VAT On Commercial Property Transactions: What You Need to Know

In a significant ruling affecting commercial property transactions in Kenya, the Court of Appeal has upheld the Kenya Revenue Authority’s (KRA) right to levy Value Added Tax (VAT) on the disposal of land and commercial improvements. This decision clarifies VAT obligations for businesses and investors in the Kenyan real estate market.

Background: The Court Case and VAT on Property Sales

The case revolved around a dispute over VAT charged on a commercial property purchase. The initial High Court ruling favored the buyer, but the KRA appealed, leading to this new decision. Understanding the details of this case is crucial for commercial property owners in Kenya.

Key Takeaway: VAT Is Payable on Commercial Property

The Court of Appeal has definitively stated that VAT applies to the sale of land with commercial buildings in Kenya. This reverses the previous High Court decision and sets a clear precedent for future transactions.

What This Means for Your Business: Navigating VAT Compliance

This ruling has several important implications for businesses involved in the Kenyan commercial property market:

• VAT Liability: Be aware that the sale of land with commercial buildings is subject to VAT.
• Compliance is Essential: Ensure your business is correctly accounting for VAT on all commercial property transactions.
• Seek Professional Guidance: Consult with experienced tax advisors to understand the specific VAT implications for your business and your specific circumstances.

PwC’s Recommendations: Review, Disclose, and Comply

Leading professional services firm, PwC, recommends the following actions:

• Review Past Transactions: Conduct a thorough review of past commercial property transactions to identify any potential non-compliance issues.
• Consider Voluntary Disclosure: Take advantage of the KRA’s Tax Amnesty program, ending June 30, 2025, to voluntarily disclose and correct any errors. This can help you avoid penalties and interest.
• Stay Informed: Keep up-to-date with the latest VAT regulations and rulings to ensure ongoing compliance.

The Court of Appeal’s decision provides clarity on the VAT treatment of commercial property sales in Kenya. By taking proactive steps to review your transactions, seek professional advice, and ensure compliance, you can protect your business from potential penalties and maintain a strong financial standing.

Disclaimer: This blog post is for informational purposes only and does not constitute professional tax advice. Consult with a qualified tax advisor for specific guidance on your situation.