Property fund ILAM Fahari I-Reit is set to book higher revenues after its subsidiaries received an exemption from withholding tax previously applicable on their rental income.
The subsidiaries, through which the Nairobi Securities Exchange-listed fund owns buildings, now join their parent company in being exempt from corporate and withholding tax on rental income.
“The Reit manager was successful in securing tax exemption letters for the Reit subsidiaries, which enabled tenants to cease withholding 10 percent of rental income from the second quarter of the period under review,” the property fund said in a statement accompanying its results for the half year ended June.
The law had exempted the subsidiaries from the tax but there were pending clarifications and administrative steps from the Kenya Revenue Authority.
Fahari has previously described the amounts that were withheld by tenants, running into millions of shillings, as irrecoverable.
The tax exemptions are the major incentives designed to encourage the growth of real estate investment funds which allow the general public to gain exposure to the property market without requiring large cash investments.
The only tax that will remain will be withholding tax on cash distributions to unitholders (shareholders) which stands at five percent for local investors.
The real estate fund, which is run by ICEA Lion Asset Management, currently owns four properties through various subsidiaries.
They are a shopping centre, an office building, and two semi-office or light industrial buildings valued at Sh3.25 billion, all of which are now exempt from the tax.
The property investment fund itself has been exempt from income tax since its establishment in September 2015, based on the provisions of the Kenyan Income Tax Act.
Its wholly-owned subsidiaries were however not explicitly exempt until the recent issuance of the letters.
Fahari more than doubled its profit for the half year ended June to Sh86.1 million, up from Sh42.2 million a year earlier.
