KENYA Law and Practice Contributed by: Anne Kinyanjui and Loice Erambo, DLA Piper Africa, Kenya (IKM)
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 investment vehicles, and are regulated by the Companies Act 2015. LLCs have corporate per - sonality, and the liability of the members is lim- ited. Given this, an LLC may own property, enter into contracts and sue and be sued in the name of the company. LLCs may be private or public. A private LLC has one to 50 members and a minimum of one director, who must be a natural person. The shares of a private LLC may not be transferred to the public. A public LLC has a minimum of one member and no restriction on the maximum number of members. It is also required to have a minimum of two directors, one of whom must be a natural person. The shares of a public LLC may be transferred to the public. LLCs are tax residents in Kenya and are sub - jected to tax at the rate of 30%. The taxable income is computed as the gross revenue less allowable expenses which were wholly and exclusively used in the production of income. Subsequent distribution of dividends by an LLC would be subject to withholding tax (WHT) at the rates indicated below. A resident (or non-resident entity with a branch/ permanent establishment in Kenya) will pay: • 5% WHT on dividends from shares represent - ing up to 12.5% of voting power; • no WHT on dividends from any further shares; and • 15% WHT on interest.
A non-resident will pay 15% WHT on all dividend and interest income. LLPs LLPs have gained traction as the real estate investment vehicles of choice, and are regulated by the LLP Act 2011. LLPs have legal personali - ty, 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 per - son. 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 account - ed 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 Mar - kets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations (2013), REITs have gained traction as the premier vehicle for collective investment in real estate in Kenya. They are licensed and regulated 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.
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