Stick with Your Concept but Do Your Homework

Once you have identified the property and you are ready to buy it, there are legal procedures you have to follow in order to make the transaction complete. For you to understand how this transactions work, take a look at Chapter 5 of the Kenyan Constitution, 2010. It says that land is classified as either public, private or community land. Under Section 5 of the Land Act No. 6, of 2012, the various forms of land tenure in Kenya are: Freehold, Leasehold, forms of partial interests like easements and customary land rights. Parties to a transaction involving real estate in Kenya should be aware of the underlying factors affecting such transactions.

Conduct due diligence;

Due diligence, is of utmost importance not only before both parties enter into a contract leading to execution of an agreement, but also in the course of the transaction.

For Purchasers, apart from physical inspection of the property to ascertain boundaries and possession, it includes conducting official searches at the lands registry, perusing the registry index map, perusing the survey documents and verifying the history of the title. It may also include carrying out due diligence on the Vendor to verify existence and identity.

Possess a tax PIN Certificate;

All transacting parties MUST have a Tax PIN Certificate issued by the Kenya Revenue Authority and be registered on the KRA Itax web based system as payment of Land rent, Capital Gains Tax and Stamp Duty involves online declaration and generation of payment slips.

Know the applicable taxes;

Stamp Duty

Stamp Duty is payable at the following rates;

For agricultural property (which is property located in areas zoned and gazetted as agricultural) at 2% of the market value (as determined by the Government Valuer).

For property located in areas zoned as municipal/townships (mostly leasehold property) at 4% of the market value (as determined by the Government Valuer).

For short term leases, the stamp duty is calculated based on the annual rent payable. Note that reference to market value as opposed to purchase price is due to the fact that, for purposes of assessment of stamp duty, the Government Valuer is guided by the market rates and therefore may raise the value for stamp duty purposes where he/she is of the opinion that market value is actually higher. 

Value Added Tax (V.A.T)

V.A.T is payable upon transfer of properties whose user is commercial. V.A.T rate is 16% of the sale price.

Capital Gains Tax (CGT)

This is chargeable on transfer of property situated in Kenya, at the rate of 5% of the net gain in value (which is the excess of the transfer value over the adjusted cost of the property). CGT is a final tax.  This tax accrues to all transfers from 1^st of January 2015 regardless of when the property was acquired. It is the obligation of the Transferor to declare and pay the same to KRA.