REITs or real estate trusts are collective investment schemes that own or finance income-producing real estate in the property industry. The income then distributes the income from the properties as divides.
Last year, the listed trusts that invested in the real estate sector had every reason to celebrate as they were exempted tax for the companies they generate income from. Under the National Treasury Cabinet Secretary Henry Rotich 2019, part of the bill stated that the amendments would ensure that the objectives of the real estate investment trusts were met by exempting the earnings of the investee company either fully controlled or owned by a REITs.
However. There have been changes to the income tax exemption regulations for REITs as indicated in the report published by the National Treasury. The new regulation requires REITs to first apply to the taxman, the Kenya Revenue Authority for exemption from income taxation. Previously, this was never the case as REITs were only required to have the approval from the Capital Markets Authority(CMA) to benefit from the tax exemption.
“The Commissioner shall upon consideration of the application, communicate its decision in writing within thirty days of submission of the application, to the REIT or the REIT Controlled Entity,” the bill states.
The new regulation now involves KRA to prevent all possible losses of revenue. KRA will also play a big role in assuring investors that exception is denied after they follow the necessary steps.
The Capital Markets Authority(CMA) also released new regulations for Collective Investment Schemes (CIS). The new guidelines were to be followed on investment performance measurement, reporting, valuation and other related matters. “The fund manager shall disclose all significant events that would help a prospective investor interpret the CIS performance report. This disclosure shall be included for a minimum of one year and for as long as it is relevant to interpreting the track record,” the guidelines indicate.
The new ruling will also need portfolios to be assessed daily in agreement with the definition of the fair value as set out in IFRS 13. An independent registered property valuer will be required to do an external valuation for real estate investments.