Ownership of Properties to Infinity: New Regulations on Extension of Leases in Kenya

 By a Gazette Notice No. 5734 the Cabinet Secretary for Lands and Physical Planning issued  guidelines for extension and renewal of leases (the “Guidelines”).
Five months earlier, Gazette Notice No. 1812 of 27th February 2017 had appointed a ten-  member task force to investigate the processing, renewal and extension of leases in Kenya since  2010.
The foregoing actions target the complaints on the process of extension and renewal of leases as well as delays and loss of land through irregular allocations of expired leases. The legislature therefore has seen the need to come up with clear policy guidelines on extension and renewal of leases because the issue has far reaching implications on so many a local and foreign investor.

Lease Renewal under the Land Amendment Act 2016: Loopholes sealed

Under Section 13 of the Land Act as amended by the Land Amendment Act, 2016, a Kenyan citizen holding a lease from the National or County Government over land enjoys pre-emptive rights.
This ensures that the owner of the leasehold interest gets the first right to allocation of the land in question provided that the land is not required by the National or County Government for public purposes.
It is pertinent to note that pre-emptive rights only apply to Kenyan citizens. However, this does not preclude non-citizens from applying for extension or renewal of leases held by the same provided that one is in compliance with requirements under the Guidelines.

The policy, legal and institutional framework on processing, extension and renewal of leases;

Prior to the Guidelines, the process for applying for extension and renewal of leases was initiated by the registered owner. The present guidelines however seek to streamline the process by introducing and amending procedures as follows: –

• The National Land Commission (“the Commission”) Presumptive rights: Notice on expiry

The Commission will now trigger renewal on their own motion by writing to registered owners. The guidelines require the Commission to notify the registered owner by registered mail of the imminent expiry of the lease, five years prior. The notice should inform the registered owner of his/her pre-emptive rights of extension of the lease

• Advertisement and verification.

The Guidelines now require the Commission to advertise the notice of expiry of lease in two newspapers should the registered owner fail to respond to the initial notice; this is a slight departure from Section 13 of the Land Act as amended which provides for advertisement of the notice in one newspaper only.
The Commission shall undertake a physical verification of the land with a view to establish the status of the land; and secondly, to advise the registered owner on the need to apply for extension before the expiration of the term and the consequences of not doing so which include forfeiture of the preemptive right over the land and the automatic reversion the land in question to the National or County Government.

• The Application

Application for extension or renewal is made by the registered owner or appointed administrator before expiry of the Lease.
Where the term of the lease has expired without prior notice to the registered owner, the same will have to apply for renewal of the lease.
The application for extension or renewal shall be made to the Commission either by delivery of the same to their offices or in case of renewal, through the Commissions email address.
The Commission shall within seven days from receipt of the application, forward the same to the Cabinet Secretary for lands if the land is vested in the National Government or the County Executive Committee Members for lands if the land is vested in the County Government.
In order to obtain approval for extension, Kenyan citizens are required to produce land rent and rates clearance certificates, information on prospective encumbrances on the land, proof of compliance with the terms of the lease and in the case of a company, search results from the Company Registry.
Large scale investors must also satisfy the Commission of the economic benefit and the national development impact of the extension or renewal sought. However, the Guidelines do not define who constitutes a large-scale investor.

• The Process

The application process has been systemized with regard to extension of leases. The Application once receive by the Commission Officer, will be entered into a serialized register. In order to be entered in the register, the Guidelines require the application
–  a Copy of the ID/Passport;
–  an official search obtained one month prior,
–  Passport size photograph,
–  Certificate of incorporation in case of a Company; and
–  Letters of administration and confirmation of grant where applicable.
The accompanying documents required for renewal are similar to those listed above save for the additional requirement for the original lease.

• Approvals

The National and County Government shall consult with the relevant County Executive Committee Member, County Government Surveyor, Physical Planner and the Land Administration Officer of the Commission prior to approving the application for extension.
This also applies in the renewal of lease in which case the consultations should not be mere representations by the experts but also recommendations and any objections by them should be supported by reasons.
Once approval of extension or renewal of the lease is granted, there shall be revaluation to determine the payable land rent and other requisite fees, re-survey and geo-referencing and surrender the existing title. In the case of renewal, there is an additional requirement for a new letter of allotment for the parcel before the new leases is issued.

• Notification of rejection of the application

The Government is to notify the registered owner of its intention not to extend the lease three years before the lease expires and copy to the Commission.

Notice of rejection of an application is to be supported by reasons of either compulsory acquisition or non- compliance and issued within ninety days from the date of the application. At this point, all developments on the land are prohibited, previous developments are itemized and the registered owner is entitled to compensation on account of previous developments if the land is required for public purpose.

• Appeals

Appeals from the decision of the National or County Government lie in the Appeals Committee which is established by the Commission. The Appeals shall be held in the respective Counties in the Office of the Executive Committee member in charge of Land in that County.

The points of departure

The current Guidelines are not free from the shortfalls accompanying their provisions and implementation: –

  • • The preceding conditions

The foregoing guidelines have come at a time when litigation shaded the recent Land Amendment Act of 2016 where some sections of the Act were suspended by an order of the Environmental and Land Court (ELC) in Malindi pending the hearing of Petition Number 19 of 2016. One of the amendments that was suspended by the orders pertains to Section 13 of the Land Act from which the Regulations emanate. Despite the suspension of its application, the provisions in the Section 13 have been reiterated in the new Guidelines.

  • • Shortfall in Scope of Application

The guidelines have failed to address the issuance of leases for properties undergoing subdivision, amalgamation and change of user. Application for the said procedures is similar to the one for extension of lease. It was therefore expected that the Guidelines that seeks to streamline the law on renewal and extension of leases would make provisions for subdivision, amalgamations and change of user as well. The inclusion of these procedures is also more critical in light of the suspension of issuance of titles for subdivisions.

Conclusion

The new procedures and process for obtaining extension and renewal of leases is laudable for ensuring transparency. The Guidelines have attempted to provide for specific timelines for processing applications to ensure applicants do not suffer from unnecessary delays. Further, they have put in place steps to be taken by the Commission in alerting the land owners to ensure they do not unjustifiably lose their land through government re-allocation which is a positive step towards ensuring the protection of the right to property enshrined in our Constitution.

 

Article by: June Njoroge Ngwele Assisted by Pauline Kenyatta

Real Estate Investment Trusts (REITS) Frequently Asked Questions

Property as an asset class is highly sought after by astute investors. This is particularly so when it has the liquidity features of a listed instrument as is the case with REITS. At the same time, REITS could well be the solution real estate developers require to actualize their corporate objectives of setting up more developments.

In this write-up, we at Mboya Wangong’u & Waiyaki Advocates, who have been actively involved in legal REITS legal advisory work, seek to respond to Frequently Asked Questions about REITS.

1. What is a REIT?
A Real Estate Investment Trust (REIT) is a structure through which investors pool resources to invest in real estate securities which securities often (but not always) trade on securities exchanges. A REIT’s income is typically derived from renting, leasing or selling real estate and is distributed periodically to the securities holders.
REITS typically enjoy tax advantages.
2. Are there different types of REITS?
Under Kenyan Law there are two main types or REITS namely Development & Construction REITs (“D-REITs”) and Income REITS (“I-REITs”). D-REITs invest in property development and construction and derive a majority of their revenues from the sale of developed properties while I-REITs make long-term investments in income generating real estate and derive a majority of their revenues from rental income.
There are also Islamic REITS, which are sharia compliant forms of the D-REITS and I-REITS described above.
3. Are there any local REITS?
Currently there is only one REIT listed in Kenya, the Stanlib Fahari I-REIT, listed at the NSE in November 2015. We do not currently have a D-REIT. The market is poised for growth.

4. How can I participate in a REIT?
There are several key players in a REIT. Other than being an investor and security holder, professionals have a variety of roles they can take up in REITs including taking part as Promoters, Trustees, REIT Managers, Structural Engineers (in I-REITs), Transaction Advisors, Compliance officers, Valuers, Auditors, Property Managers, Project Manager Certifiers and Note Registrars.

5. What are the benefits of investing in REITS?
REITs provide easier access to property investment especially for investors who lack the capital base to invest alone in high cost real estate projects. Further, they improve liquidity in real estate investments through a readily tradable financial instrument. Investing in REITS allows for a diversification of investments across a range of property assets. Overall REITS provide a regular and stable income stream for security holders. Notably, there are several tax benefits and exemptions that apply to income derived from REITs.

6. Who can invest in a REIT?
Any person can invest in securities of an unrestricted I-REIT. However, only professional investors can invest in a restricted I-REIT or a D-REIT. Professional investors include: • any person licensed under the Capital Markets Act; • an authorized scheme or collective investment scheme; • a bank or subsidiary of a bank, insurance company, cooperative, statutory fund, pension or retirement fund; or a person including a company, partnership, association or a trustee on behalf of a trust which, either alone, or with any associates on a joint account subscribes for REIT securities with an issue price equal to at least five million shillings.

7. Are there any tax incentives for REITs transactions?
Yes. There are exemptions from income tax provided the REITs distribute 80% of their net income. There is exemption from stamp duty on initial transfer of property into a listed REITs scheme. Trading in listing securities is exempt from stamp duty.

8. How can a REIT scheme be terminated?
• By revocation of authorization by CMA;

• Through expiry of the term of the trust;

• Through termination upon application by the Trustee to CMA;

• Trustee, REIT Manager or any REIT securities holder may apply to Court for an order to wind up the operations of the authorized REIT scheme.

9. Why should I have REITs in my portfolio?

Adding REITs to your portfolio provides diversification. REITs offer a reliable and predictable income source.

10. Can I utilize a REIT to raise development capital?
Yes. Property developers are able to raise funds at the capital markets by selling REIT units to investors.

11. Are REITs regulated?
Yes. REITs are closely regulated by the CMA. They are managed by skilled, experienced and regulated managers. Besides, the property portfolio is also managed by a professional property manager. Interests of REIT Unitholders are looked after by the REIT Trustee.

12. Are dividends/distributions paid to investors taxed?
Yes. A 5% withholding tax on dividends is payable by local recipients of dividends, except, of course, where the recipient is itself tax exempt.

13. Does a REIT have to make a dividend pay-out?
Yes. I-REITS are required to distribute annually a minimum of 80% of the net after tax income from sources other than from realized capital gains on the disposal of real estate assets.

14. What are the limitations on investment amounts?
REIT securities offered as a restricted offer must be in minimum subscription/offer parcels of Kshs. 5,000,000. Further, a REIT must have a minimum of 7 investors.
D-REITS must have a minimum net asset value of KShs 100,000,000/= while I-REITS must have a minimum net asset value of KShs 300,000,000/=

15. Must all the REIT units issued and listed be publicly traded?
Yes, if listed, all the units should be listed. Further the law requires that at least 25% of the units be held by persons not associated with the Promoter.

16. Can a REIT invest its surplus funds in any other revenue-generating project?
Yes. However, an I-REIT must after its second anniversary, earn at least 70% of its income from rent, licence fees or access or usage rights or similar income generated by eligible investments in income producing real estate, and should have invested at least 75% of its total asset value in eligible real estate.

17. May a REIT borrow funds?
Yes. However, the trustee must ensure that any borrowing or provision of security is not prejudicial to the interests of the REIT unit holders. Besides, the total borrowings by a REIT or by any investee entity should not exceed, in aggregate, 35% and 60% of the total asset value with regard to I-REITS and D-REITS respectively.

18. Can I be a Promoter, even in my individual capacity?
Yes, the law allows for any person with initial cost coverage to set up a REIT for an intended purpose. It may, however, be better to incorporate a company for this purpose.

19. Do REITs only apply to Housing/Residential projects?
REITs are a flexible way to develop and create income or realize capital gain and they are not restricted to one type of real estate use. In other jurisdictions, such as the United States of America, it has applied to schools, hospitals, hotels and commercial properties like factories.

20. What benefit is there for me as a Promoter?
The value derived from the REIT may be two-fold. First, the Promoter can become an investor in the REIT by investing his land or asset into the REIT. Second, the Promoter may charge a fee for the role. The promoter may also take another role such as REIT Manager.

21. I have come across an opportunity to make more money in my project, can I convert my D-REIT into an I-REIT?
Yes, the law allows for conversion of a REIT from D-REIT to I-REIT.

22. Do I really have to list my REIT in the Securities Exchange?
It is not mandatory to list a REIT in the Securities Exchange, but an unrestricted I-REIT must be listed.

Asset-backed Securities – Why Your Source of Capital Could Be Right in Front of You

 

What comes to mind when considering potential sources of security to finance a business? More likely than not, the type of assets that pops as collateral for secured financing is the first item on the balance sheet: land and buildings.

Yet businesses are constantly looking for alternative ways of raising capital. Large companies, for instance, rely on their reputation, financial stability and creditworthiness to issue securitized debt such as corporate bonds. However, there are other emerging avenues which involve using assets found further down the balance sheet: plant and machinery, equipment, motor vehicles and trade receivables.

Asset-backed securities are one such avenue.

  1. What are asset-backed securities and how do they work?

Asset-Backed Securities (ABS) are bonds secured by a pool of underlying assets.

Like other secured debt, ABS involve the establishment of a form of security over assets. However, unlike other secured debt, ABS are structured in a way that the pool of assets is de-linked from the company seeking to raise capital such that the financing is wholly based on the quality of the assets and a decline or fall in financial credibility of the company does not affect the rights of investors in the securities.

Suppose company XYZ Limited has various assets: land and buildings, plant and machinery receivables, lease equipment receivables, motor vehicles receivables, credit card receivables and trade receivables. To raise capital through an ABS, a special purpose vehicle, say QRS, would be set up for the purpose of acquiring specific assets with a predictable cash flow. QRS would finance the acquisition of those assets by issuing securities (the asset backed securities) to investors and these securities would be serviced from the cash flows of those assets.

  1. What types of assets are used and which industries may use them?

The types of assets that have been used for ABS financing are varied. The running thread for these assets is that they must be income-generating. For instance, in the US, royalties, student loans and home ownership loans are applicable. In Kenya, the types of assets envisaged are consumer and commercial receivables such as plant and machinery receivables, lease equipment receivables, motor vehicles receivables and credit card receivables. For example: equipment leasing companies in the construction and manufacturing industries may use their industrial equipment; financial institutions may use their loan and advances income and credit card receivables; insurance companies may use their premium receivables; oil and gas companies may use their inventories and trade receivables; and any of these companies may use their lease rental investment properties if any.

  1. Have ABS been used in other countries and how much did they raise?

While ABS is novel in Kenya, it has been used successfully in other countries for a number of decades.

In the US in early 1985, the Sperry Lease Finance Corporation, a special-purpose organization set up by Sperry Corporation (now Unisys), sold to institutional investors USD192.4 million in fixed- rate notes collateralized by computer leases. This enabled Sperry to revamp its efforts to lease new equipment. In 2016, a total of USD 76.4 Billion was raised in the US through ABS. In the UK, ABS have been reported to be a favourable financing option in light of the volatility of the financial markets in UK following its decision to leave the European Union. This is because in ABS financing, even if the borrower is experiencing a decline, the ABS structures remain unaffected as they are de-linked from the borrower. Across the world in Australia, the total amount of liability from domestically issued ABS financing for the year 2016 stood at USD 775 million (1.02 billion Australian Dollars).

Closer home, there are examples of past and recent use of asset-backed securities financing.

South Africa is illustrative. Its first ABS financing was in 1991: a USD 4.5 million (SA Rand 60million) issue by Safsin Bank over installment rental loans. Since then the ABS financing route has grown in leaps and bounds, covering assets such as aircraft, trade receivables, lease receivables, credit card future cash flows and autoloans. Interestingly, part of this growth was accelerated by a change in banking regulations in 2001 which triggered companies to seek alternative capital raising options. In June last year, a South African asset rental company, MW Asset Rentals (RF) Ltd sponsored a USD 187.5 million (SA Rand 2.5 billion) Lease Receivables Backed Note Programme. It was able to raise USD 77 million (SA Rand 1.03 billion) backed by an asset exposure of USD 48 million (South Africa Rand 640 million).

Conclusion

A bird in hand is worth two in the bush. Asset backed securities offer an opportunity for businesses to use the receivables they have to obtain financing to generate more receivables. It is fast emerging as a tried and tested means of using what you have to get what you do not have.

For the investor, ABS are an additional investment opportunity other than government securities, equity and corporate debt. For the company raising capital, ABS are an avenue for using the assets it uses in its business to raise capital in addition to the traditional capital raising avenues. ABS are also attractive to investors in debt securities as they are credit-enhanced due to the strict parameters applied to insulate the assets from insolvency exposure to the borrower.

In Part II of this Article we will take a more localized look at ABS in Kenya including the legal framework, structure contemplated and the tax and legal status complexities and pitfalls of ABS financing.

CG Mbugua

Partner, Mboya Wangong’u & Waiyaki

The Law on Capital Gains Tax

By an amendment introduced to the Income Tax Act by the Finance Act of 2014 Capital Gains Tax (CGT) was re-introduced in Kenya. The tax, which had been suspended in 1985, is chargeable on the whole of the gain or profit made on the transfer of property situated in Kenya – it’s the gain made that’s taxed, not the entire transfer value. The burden of declaring and paying the tax liability is on the beneficiary of the gain who, in the case of a transfer of property, is the transferor.

Administration of CGT is currently governed by the Income Tax Act and the Tax Procedures Act.

Computation of Capital Gains Tax

The rate of CGT is 5% of the net gain made on a transfer.  The net gain is computed by deducting the adjusted cost of acquisition of the property from the transfer value.

The transfer value is the consideration for transfer of the property, that is, sales proceeds less incidental costs (such as legal fees, valuation fees, stamp duty payments and advertisement costs). The adjusted cost is the cost of acquisition or construction of the property and includes the legal and valuation costs incurred.  

It is worth noting that Capital Gains Tax is a final tax and cannot be offset against other taxes payable by the transferor.

Exemptions and exclusions

The law exempts certain transactions from payment of Capital Gains Tax. These exempted transactions include:

  • gains from property transferred by an individual where the transfer value is not more than Kshs. 3,000,000;
  • gains from transfer of agricultural property having an area of less than 50 acres;
  • income that is chargeable to tax under any other provisions of Income Tax Act;
  • gains accruing to a company on a transfer of machinery;
  • transfer of property in exchange for other property that takes place pursuant to a restructuring of a  corporate identity involving one or more companies found by the cabinet secretary in his discretion to be in the public interest; and
  • and gains derived from transfer of a private residence if the individual owner has occupied the residence continuously for the three-year period immediately prior to the transfer concerned.

In addition to exempted transactions, there are transactions that are referred to as excluded transactions, that is, transactions that are not considered transfers of property for purposes of imposition of Capital Gain Tax. They include:

  • transfer of property for purposes of securing a debt or loan;
  • transmission of property to heirs upon the death of a property owner;
  • transfer by a personal representative in the course of the administration of the estate of a deceased property owner;
  • vesting of a company’s property in the liquidator of that company by a court order;
  • transfer by a trustee of property to a beneficiary on his becoming absolutely entitled thereto;
  • transfer of assets between spouses or former spouses; transfer to immediate family as part of a divorce or separation agreement; and
  • transfer of property to a wholly family-owned company.

The import of these exemptions and exclusions is that CGD is not payable on gains or profits made on the specified transactions. Nevertheless, the transferor of property must get approval from the Kenya Revenue Authority (KRA) to avoid paying CGT on these transactions. To obtain such approval, th transferor should make an application to the collector.

When is one required to pay Capital Gain Tax?

Paragraph 11A of the Eighth Schedule of the Income Tax Act (‘paragraph 11A’) provides that the due date for Capital Gains Tax is on or before the date of applying for the transfer of property at the Lands Office. Pursuant to this provision, KRA issued a public notice to the effect that, with effect from 1st October 2016, Capital Gains Tax would be required to be paid simultaneously with stamp duty on transfer of property.

The Law Society of Kenya (LSK) filed a constitutional petition (No. 39 of 2017) to challenge that requirement by KRA. The court eventually ruled that paragraph 11A is unconstitutional inasmuch as it limits the right to freely transfer property. We wait to see whether KRA will update its website and systems to allow payment of stamp duty independent of Capital Gains Tax.

Notably, a taxpayer to whom the tax applies may apply in writing to the Commissioner under section 33 of the Tax Procedures Act for extension of time to pay tax. If the Commissioner is satisfied that there is reasonable cause, he may allow an extension of time for payment of the tax or require the taxpayer to pay the tax in such instalments as the Commissioner may determine.

Consequences of non-payment and late payment of Capital Gains Tax

Non-payment of Capital Gains Tax is a criminal offence under section 107 of the Income Tax Act. In addition, KRA may recover the outstanding amount by suing the taxpayer under Section 39 of the Tax Procedures Act.

Late payment of Capital Gains Tax, on the other hand, attracts penalty interest at a rate of 1% per month or part of a month on the amount of tax remaining unpaid. The interest period commences on the date the tax was due and ends on the date the tax is paid. (section 38 of the Tax Procedures Act)

 

By the Real Estate team – Mboya Wangongu & Waiyaki

A Review of Statutory Changes Introduced by the Finance Act of 2016

Article by: Hillary Kariuki
Article by: Hillary Kariuki

Background

In September 2016, the President of Kenya signed into law the Finance Act for the year 2016. Enacted annually, the Finance Act is the headline fiscal legislation by the Kenyan Parliament, containing multiple provisions as to taxation and other aspects of commercial and financial law.

The Finance Act 2016 (hereinafter ‘the Act’) is meant to, among other things, implement some of the proposals made by the Cabinet Secretary for the National Treasury in his budget statement of 8th June 2016. The following is a highlight of the main amendments to the Income Tax Act, the Excise Duty Act 2015, Value Added Tax 2013, the Tax Procedures Act 2015 and several other statutes.

Companies Act, 2015

Section 82 of the Act amends section 975 of the Companies Act 2015 thus:

‘Section 975 of the Companies Act is amended in subsection (2) by deleting paragraph (b).’

The impact of this is that section 975(2) (b) of the Companies Act 2015, which required that for a foreign company to be registered, at least 30% of the shareholding should be held by a Kenyan citizen by birth, has now been scrapped.

The Income Tax Act (ITA)

Previously, personal relief was Kshs 13,944 pa (Kshs 1,162 pm). Section 17 of the Act has amended Head A (Item 1) of the Third Schedule to ITA hence increasing the personal relief to Kshs 15,360 pa (Kshs 1,280 pm).

The Act has also amended Head B (Item 1 and Item 1(A)) of the Third Schedule to ITA to expand the tax brackets. The new tax brackets are as follows:

Tax bracket                                     Rate in each shilling

On the first Shs.134, 164                             10%

On the next Shs.126, 403                             15%

On the next Shs.126, 403                             20%

On the next Shs.126, 403                             25%

On all income over Shs.513, 373                 30%

Income from employment paid in the form of bonuses, overtime and retirement benefits is exempted from tax. However, this exemption only applies to employees whose taxable employment income before bonus and overtime allowances does not exceed the lowest tax band, that is, Kshs. 134, 164 pa.

Besides, corporation tax rate has been reduced from 30% to 15% on every company that constructs at least 400 housing units per year. This is, however, subject to approval by the Cabinet Secretary responsible for housing.

Section 6 of the Act has amended section 15 of the ITA to make expenses incurred in sponsoring sports activities by both individuals and corporates tax deductible. However, such deduction requires prior approval by the sports Cabinet Secretary.

Section 8 of the Act amends section 34(2) by deleting paragraph I of the ITA  which abolishes tax charged on lottery winnings that was payable by lottery winners.

Finally, transfer of assets between spouses, former spouses as part of a divorce settlement or a bona fide separation agreement, to immediate family, to immediate family as part of a divorce or bona fide separation agreement or to a company where spouses or a spouse and immediate family hold 100% shareholding is exempted from capital gains tax.

Value Added Tax Act No. 35 of 2013

The following items are now exempted from VAT:

  • Any service charge paid in lieu of tips.
  • Goods and services imported or purchased locally for use by the local film producers and local filming agents upon recommendation by the Kenya Film Commission subject to approval by the Cabinet Secretary to the National Treasury.
  • Goods for use in the assembly manufacture or repair of clean cooking stoves approved by the Cabinet Secretary upon recommendation by the Cabinet Secretary for the time being responsible for matters relating to energy.
  • Items used in the manufacture of sanitary towels.
  • Taxable goods for the direct and exclusive use for construction of specialized hospitals with accommodation facilities upon the recommendation by the Cabinet Secretary responsible for health; and
  • Entry fees into the national parks and national reserves, services of tour operators, excluding in-house supplies.

Further, fuel VAT exemption has been extended by a further 2 years from 1st September 2016 and liquefied petroleum gas has been moved from the exempted items list to zero rated items.

Tax Procedures Act (TPA)

The TPA has been amended to include a requirement that where a non-resident person with no fixed place of business in Kenya is required to register under a tax law, the non- resident person shall appoint a tax representative in Kenya in writing. This means that foreigners will not be able to obtain tax PIN certificates without making such an appointment.

The Act further requires that overpaid tax is to be refunded within a period of two years from the date of application, failure to which the amount due shall attract an interest of 1% per month or part thereof of such unpaid amount after the period of two years.

Besides, any tax refunded to a tax payer in error shall attract an interest of 1% if payment is not made within 30 days of the date of service demand by the commissioner. Interest chargeable shall however not exceed 100% of the taxes originally due.

Betting, Lotteries and Gaming Act

This act has been amended to introduce the following three taxes:

  • Betting Tax

Section 80 of the Act has amended section 29 to introduce a betting tax chargeable at the rate of 7.5% out of the gaming revenue. Gaming revenue here means gross turnover less the amount paid out to customers as winnings.

  • Gaming Tax

This is chargeable at the rate of 12% of the gaming revenue. The tax shall be paid to the Collector by a person carrying on a gaming business on the 20th day of the month following the month of collection.

  • Lottery Tax

Section 82 the Act has amended section 44 to introduce this tax chargeable at the rate of 5% of the lottery turn over. The tax is to be paid to the Collector by a person authorized to promote the lottery on the 20th day of the month following the month of collection.

  • Prize Competition Tax

Chargeable on the cost of entry to a competition which is premium rated at the rate of 15% of the total gross turnover.  The tax is to be paid to the Collector on the 20th day of the month following the month of collection

Tax Appeals Tribunal Act

Section 64 of the 2016 Act amends the Tax Appeals Tribunal Act to allow advocates to represent appellants before the Tax Appeals Tribunal.

The Retirement Benefits Act

Section 49 of the Act has amended section 29 of the Retirement Benefits Act to allow for issuance of perpetual licences. The section now reads as follows:

‘A certificate of registration issued to a manager, custodian or administrator shall be valid from the date of issue and shall, unless suspended or revoked, remain valid. An annual fee should be paid to the authority as prescribed. Current audited financial statements, a list of the directors and top management, any changes in clientele and such further information as the Authority may request should be submitted to the Authority by the 30th  September of every year.’

The Capital Markets Act Cap

Section 49 of the Act has amended section 12 to this Act, to add into the authority the power to carry the operations and supervision of online forex trading activities and online forex brokers. By dint of amendments to section 2, “online forex broker” means a body corporate duly licensed by the Authority to engage in the business of online trading in foreign exchange as an agent of investors in return for a commission and on its own account.

The Banking Act

Section 31(3) (b) of the Banking Act has been amended to include among institutions that are affected by credit information sharing regulations Sacco Societies, Co-operative Societies, Public Utility Companies and any other institution mandated to share credit information under any written law.

Consumer Protection Act

Section 62 of this act has been amended at clause 5 to exempt its application to a credit agreement where the lender is either a bilateral or multilateral foreign financial institutions

 

Salient Amendments To The Land Registration Act

Article By: Patience Laki
Article By: Patience Laki

The Land Laws (Amendment) Act, 2016 was assented to by the President on 31st August, 2016 and came in to effect on 21st September, 2016. The following is a brief outline of the salient amendments made to the Land Registration Act, 2012.

Spousal rights over matrimonial property; and leases or agreements for leases for a term not exceeding two years, periodic tenancies and indeterminate tenancies are no longer deemed as overriding interests.

Presentation of documents later than three (3) months from the date of the document attracts a penalty equal to the registration fee, for each of the three months which have elapsed since that date. The penalty however will not exceed twice the original registration fees payable.

Certificate of Lease can be issued where the Lease is for a period exceeding twenty one years.

Interests appearing in the register shall have priority according to the order in which the instruments were presented to the registry despite any delay in the actual entry in the register.

A Suspension Period has been introduced. This is 14 days from the time which an application for an official search is made by a person proposing to deal with registered land (the application must state the particulars of the proposed dealing) and who has obtained consent in writing of the proprietor. During this period the registration of any instrument affecting the land is stayed.

A properly executed instrument affecting the proposed dealing which is presented for registration within the suspension period shall have priority over any other instrument presented for registration during the suspension. The same will be registered regardless of any caution or other entry whose application for registration may have been made during the suspension period.

The Amendment Act exempts the following from the requirement to present a Land Rent Clearance Certificate during registration of a Charge: a unit in a condominium; an office in a building; or a sub-lease where the lease is by virtue of any law subject to the full payment of the rent by the head-lessor.

There is now a presumption of tenancy in common in equal shares where the instrument of transfer of an interest of land to two or more persons does not specify the nature of their rights.

The Registrar may dispense with the need of consent in cases where a disposal of land requires the consent of a co-tenant in a Tenancy in common and it can be proven that the consent cannot be obtained or is held unreasonably.  Any party aggrieved by the decision of the Registrar can make an application to the Court for the necessary orders.

The Effect Of Gazette Notice Number 3153 On Microfinance Lenders

Article by:<br />Pauline Kenyatta
Article by:
Pauline Kenyatta

1. INTRODUCTION

By a Gazette Notice number 3153 dated 29th March 2016, the Cabinet Secretary for the National Treasury, on the recommendation of the Central Bank of Kenya, declared a microfinance bank licensed under the Microfinance Bank Act, 2006, to be an institution for the purposes of section 38 of the Central Bank of Kenya Act.

In this regard, section 38(1) of the CBK Act, provides for a reserve requirement where the CBK may require institutions to maintain minimum cash balances on deposit with the Bank as reserves against their deposit and other liabilities.

However, under section 38(4) of the CBK Act, the Bank may allow an institution or group of institutions upon which these provisions are applied for the first time, a period within which to comply with the cash reserve ratio requirements as may be prescribed by the Bank.

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“It’s Our Money!” Shareholder Activism and Vigilant Investing

Article by:<br />George Kinyua
Article by:
George Kinyua

The level of success of an investor often depends on their ability to outfox other investors within the legally allowable limits. It is imperative therefore that an investor understands what the law on the role of shareholders in a company is.

A member is a person holding shares in the company; in principle therefore, members are proprietors, owners and investors, with each share held representing a unit of ownership in that business known as the company. Continue Reading

Enforceability of Arbitral Awards in Kenya

Article by:<br />         Ecrone Omulloh
Article by:
         Ecrone Omulloh

1.1. Introduction

Disputes commonly arise between business people in the course of business. When that happens, the disputants often want to resolve their differences without involving third parties for various reasons. The most obvious reasons are, first, to safeguard personal and business privacy and, second, to expedite the dispute resolution process.

However, peaceful negotiations may fail. If they do, the disputants will have two options: either go to court or resolve the dispute through arbitration. If they choose the arbitration route, an arbitrator will be appointed. The arbitrator may be a single person or a group of persons who then constitute what is known as the arbitral tribunal. The arbitral tribunal, upon hearing and taking into account what each disputant has to say, is required to deliver its judgment (or decision) on the dispute. This judgment is referred to as an arbitral award. Continue Reading