REITs are Real Estate Investment Trust Schemes. They are usually authorized by the Capital Markets Authority under the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations. Section 20 of the Income Tax provides that a real estate investment trust (REIT) alongside unit trusts and collective investment schemes, is exempt from income tax. The Finance Act, 2019 further exempted investment companies wholly owned by a REIT from income tax.
The Cabinet Secretary to the National Treasury and Planning has powers conferred by Section 130 of the Income Tax Act and in exercise of those powers, he has made the draft Income Tax (Real Estate Investment Trusts) Rules, 2020. These rules give the procedure that a REIT or a REIT controlled entity will follow in applying for an exemption.
A REIT shall apply to the Commissioner for registration of the REIT or a REIT controlled entity under the REIT. This application to the Commissioner may be made any time during the authorisation of the REIT Scheme by the Authority or during the process of acquiring the REIT Controlled Entity.
Upon receiving the application, the Commissioner shall upon consideration of the application, communicate its decision in writing within 30 days of submission of the application, to the REIT or the REIT Controlled Entity. If the Commissioner rejects the application, they shall communicate to the applying REIT or the REIT Controlled Entity the reasons for the refusal.
The date for the exemption shall apply from the date of authorisation of the REIT scheme by the Authority. It shall also apply from the date the REIT Controlled entity was acquired or formed by the REIT.
If the REIT or a REIT Controlled Entity fails to satisfy the requirements of the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, or the Income Tax Act for purposes of maintaining its exemption status, two things will happen. The exemption granted to the REIT or REIT Controlled Entity shall cease to apply and all the applicable taxes in shall fall due, and shall be payable, from the date of failure.
REQUEST FOR FEEDBACK ON THE DRAFT INCOME TAX (REAL ESTATE INVESTMENT TRUSTS) RULES, 2020
Tax is one of the key factors that has a major impact on the competitiveness of products and over the years, the Authority has proposed, and the National Treasury has implemented various tax neutrality measures aimed at promoting effective roll out of new capital markets products and services. One of the tax neutrality measures implemented in the recent past relates to the introduction of Real Estate Investment Trusts (REITs).
Section 20 of the Income Tax provides that a real estate investment trust (REIT) alongside unit trusts and collective investment schemes, is exempt from income tax. The Finance Act, 2019 further exempted investment companies wholly owned by a REIT from income tax. In this regard, the Authority has developed draft Regulations to operationalize Section 20 (c) and (d) of the Income Tax Act on exemption of REITs.
The Authority wishes to invite the general public and stakeholders to submit comments on the said Regulations which can be accessed on the Capital Markets Authority website www.cma.or.ke The Notice has been issued in accordance with section 12A of the Capital Markets Act to commence stakeholder and public consultation for a period of the next thirty (30) days.
Kindly submit your comments on the draft framework by 2 July 2020 via email to firstname.lastname@example.org or by hand delivery or post to the Authority’s office.