Wamae & Allen
Can anyone (including foreigners) own and occupy real estate in your jurisdiction (including shares in property owning companies)? Are there any restrictions?
Yes. Foreigners can own and occupy real estate and can hold shares in property owning companies. However, there are two key restrictions on ownership of real property by foreigners relating to tenure and user: The Constitution of Kenya restricts ownership of land by foreigners to Leasehold tenure of not more than 99 years. Under the Land Control Act, the Land Control Board is not permitted to approve applications for consent with respect to a sale, transfer, lease or other disposal of or dealing with any agricultural land where the beneficiary is a foreigner. If a foreigner chooses to register a foreign company in Kenya or a Kenyan company, the company shares may fully be owned by the foreigner and no local shareholding will be required.
Are there restrictions on lending for the purchase of real estate by foreign companies? If so briefly give an outline?
Yes. A foreign company shall not conduct business in Kenya unless it is registered in Kenya. Conducting business, in this respect, includes but is not limited to, offering debentures in Kenya or being a guarantor for debentures offered in Kenya. A foreign company may either register a branch office or a subsidiary in Kenya. Once registered, a foreign company has an implied power to borrow unless the Memorandum and Articles of the company limit this power. In most cases, borrowing can be secured by registration of a charge over immovable property and/or by way of a debenture over the assets of a company. A foreign company is also needed to appoint a local representative in Kenya who not only accepts service of process but also makes sure that the foreign company complies with the requirements of the Companies Act, 2015. The local representative is personally liable if a penalty is imposed on the company for a contravention or failure to comply with the Act.
Please provide a short summary of the fees and costs (including tax) relating to buying real estate in your jurisdiction.
When buying, it is paramount to undertake official searches at the lands registry and companies’ registry. These are carried out before entering an agreement for sale. For leasehold interest that is subject to payment of rent and rates, the seller has an obligation to obtain the respective clearance certificates. There are also fees associated with estate agents, valuation, surveys and professional legal fees. Stamp Duty Tax is payable by the purchaser when buying real estate. Stamp duty for transfer of land within a city or municipality is charged at 4% of the value of the property while land outside the city or municipality is charged at 2% of the value of the property. The duly executed transfer documents are presented at the lands registry and land registry fees are payable for registering the purchase.
Are there taxes applicable to owning real estate and can the burden of the taxes be passed to someone else (e.g. a tenant or an occupier - not being the owner)?
Yes. Every company in Kenya is required to submit to the registrar successive annual returns every year on the anniversary of the company’s incorporation or from the date of the previous returns. This means that even though the company is not operational, they have an obligation to file the annual returns (nil returns). Additionally, pursuant to the Income Tax Act of Kenya, the corporate tax rate applicable to a Foreign Subsidiary incorporated in Kenya is 30% whereas the corporate tax rate for a Branch is 37.5% of the taxable profits. The withholding tax rate in the case of professional fees applicable to a Foreign Subsidiary is 5% whereas that of a Branch is 20%. Land rent and land rates are levies imposed on leasehold parcels of land annually and are payable to the Ministry of Lands and Physical Planning. Land rent clearance certificate and land rates clearance certificate are the documents that serve as evidence of payment of land rent and land rates. The land rent and land rates are taxes which can be passed to someone else in the event of a transfer. Capital Gains Tax is a tax on the profit when you sell or dispose off property that has increased in value. The rate of tax is 5% of the net gain, and the 5% is final tax, meaning after the same is paid, the seller is under no obligation to pay other taxes and cannot be offset against other income taxes. However, gains realized by companies on the transfer of property pursuant to a business restructuring or reorganization found to be in public interest are exempt from capital gains tax.
Are there tax breaks or other incentives for foreigners to buy real estate in your jurisdiction? If so what are they?
Yes. Under the Special Economic Zones Act No.16 of 2015, a special economic zone is a designated geographical area which is considered to be outside the customs territory of Kenya and therefore shielded from taxes and other regulatory compliance. If the company is licensed to operate under an SEZ, it is granted tax exemptions from excise duty, customs duty, Value Added Tax and stamp duty. It also allows to have up to 20% of their employees as foreigners.
How is the ownership of Real Estate evidenced in your jurisdiction?
The ownership of a leasehold interest is evidenced by a certificate of lease issued by the registrar at the Lands registry. On registration of the Sectional Plan, the register of the parcel described on the Sectional Plan is closed, a separate register for each unit described in the plan is opened and the title deed for the Sectional Property in respect of each unit is issued to the owner/developer.
Is it possible to keep the identity of owners of real estate confidential in your jurisdiction?
All documents referred to in the Land Registry’s registers of title are subject to a general right of inspection. This means that the identity of owners of real estate cannot be kept confidential since searches are conducted revealing their identities. Further, ownership of companies registered in Kenya is publicly available.