VAT on Sale of Commercial Property: Court of Appeal Overturns High Court Ruling
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The Court of Appeal (CoA) has officially ended years of uncertainty surrounding the VAT status of commercial property in Kenya. In a ruling delivered on March 28, 2025, the CoA reversed a major 2018 High Court decision that had exempted such transactions. Here’s what this means for property investors, developers, and tax professionals across the country.

This legal saga began back in 2013, when a taxpayer, David Mwangi Ndegwa, bought land that included commercial buildings. The seller charged 16% VAT, which the buyer paid under protest, arguing that VAT did not apply to such transactions.

After being denied a refund by Kenya Revenue Authority (KRA), the matter went to court. In 2018, the High Court sided with the taxpayer, holding that land-whether developed or not – was exempt from VAT based on the broad definition of “land” under Article 260 of the Constitution of Kenya.

1. Definitions Must Fit the Context

The court made it clear: not every constitutional definition applies universally. In the VAT Act, “land” and “buildings” are treated as distinct categories. Only residential premises are exempt. There’s no exemption for commercial properties-which means they remain VAT-applicable.

2. No Ambiguity in the Law

The CoA firmly stated that the VAT Act is clear and unambiguous. Tax statutes should be interpreted plainly, within their own framework-not through constitutional language alone.

“Clarity in the VAT Act means clarity in compliance.” – UHY Kenya Tax Team

3. Refund? Denied

Because the sale involved commercial buildings, the court confirmed that VAT was correctly charged and that the taxpayer was not entitled to a refund.


Why This Ruling Matters

This isn’t just about one transaction. It sets a national precedent and removes any grey areas around how VAT applies to commercial property.

Here’s what’s now certain:

  • Commercial sales and leases are subject to VAT.
  • Only residential premises are exempt under the law.
  • VAT applies even if the commercial building is sold with land.

This ruling provides clarity for everyone involved in property transactions – from buyers and sellers to advisors and developers.

What This Means for You

Whether you’re managing commercial real estate, advising clients, or investing in property- this decision affects how you approach every deal.

If you’re:

  • Selling commercial property: VAT must be included and remitted.
  • Buying commercial property: Account for VAT in your cost projections.
  • Structuring leases or rentals: Commercial terms must include VAT.
  • A legal or tax advisor: Review current and future deals to ensure compliance.

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