Real estate taxes in Kenya are levied and paid to state and county governments. The
funds generated from real estate taxes are used to help pay for
local and state services.
Below are some of the taxes charged, both by the national and county
government relating to land;
1. Land Rates
This is a tax imposed by county governments within a municipality or
township. Rates are payable in respect of services such as water, sanitation
and sewerage services provided by the county. The imposition of rates is
provided under the Rating Act while the Valuation for Rating Act empowers the
county governments to value land to determine the rates.
2. Land Rent
Land rent is levy imposed on leasehold parcels of land where the annual rent
has been reserved at the time the grant is being issued and its payable to the
Ministry of Lands and Physical Planning
3. Income Tax
Income Tax Act (ITA) provides the framework for imposition of taxes on
income from among others land. The main income taxes payable in respect of Land
are Capital Gains Tax (CGT) and tax on rental income.
CGT is a tax chargeable on the gain on transfer of land, building and
shares. This tax was re-introduced in 2015 having been suspended in 1985. CGT
is charged at the rate of 15% of the gain.
The tax on rental income is a tax arising from the gains and profits for
occupation of property. The ITA provides for various ways of taxing rental
income;
Where the rent is payable to a non-resident, the tenant is required to
withhold 30% of the rent and remit it to the Kenya Revenue Authority. The tax
withheld is a final tax.
Where the rent is payable to a resident, if the property is commercial,
the tenant being an appointed agent, is required to withhold 10 % of the rent.
The tax withheld is not a final tax and the landlord is required to file their
income tax in the usual way.
Where the rent is payable to a resident and the property is residential,
the landlord may opt to either pay a monthly rental income tax, computed at 10 %
of the gross rent a (final tax) or pay the instalment tax and final income tax
in the usual way.
4. Stamp duty
Stamp duty, provided for under the Stamp Duty Act, Cap 480, is a tax payable on
various instruments. Stamp duty is charged on instruments relating to land such
as transfers, charges and leases on land. The
rate of stamp duty is based on the instruments, the user of the
property and the time of payment among others. There are various exemptions to
payment of stamp duty granted under the Stamp Duty Act.
5. Value Added Tax (VAT)
Value
Added Tax (VAT) is chargeable on commercial rental income and is charged to the
tenant at a rate of 16%. Under that Value Added Tax Act, VAT is payable on
the sale of commercial land at the standard rate of 16%.
In
2018, however
the High Court ruled that VAT is not
payable on the sale or purchase of land, irrespective of the
nature of buildings
standing (whether residential or commercial). The high
court relied on the VAT Act (VATA) 2013, that specifically exempts
the ‘supply by way of sale, renting, leasing, hiring, letting of land
or residential premises’ from VAT. It will be
interesting to see the results if/when KRA appeals this verdict.
As property
taxes play a crucial role in home ownership, this should be a
key area of consideration by policy makers to ensure that the objectives of the
affordable housing agenda are realised as envisaged by the Government. The tax
regime in Kenya can be quite confusing unless you are a seasoned real estate or
tax professional. Please seek expert opinion when conducting your real estate
transactions. You could alternatively give us a call for a free consultation.
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