Tax breaks are not the usually the main motivating factor behind real estate investments. They however serve as a an excellent incentive to investors. Today we highlight the incentives available for both real estate developers and owners in Kenya.
1. Tax Incentives Available to Real Estate Developers
Under Section 20C of the Income Tax Income Act, Cap 470, the income of Real Estate Investment Trusts (REITs) is not taxable.
- A REIT is a vehicle which allows investors to pool resources together and invest in Real Estate. The shareholders of REITs acquire units which are tradeable at the stock market.
- The mode of taxation is the same as that of Unit Trusts which are tax exempt on their investment income.
b)Low Income Housing Project
Under the VAT Act, Cap 476, persons are allowed to apply for VAT remission on low income housing projects. The incentive is meant to encourage housing provision to low income earners.
- A low income earner means a person whose monthly gross earning amount to Kshs. 35,000 or less.
- A low income house means a house put up at a construction cost of not more than Kshs. 1,600,000 and of plinth area of not less than 30 square metres.
- A Low income housing project means a project of not less than 20 housing units intended for low income earners.
2. Tax Incentives Available to Landlords
a) Landlords are allowed to claim Industrial Building Allowance on the cost of construction.The applicable rates depend on; the nature, use and area the building is constructed.
The specific allowances are as follows;
- 10% on cost for building leased and used for manufacture.
- 5% on cost for rental residential building in planned residential area approved by Minister for Housing.
- 25% on cost for rental residential building in planned residential area approved by Minister for Housing where the owner has put up roads, water, power, sewer and other social infrastructure.
- Wear and Tear allowance on machinery and equipment as per the second schedule of the Income Tax Act.
- Personal and Insurance reliefs for individuals as per Section 30 and 31 of the Income Tax Act.
- Home Ownerships Savings plans for Individuals as per Section 15 of the Income Tax Act.
- Mortgage relief for Owner occupier Income as per Section 15 of the Income Tax Act.
Information is sourced from the KRA website. (Accessed 01/02/2013)