Stamp Duty Exemptions

Introduction

Stamp duty is charged according to the value of the transaction or the nominal rates on certain financial instruments and transactions. Stamp duty at the rate of 1% is payable on the transfer of shares and increase in share capital. Stamp duty at the rate of 4% of the value of the land is payable in urban areas and 2% for rural areas. Recently, through a letter dated 5th April 2024, the principal secretary for the Ministry of Lands and Physical Planning adopted the council of governor’s list of gazetted areas which has now upgraded several towns to municipality status increasing the stamp duty from 2% to 4%. Please click on this link to access the towns that were upgraded.

The Act, however, provides for certain exemptions that may be relied on by parties to a transaction to reduce the stamp duty implication. In this Article, we delve into some of the exemptions.

1. Stamp Duty Exemption on Incorporation of a Company

On April 12, 2016, the Cabinet Secretary to the National Treasury, exercising his powers under section 106(1) of the Stamp Duty Act and on recommendation of the Cabinet Secretary for Land, Housing and Urban Development, directed that the initial nominal share capital of a company registered or to be registered with limited liability be exempt from the ad valorem stamp duty charged under section 39 of the Act through a Legal Notice No. 60 dated April 11, 2016.

This means that at incorporation of a company, no stamp duty would be due on the company’s initial share capital. It’s important to note that any subsequent increases of capital will be subject to ad valorem stamp duty at 1% of the amount of the increase as this is not exempt under the Legal Notice.

2. Transfers Between Associated Companies

Section 96 (1) of the Stamp Duty Act provides for exemption from stamp duty on the transfer of real property between associated companies provided that the conditions set out in the said section are fulfilled. To obtain this exemption, it should be shown to the satisfaction of the Collector of Stamp Duty that the effect of the transfer will be to convey or transfer a beneficial interest in property from one company to another, and either:

i. one of such “companies” (the transferor or the transferee) is the beneficial owner of not less than ninety per cent (90%) of the issued share capital of the other “company”; or

ii. not less than ninety per cent (90%) of the issued share capital of each of the transferor and the transferee is in the beneficial ownership of a third company with limited liability; and

iii. the consideration must not have been provided, directly or indirectly, by a person other than a company which at the time of the execution was associated with either the transferor or the transferee and the beneficial interest in the property must not have been previously conveyed or transferred directly or indirectly by a person other than an associated company.

It is however important to note that where the transfer is made to an entity other than a limited liability company (e.g. a limited liability partnership), this exemption will not be available.

3. First-Time Home Buyers Under the Affordable Housing Scheme

The Tax Laws Amendment Act, 2018 amended the Stamp Duty Act by introducing Section 117(k) that allows for exemption from payment of stamp duty for first time home buyer under the Affordable Housing Scheme. This is in line with the governments bid to encourage home ownership, and in line with Kenya’s housing development goals. This exemption helps first time homeowners save on their initial property acquisition costs, making homeownership more accessible.

4. Transfers to immediate Family

Legal Notice 92 of 2007 provides a Stamp Duty exemption in respect to the transfer of family property to a limited liability company whose shares are wholly owned by the family.

It is also important to note that family in this context refers to a nuclear family specifically made up of parent(s) and child/children.

5. Transfer to a Family Trust

Generally, any transfer of property made as a gift during the life of the owner of the property is subject to payment of stamp duty. However, under Section 52(2)(b) of the Stamp Duty Act,

a transfer, or an agreement for a conveyance or transfer, operating as a voluntary disposition of property is exempt from stamp duty if the transfer is to a registered family Trust;

6. Transfer of Property to charitable organisations as Gifts.

Transfer of property and especially land to a charitable organisation as a gift qualifies for exemption of stamp duty pursuant to the provisions of section 52(2) of the Stamp Duty Act.

The charitable organisation must purely be a non-profit entity and the property is acquired with an intention of advancing charitable works which are of benefit to the community.

7. Educational institutions

The Act provides for an exemption for instruments for the sale or transfer of land for the construction or expansion of educational institutions, its however important to note that stamp duty become payable if such land reverts to any other use.

8. Special Economic Zones

A Special Economic Zone (SEZ) refers to a designated geographical area where business-enabling policies are implemented, and sector-appropriate on-site and off-site infrastructure and utilities are provided for by the Kenyan Government. The SEZ Act, 2015, which governs SEZs, came into operation to promote foreign direct investment and positioning Kenya as a business hub.

SEZs are designated areas within a country that offer unique regulatory and tax incentives to attract domestic and foreign investment, foster economic growth, and promote industrialization.

The Stamp Duty Act provides for an exemption from stamp duty on any executing documents or instruments relating to the business activities of SEZ enterprises, developers and operators.

9. Exemption of Stamp Duty with respect to some other classes of Instrument.

Pursuant to the provisions of section 106 of Stamp Duty Act and specifically Legal Notice No. 461 of 17th October 1958 the following instruments qualify for the exemption of Stamp Duty;

(i) Security Documents such as Charge and Discharge of Charge;

This shall involve instances whereby the land is charged and the same need to be surrendered to the Government for the purposes of subdivision, change of user or extension of lease hold title. It is noteworthy to note that exemption for stamp duty in this case is only applicable on condition that upon subdivision, change of user or extension of lease the charge shall be imposed on the same property , the same parties and the same conditions. In that case the discharge of charge shall be exempted from stamp duty and equally once the new title has been issued as a result of the said processes a replacement charge be exempted from stamp duty and shall be registered against the new title.

(ii) Surrender of Lease to the Government

This involves whereby the Lessor /developer has erected some units which have sub-leases as the title, and upon expiration of the leasehold term the Lessor shall surrender the mother title together with the respective sub-leases in order for the term to be renewed or extended. In this case the new sub leases (commonly referred to as replacement leases ) with respect to each unit shall be exempted from stamp duty and be endorsed on the new mother title with an extended/renewed term.

Conclusion

Stamp duty exemptions are not automatic. The applicant should make an application to the collector of stamp duty supported by a statutory declaration or affidavit wherein the applicant states the section of the Act relied upon in seeking the exemption and attach all the requisite supporting documents. It is also important to note that pursuant to the provisions of section 106 of the Stamp Duty Act the Cabinet Secretary in charge of finance and in liaison with the Cabinet Secretary in charge of matters relating to Land may exempt some instruments from stamp duty buy way of Gazette notice if satisfied that the same is of benefit to the public interest.

Contact Persons & Contributors

Tabitha MUCHIRI (Associate )- tmuchiri@cmadvocates.com

Wahu WAMBUGU (Associate Advocate )- mwambugu@cmadvocates.com

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Disclaimer

This article is for informational purposes only and should not be construed as legal advice.