KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
laws, or may award compensation to those affected by environmental degradation or pollution. The ELC may also issue environmental restoration orders. Section 112 of the EMCA allows courts to grant envi - ronmental easements and conservation orders to pre - serve environmental resources. Rule 28 of the NCA Regulations, 2014 empowers the NCA to set up a committee to investigate complaints against contractors and any developments if they are suspected of contravening the law. The committee may recommend the deregistration of a contractor or the revocation or suspension of its licence. Where a contractor is deregistered, all construction contracts being executed by that contractor will be terminated immediately. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets The main vehicles for investment in real estate are limited liability companies (LLCs), LLPs and real estate investment trusts (REITs). LLCs are the most com - mon and preferred investment vehicles, but LLPs are beginning to gain traction. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity LLCs LLCs are the most common and preferred invest - ment vehicles, and are regulated by the Companies Act 2015. LLCs have corporate personality, and the liability of the members is limited. Given this, an LLC may own property, enter into contracts, and sue and be sued in the name of the company. LLCs are tax residents in Kenya and are subjected to tax at a rate of 30%. The taxable income is calculated as the gross revenue less allowable expenses that were wholly and exclusively used in the production of income. Subsequent distribution of dividends by an LLC would be subject to WHT at the rates indicated in the following.
Aperson making payments on dividends and interest to a resident (or non-resident entity with a branch/ permanent establishment in Kenya) will pay: • 5% WHT on dividends paid to residents, although WHT is not payable where the dividend is paid to a resident company that directly or indirectly holds more than 12.5% of the payer’s shares; • 15% WHT on dividends paid to a non-resident; and • 15% WHT on interest. A person making payments on dividends and interest to a non-resident will deduct 15% WHT for both the dividend and interest income. LLPs LLPs have gained traction as the real estate invest - ment vehicles of choice, and are regulated by the LLP Act. LLPs have legal personality, and the liability of the partners is limited. LLPs may also own property, enter into contracts, and sue and be sued in the name of the LLP. An LLP has a minimum of two partners and at least one manager, who must be a natural person. An LLP is not recognised as a distinct person for the purposes of income tax even though it has legal personality. Accordingly, tax on income accrued in or derived from Kenya is accounted for by the partners individually and not by the LLP. Each partner will therefore pay taxes on their share of the profit earned from the LLP based on the applicable income tax rates. REITs Following the enactment of the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations (2013), REITs have gained trac - tion as the premier vehicle for collective investment in real estate in Kenya. They are licensed and regu - lated by the Capital Markets Authority (CMA). A REIT is structured as an unincorporated common law trust divided into units and established by way of a trust deed. REITs must have a licensed independent REIT trustee who holds the REIT assets on behalf of the investors and a licensed REIT manager who manages the day-to-day affairs of the REIT. A REIT scheme may be structured as follows.
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