Stakeholders in Real Estate Investment Trusts (REITs) markets have asked the state to shed more light on the Finance Act 2017 which they claim is not clear on the exemption of REITs from taxation.
According to the REITs Association of Kenya, which is a newly inaugurated body for REITs professionals, under the current regulations registered REITS are exempt from 30% income tax. The law however does not mention the subsidiaries fully owned by REITS as being tax exempt.
This means wholly owned subsidiaries of the REITs are liable for corporation tax. The Association has been working with other stakeholders in engaging KRA on having this aspect clarified.
REITs mostly own assets indirectly through subsidiaries. Therefore, the imposition of tax on the subsidiary on one hand and the exemption of the holding company brings matters to a cross purpose.
During the launch of its first national conference which is intended to be an annual event, REITs Association of Kenya yesterday said the failure to clarify the comparative benefits REITs to investors was discouraging them including those already operating in the sector.
“A REITs acquires and owns its Real Assets through subsidiaries and not directly and therefore imposing tax on them is the same as taxing them directly,” said REITs Association of Kenya Interim Chairman Edward Kirathe.
Mr. Kirathe further urged the government to accelerate the clarification through Finance Bill 2018 to hasten the growth of the sector in Kenya. He said the predominant forms of real estate ownership in Kenya have no future as they are archaic, unviable, unsustainable and incapable of creating multi-generational wealth.
He cited the difficulty real estate investors were facing in managing their portfolios as they grow old with their children being abroad. He said REITs could fill those gaps, safeguard investments and help sustain wealth creation through property.
National Treasury Budget, Fiscal and Economic Affairs director general Geoffrey Mwau said that REITs assist in de-risking the cost of developing houses, adding that REITs will unlock the potential in the real estate sector in a bid to help the Government unveil 350,000 affordable housing in the next five years.