Reit subsidiaries await income tax exemption from KRA

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Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA). Picture taken on Thursday, October 15, 2020. PHOTO | DENNIS ONSONGO | NMG

Kenya Revenue Authority has not published regulations that will formally exempt subsidiaries of real estate investment trusts (Reits) from income tax.

The move to exempt the operating units of the Reits started three years ago but the taxman is yet to publish the regulations that will make it a reality.

Players in the industry have, however, not been making provisions for income taxes in their subsidiaries on the understanding that KRA will not demand taxes on the units.

The matter is, however, flagged as a tax risk by Ilam Fahari I-Reit #ticker:FAHR which is listed on the Nairobi Securities Exchange #ticker:NSE .

The property investment fund has been exempt from income tax since its establishment in September 2015, based on the provisions of section 20(1)(c) of the Kenyan Income Tax Act.

Its wholly-owned subsidiaries were however not explicitly exempt. In November 2019, the Finance Act No. 23 of 2019 introduced section 20(1)(d) to the Kenyan Income Tax Act to exempt investee companies of Reits from income tax.

The amendment of the tax regulations removed the long-standing uncertainty as to the exemption status of Reit subsidiaries, the NSE-listed trust said but noted that the taxman needs to act to make the waivers complete.

“The Kenya Revenue Authority (KRA) is expected to publish subsidiary regulations or rules within the Kenyan Income Tax Act to provide detailed provisions and guidelines on the new section 20(1)(d),” the Reit said in its latest annual report.

“In addition, these rules are expected to result in the REIT’s wholly-owned subsidiaries not incurring any tax liability as a result of the delay in the introduction of tax legislation that aligns with the Capital Markets Authority REITs Regulations.”

The tax exemptions are the major incentives designed to encourage the growth of real estate investment funds which allow the general public to gain exposure to the property market without requiring large cash investments.

The funds issue units which trade like stocks and break down ownership of the underlying assets to enable minimum investments of a few thousand shillings.

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