Fahari real estate units enjoy tax exemption

Markets & Finance

Fahari real estate units enjoy tax exemption

Einstein Kihanda, CEO of ICEA Lion Asset Management. PICTURES | SALATON NJAU

Real estate fund ILAM Fahari I-Reit is expected to record higher income after its subsidiaries benefited from a previously applicable withholding tax exemption on their rental income.

The subsidiaries, through which the fund listed on the Nairobi Securities Exchange owns buildings, now join their parent company and are exempt from corporation tax and withholding tax on rental income.

“The Reit manager was successful in obtaining tax exemption letters for Reit subsidiaries, which allowed tenants to stop withholding 10% of rental income from the second quarter of the reporting period,” said the real estate fund in a press release accompanying its results for the six months ended in June.

The law had exempted subsidiaries from the tax, but clarifications and administrative action were pending from the Kenya Revenue Authority.

Fahari has previously described the amounts withheld by tenants, amounting to millions of shillings, as irrecoverable.

Tax exemptions are the main incentives intended to encourage the growth of real estate investment funds that allow the general public to gain exposure to the real estate market without requiring large cash investments.

The only remaining tax will be the withholding tax on cash distributions to unitholders (shareholders) which amounts to 5% for local investors.

The real estate fund, which is managed by ICEA Lion Asset Management, currently owns four properties through different subsidiaries.

It is a shopping centre, an office building and two semi-office or light industrial buildings worth 3.25 billion shillings, all now exempt from the tax.

The real estate investment trust itself has been exempt from income tax since its inception in September 2015, based on the provisions of Kenya’s income tax law.

Its wholly-owned subsidiaries, however, were not explicitly exempt until the recent release of the letters.

Fahari more than doubled its profit for the six months ended June to 86.1 million shillings from 42.2 million shillings a year earlier.

This is mainly due to the increase in rental income.

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