Understanding Stamp Duty Exemptions in Kenya
Stamp duty is levied based on the value of a transaction, or at fixed nominal rates for certain financial instruments and dealings. A rate of 1% applies to share transfers and increases in share capital. For land, the applicable rate is 4% in urban areas and 2% in rural areas.
Stamp duty exemptions are not granted automatically. An applicant must apply to the Collector of Stamp Duty, supported by a statutory declaration or affidavit specifying the section of the Act relied upon and accompanied by all required supporting documents.
It’s worth noting that, through a letter dated 5th April 2024, the Principal Secretary for the Ministry of Lands and Physical Planning adopted the Council of Governors’ list of gazetted areas, which elevated several towns to municipality status — pushing their stamp duty rate up from 2% to 4%. Read more on the gazetted areas stamp duty tax transfers.
That said, the Act sets out a number of exemptions that parties to a transaction may rely on to reduce or eliminate their stamp duty obligation. This article walks through several of these exemptions.
1. Stamp Duty Exemption on Incorporation of a Company
On April 12, 2016, acting under section 106(1) of the Stamp Duty Act and on the recommendation of the Cabinet Secretary for Land, Housing and Urban Development, the Cabinet Secretary to the National Treasury directed — via Legal Notice No. 60 dated April 11, 2016 — that the initial nominal share capital of a company registered, or to be registered, with limited liability be exempted from the ad valorem stamp duty imposed under section 39 of the Act.
In practical terms, this means no stamp duty is owed on a company’s initial share capital at the point of incorporation. However, any later increase in that capital remains subject to ad valorem stamp duty at 1% of the increased amount, since this falls outside the scope of the exemption granted under the Legal Notice.
2. Transfers Between Associated Companies
Under section 96(1) of the Stamp Duty Act, the transfer of real property between associated companies is exempt from stamp duty, provided the conditions laid out in that section are satisfied. To qualify, the Collector of Stamp Duty must be satisfied that the transfer conveys a beneficial interest in the property from one company to another, and that either:
- one of the companies (transferor or transferee) beneficially owns not less than ninety per cent (90%) of the other company’s issued share capital; or
- not less than ninety per cent (90%) of the issued share capital of both the transferor and transferee is beneficially owned by a third limited liability company; and
- the consideration was not provided, whether directly or indirectly, by any party other than a company associated with the transferor or transferee at the time of execution, and the beneficial interest in the property was not previously transferred, directly or indirectly, by anyone other than an associated company.
Note that this exemption does not extend to transfers made to entities other than limited liability companies — for instance, a limited liability partnership would not qualify.
3. First-Time Home Buyers Under the Affordable Housing Scheme
The Tax Laws Amendment Act, 2018 introduced Section 117(k) into the Stamp Duty Act, exempting first-time home buyers under the Affordable Housing Scheme from paying stamp duty. This aligns with the government’s broader push to promote homeownership and support its national housing development goals, and it helps reduce upfront costs for first-time buyers entering the property market.
4. Transfers to Immediate Family
Under Legal Notice 92 of 2007, a stamp duty exemption applies to the transfer of family property into a limited liability company whose shares are wholly held by the family.
It’s important to note that, in this context, “family” refers specifically to a nuclear family — that is, parent(s) and their child or children.
5. Transfer to a Family Trust
As a general rule, any transfer of property made as a gift during the owner’s lifetime attracts stamp duty. However, section 52(2)(b) of the Stamp Duty Act carves out an exemption:
a transfer, or an agreement for a conveyance or transfer, that constitutes a voluntary disposition of property is exempt from stamp duty where the transfer is made to a registered family trust.
6. Transfer of Property to Charitable Organisations as Gifts
Where property — particularly land — is transferred to a charitable organisation as a gift, it may qualify for exemption from stamp duty under section 52(2) of the Stamp Duty Act.
To qualify, the charitable organisation must be a genuinely non-profit entity, and the property must be acquired for the purpose of advancing charitable work that benefits the community.
7. Educational Institutions
The Act exempts instruments relating to the sale or transfer of land intended for the construction or expansion of educational institutions. It’s worth noting, however, that stamp duty becomes payable if the land is later put to any other use.
8. Special Economic Zones
A Special Economic Zone (SEZ) is a designated geographical area where business-friendly policies apply, supported by sector-appropriate on-site and off-site infrastructure and utilities provided by the Kenyan government. Governed by the SEZ Act, 2015, SEZs were established to attract foreign direct investment and position Kenya as a regional business hub.
SEZs offer distinct regulatory and tax incentives designed to draw both domestic and foreign investment, stimulate economic growth, and support industrialization.
Under the Stamp Duty Act, instruments executed in connection with the business activities of SEZ enterprises, developers, and operators are exempt from stamp duty.
9. Exemptions for Other Classes of Instruments
Pursuant to section 106 of the Stamp Duty Act, and specifically Legal Notice No. 461 of 17th October 1958, the following instruments also qualify for exemption from stamp duty:
(i) Security Documents such as Charge and Discharge of Charge
This applies where charged land must be surrendered to the government for purposes such as subdivision, change of user, or extension of a leasehold title. The exemption in this instance applies only where, following subdivision, change of user, or lease extension, the charge is re-imposed on the same property, involving the same parties and under the same conditions. In such cases, the discharge of charge is exempt from stamp duty, and once the new title is issued as a result of these processes, the replacement charge registered against the new title is likewise exempt.
(ii) Surrender of Lease to the Government
This covers situations where a lessor or developer has erected units under sub-leases derived from a mother title, and upon expiry of the leasehold term, the lessor surrenders the mother title along with the corresponding sub-leases so the term can be renewed or extended. In such cases, the new sub-leases (commonly known as replacement leases) issued for each unit are exempt from stamp duty and are endorsed on the new mother title reflecting the extended or renewed term.
Conclusion
Stamp duty exemptions are not granted automatically. An applicant must apply to the Collector of Stamp Duty, supported by a statutory declaration or affidavit specifying the section of the Act being relied upon and accompanied by all required supporting documents. It should also be noted that, under section 106 of the Stamp Duty Act, the Cabinet Secretary responsible for finance, in consultation with the Cabinet Secretary responsible for land matters, may exempt certain instruments from stamp duty by way of a Gazette notice, where satisfied that doing so serves the public interest.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. For guidance on your specific transaction, please consult Mwaura Benedict Njuguna and Company Advocates.
