Did the Lower Courts Say?<\/h3>\n\n\n\n

At first, the High Court sided with Ndegwa<\/strong>. They looked at the VAT Act and interpreted \u201cland\u201d to include everything on, above, and below the surface. So in their view, the entire transaction \u2014 land and buildings \u2014 was VAT exempt<\/strong>.<\/p>\n\n\n\n

But there was a twist.<\/p>\n\n\n\n

In a separate case (National Bank of Kenya v Commissioner of Domestic Taxes), the High Court said Parliament clearly meant to exempt residential buildings only<\/strong>, not commercial ones. So, VAT could<\/em> apply to commercial buildings, even if they were on VAT-exempt land.<\/p>\n\n\n\n

Confused yet? You\u2019re not alone \u2014 this contradiction is what landed the case at the Court of Appeal.<\/p>\n\n\n\n

Top Factors to Consider before Investing in Commercial Real Estate in Kenya<\/a><\/p>\n\n\n\n

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What Did the Court of Appeal Decide?<\/h3>\n\n\n\n

The Court of Appeal said the definition of \u201cland\u201d depends on the context<\/strong> \u2014 especially when it comes to taxes.<\/p>\n\n\n\n

Their conclusion?
\u2705 Land is exempt from VAT.<\/strong>
\u274c Commercial buildings are not.<\/strong><\/p>\n\n\n\n

So, even if you\u2019re buying land with commercial buildings on it, VAT still applies to the buildings<\/strong>. That\u2019s true even though the land itself is exempt.<\/p>\n\n\n\n

The court also said there\u2019s no ambiguity in the law<\/strong>. Paragraph 8 of the VAT Act is clear \u2014 residential premises are exempt, not commercial ones.<\/p>\n\n\n\n

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