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{"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

\n\n\n\n
\n
\n
Table of Contents<\/p>\nToggle<\/span>
So, What Happened?<\/a><\/li>
What Did the Lower Courts Say?<\/a><\/li>
What Did the Court of Appeal Decide?<\/a><\/li>
What Didn\u2019t the Court Say?<\/a><\/li>
What This Means for You<\/a><\/li>
Final Thoughts<\/a><\/li><\/ul><\/nav><\/div>\n
<\/span>So, What Happened?<\/span><\/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
\n\n\n\n
<\/span>What Did the Lower Courts Say?<\/span><\/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
\n\n\n\n
<\/span>What Did the Court of Appeal Decide?<\/span><\/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
\n\n\n\n
\n<\/iframe>\n<\/div><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-didn-t-the-court-say\"><span class=\"ez-toc-section\" id=\"What_Didnt_the_Court_Say\"><\/span>What Didn\u2019t the Court Say?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>While the ruling was clear, there are still some grey areas.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It <strong>didn\u2019t say if VAT should apply to just the value of the buildings<\/strong>, or to the combined value of land and buildings.<\/li>\n\n\n\n<li>It <strong>didn\u2019t clarify<\/strong> how to handle VAT for <strong>mixed-use properties<\/strong> (those with both residential and commercial space).<\/li>\n<\/ul>\n\n\n\n<p>So, there\u2019s still more to be worked out in future cases.<\/p>\n\n\n\n<p><a href=\"https:\/\/property254.co.ke\/blogs\/real-estate-taxes\/\" target=\"_blank\" rel=\"noreferrer noopener\">Best Guide to Real Estate Taxation in Kenya<\/a><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-this-means-for-you\"><span class=\"ez-toc-section\" id=\"What_This_Means_for_You\"><\/span>What This Means for You<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If you\u2019re buying or leasing commercial property, expect to <strong>pay VAT on the value of the buildings<\/strong>.<\/p>\n\n\n\n<p>And if you\u2019ve bought commercial property in the last few years and didn\u2019t pay VAT? KRA might come knocking. The ruling suggests they could go back <strong>five years<\/strong> and issue new tax assessments.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-final-thoughts\"><span class=\"ez-toc-section\" id=\"Final_Thoughts\"><\/span>Final Thoughts<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This decision brings some much-needed clarity to the sector \u2014 and reminds all of us how important it is to understand tax rules when dealing with property.<\/p>\n\n\n\n<p>But for buyers, this also means <strong>higher costs<\/strong> when investing in or leasing commercial buildings.<\/p>\n\n\n\n<p>The story isn\u2019t quite over yet \u2014 Ndegwa still has the option to <strong>appeal to the Supreme Court<\/strong>.<\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>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? Spoiler: Yes, it should. Even if the land itself is VAT-exempt. Let\u2019s break it down. Section 5 and Paragraph 8 of Part II of the First Schedule<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[24],"tags":[],"class_list":{"0":"post-14361","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-buyer-guides"},"_links":{"self":[{"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/posts\/14361","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/comments?post=14361"}],"version-history":[{"count":6,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/posts\/14361\/revisions"}],"predecessor-version":[{"id":14370,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/posts\/14361\/revisions\/14370"}],"wp:attachment":[{"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/media?parent=14361"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/categories?post=14361"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/property254.co.ke\/blogs\/wp-json\/wp\/v2\/tags?post=14361"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}