The Stamp Duty Act, Cap 480, is an act of Parliament that makes provision for the levying and administration of stamp duties (‘’the Act’’). Section 5 of the Act provides for liability to stamp duty. The section provides that every instrument specified in the Schedule to the Act is chargeable to duty and when it relates to any property or anything done or to be done in Kenya.
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 shall examine some of the exemptions are provided in the Act and the procedure for obtaining such exemptions.
The power to exempt instruments from stamp duty lies with the Cabinet Secretary (for matters related to Finance (CS, National Treasury) as per Section 106(1) of the Act. The Cabinet Secretary responsible for matters related to Finance may on the recommendation of the CS responsible for matters related to land direct that any instrument be exempted from the provisions of the Stamp Duty Act.
However, this directive has to be gazetted in Kenya Gazette and meet the interest of the public. One clear example is when the CS, National Treasury, through Gazette Notice Number 112, exempted instruments executed in relation to the merger of NIC Group Plc and Commercial Bank of Africa.
The Tax Laws Amendment Act,2018 amended the 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. The Affordable Housing Scheme is an initiative of the Housing pillar of the Big 4 Agenda. It is, however, not clear how the Collector Stamp Duties will identity the first-time home buyers to enjoy the exemption.
Section 71 of the Finance Act, Number 4 of 1999 amended the Schedule of the Act by introducing Paragraph 12B exempting the transfer of real property between husband and wife. This exemption has benefited many spouses as they do not pay stamp duty on the property, they wish to transfer between themselves.
Conveyance or transfers of instruments provided in the Schedule that are made between associated companies are not be chargeable with duty. This is provided in section in Section 96 of the Act. The Collector has to be satisfied that the effect is to transfer a beneficial interest in property from one company to another and that one of the companies is a beneficial owner of not less than 90% of the issued share capital.
There are certain exemptions on transfers relating to Real Estate Investment Trusts (REITS) licenced by the Capital Markets Authority. The Collector of Stamp Duties has to be satisfied that the transfer conveys or transfers a beneficial interest in property from one trustee to another trustee or additional trustee or transfer of units in a REIT. Exemptions under Section 96A of the Act have a time limitation, as the instruments have to be executed before the 31st December 2022 to enjoy that exemption.
Other exemptions are provided in Section 117 of the Act which include instruments for the sale or transfer of land for the construction or expansion of educational institutions and instruments under the Movable Property Security Rights Act, 2017.
It is not in all cases that exemptions may be provided in the Act. Section 17 of the Act allows for adjudication of instruments by the Collector of Stamp Duties. When adjudicating, the Collector will decide whether an instrument is chargeable with duty or not and if not chargeable a special stamp indicating that it is not chargeable has to be affixed on the instruments.
Section 17 allows for persons to explore an option to reduce the stamp duty implications on their transactions even if a specific exemption has not been provided in the Act. Please note that it is not guarantee that the Collector will decide that a document is not chargeable with duty.
Application for exemption of stamp duty are accompanied by a cover letter and a statutory declaration together with all the supporting documents. The Cover letter provides in brief the exemption section of the Act being relied whereas the statutory declaration states the facts that support the exemption.
For applications under Section 17 of the Act, an Adjudication Form and an adjudication fee of Kenya Shillings One Hundred Only should be provided in addition to the cover letters, statutory declaration and supporting documents.
Applications are submitted to the Collector of Stamp Duties at the Ministry of Lands. The Collector of Stamp Duties may take between 3 to 7 days to render a decision on exemption. The Collector may require additional information in case the application is not clear.
In conclusion, settlement of stamp duty is key in any transaction provided in the Schedule of the Act. Exploring an exemption under the Act can go a long way in saving transactional costs involved. At the same time, there needs to be clear guidelines on the documents that are required to be submitted when applying for an exemption. This will go a long way in reducing time taken to obtain an exemption.