KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
• In a development REIT (D-REIT), investors pool resources for the purposes of acquiring eligible real estate for development and construction. Upon the completion of construction, the D-REIT may be converted to an income REIT (I-REIT). • In an I-REIT, investors pool resources for the pur - poses of acquiring long-term income-generating real estate. The capital gain and rental income are distributed amongst the unit holders. • An Islamic REIT is a pool for investment in income- producing Sharia-compliant real estate products. REITs are beneficial to investors because they are professionally managed and there is minimal capital risk, despite the variety of real estate products avail - able. REITs also enjoy tax exemptions (see 8.5 Tax Benefits ). 5.3 REITs REITs are available in Kenya (see 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity ). They may be unlisted or listed on the Nairobi Securities Exchange. Foreigners are allowed to set up and invest in REITs provided that they com - ply with the applicable laws. To register a REIT, the prescribed minimum capital requirements (see 5.4 Minimum Capital Requirement ) must be met, and the CMA must declare the REIT to be an authorised scheme. The advantages of REITs are that: • they enable low-capital investors to invest in real estate, which is typically capital intensive; • they are a source of capital for real estate develop - ment and investment; • they allow investors to diversify their real estate portfolio based on the schemes’ pool of assets; • if listed, they create liquidity by allowing easy and quick investment in real estate; • they can, in the case of I-REITs, provide consistent income, since they are required to pay out at least 80% of their taxable income to unitholders in the form of dividends; • since they are regulated entities, they benefit from transparency and professionalism in their manage - ment and operation; and • they enjoy tax exemptions (see 8.5 Tax Benefits ).
Despite the benefits, there is still a low uptake of investment in REITs in Kenya for various reasons including low investor awareness, market volatility and high set-up costs. 5.4 Minimum Capital Requirement There are no minimum capital requirements for LLPs and private LLCs. A public LLC must have a minimum capital of KES6,750,000 (approximately USD52,200). REITs must have: • a REIT trustee, who is required to have a minimum paid up capital of KES100 million (approximately USD773,100); and • a REIT manager, who is required to have a mini - mum paid up capital of KES10 million (approxi - mately USD77,300). 5.5 Applicable Governance Requirements Private LLCs A private LLC is generally required to: • convene one annual general meeting, unless it is a single-member company or the registrar has extended the period; • file annual returns at the companies registry; • unless exempt under the small company, or if a dormant company, procure an annual audit of its accounts; • comply with its tax filings and payment obligations; and • maintain relevant statutory registers, including of its members, directors, charges and beneficial owners. Public LLCs (Listed and Non-Listed) Listed public LLCs are those listed on the Nairo - bi Stock Exchange. In addition to the governance requirements listed previously in respect of private LLCs, public LLCs are required to obtain a trading certificate for their operations. Furthermore, listed public LLCs must comply with the Capital Markets Act, Chapter 485A and relevant regulations applicable to listed companies.
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