Frequently asked questions about starting a business, taxation, land ownership, labour issues, etc. in Kenya.
Since its independence in 1963, Kenya has followed a mixed economic development strategy aimed at attracting foreign direct investment. The government’s various economic reforms have concentrated on strengthening private rather than public investment.
Kenya remains the regional hub for trade and finance in East Africa. Attractive assets to investors include its strategic location, a sea port and a coastline, an extensive manufacturing base, excellent resources for agriculture and tourism, a skilled workforce, and the best business infrastructure in the region.
Principal opportunities lie in the fields of agriculture, tourism, manufacturing and services. Horticulture, and in particular floriculture, has been an outstanding success and yet opportunities still exist in this sector.
Kenya's membership to the East Africa Community (EAC) and the Common Market for Eastern and Central Africa (COMESA) provides prospective investors with access to a combined market of over 400 million consumers. A proposed launch of direct flights to the US is expected to open a virtually untouched market.
The legal framework for Foreign Direct Investment is provided by the Companies Ordinance, the Partnership Act, the Foreign Investment Protection Act and the Investment Promotion Act.
Kenya has some 900 major manufacturers. There are over 200 multinationals in the country mainly from Britain, France and Germany.
Giraffes at Haller Park, Mombasa
Starting a Business
The formal procedures for starting a business in Kenya are to a great extend determined by the type of business one wishes to establish and the sector which the business belongs.
Forms of legal incorporation of business enterprises in Kenya include: incorporated limited liability companies, sole proprietorships, partnerships, cooperatives, companies limited by guarantees for most non-profit organisations, and representative offices.
Foreign investors favour limited liability companies which offer advantages similar to those offered by corporate bodies in other countries.
Kenyan investment law is modelled on English investment law. Legally, foreign companies are accorded the same treatment as local companies.
Investors must log their proposed business names with the Registrar of Companies at the Attorney General’s office. This application can be made by the applicants directly or through legal representatives and policy experts. Once approved, Memorandum and Articles of Association are filed with the Registrar who issues a Certificate of Incorporation.
A foreign company wishing to open a branch office in Kenya can do so at the Registrar of Companies.
Legal requirements that registered businesses must acquire include VAT number, Personal Identification Number (PIN), National Social Security Fund (NSSF) number, and the National Hospital Insurance Fund (NHIF) number. Other requirements are specific to business type.
The Investment Promotion Act 2004 constitutes of a powerful body, the Kenya Investment Authority (KIA), whose mandate is to promote and facilitate investment.
An investor may obtain an Investment Certificate from the KIA provided the investment capital is at least $500,000 and that the investment and the activities related to it are beneficial to Kenya. Beneficial activities are determined by such criteria as creating employment, skills upgrading, transfer of technology, foreign exchange and tax revenue generation, among others.
An Investment Certificate grants the investor such benefits as entitlement to all licenses required for his or her operations, and work permits for three members of management or technical staff and three shareholders or partners valid for 2 years each. Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial because Kenya has a rather extensive licensing requirement.
Trademarks are regulated by the Trade and Service Marks Act, and patents are administered by the Kenya Industrial Property Institute (KIPI). The duration of trademarks is seven years from the date of filing and renewable every 14 years. Kenya is an active member of World Intellectual Property Organisation with several recognised IP lawyers.
Nairobi's central business district
There are no restrictions on the percentage of equity that foreign nationals may hold in a locally incorporated company, although the government encourages foreign firms to form joint ventures with Kenyan companies or entrepreneurs.
Foreign ownership of equity in insurance, telecommunications and companies listed on the Nairobi Stock Exchange is however restricted to 66.7%, 70% and 75% respectively. Foreign equity in companies involved in fishing activities is restricted to 49% of the voting shares under the Fisheries Act.
Investors manufacturing and dealing in firearms and explosives require special licenses which are subject to security vetting. Kenyan laws prohibit manufacture of and dealing in narcotic drugs and psychotropic substances.
Both private and public companies may allot shares for considerations other than cash as long as the registrar of companies is informed of such allotments.
Work Permits Investors are allowed to have expatriate staff in senior management, or where locals with specific skills are not available. Work permits are valid for a maximum of two years and can be renewed by the Immigration Department.
Taxation in Kenya
The Kenyan tax system consists of the following taxes:
1. Corporate tax – 30%
This is a direct tax on profits made by corporate bodies and has its legal basis in the Income Tax Act, Chapter 470, which details the determination of taxable income and rates of taxation. The rate differs between resident and non-resident companies. Companies listed at the Nairobi Stock Exchange are taxed at slightly lower rates. Investors in export-processing zones (EPZ) enjoy a 10-year tax holiday, followed by a 25% corporate tax rate for the following 10 years.
2. Personal Income Tax - Rate depends on tax band, 10% - 30%
It is levied on income from business, employment, rent, dividends, interest and pensions, among others and paid by any person residing and working in Kenya. Pay As You Earn (PAYE) is the method of collection for individuals in gainful employment.
3. Trade taxes
These are basically taxes on exports and imports which account for about 13% of total revenue in Kenya. The structure of import duties is aimed at encouraging imports of intermediate goods, raw materials, and capital goods, which attract lower duty rates. The East Africa Community (EAC) common external tariff is 25%, although the three partner states are allowed to levy higher duties on some products. Investors in Kenyan EPZs are exempted from paying import duties.
4. Excise Taxes – Alcoholic drinks, 15-85%. Tobacco products, 130%
Excise taxes are imposed under the Customs and Excise Act (Chapter 472), and are levied on alcoholic beverages, tobacco products, petroleum products, motor vehicles, carbonated drinks and mineral water, cosmetics, jewellery and cell phone airtime.
5. Value-added tax (VAT)
VAT, a consumption tax levied on designated goods and services is administered under the Tax Act Chapter 476. Investors in EPZs do not pay VAT on raw materials, machinery or other inputs.
6. Withholding taxes – Tax levied on dividends and royalties at 5%
Other than agricultural land, foreigners are allowed to own land. All farmlands must be owned by Kenyan citizens or by corporations whose entire shareholders are Kenyan citizens. The President of Kenya can however grant agricultural land to a foreign agro-processing company that needs land to grow a proportion of its basic agricultural input.
The Trade Union Act and the Trade Dispute Act regulate employer/employee relations in Kenya. The trade union movement is strong with an estimated 40% of the labour force in the modern sector belonging to various trade unions. The Central Organisation of Trade Unions (COTU) is the national umbrella body governing about 30 unions. Kenya also has industrial courts that sit daily to hear and settle industrial disputes.
One of Kenya's greatest assets is its people. The country has an abundant supply of well trained and skilled labour force. Kenyan workers are among the best educated in Africa, with literacy rates well over 80%. Foreign investors speak of their employees as valuable assets who tend to have a much more enterprising approach to their tasks than elsewhere in Africa. Partly because of these high levels of education, Kenya presents prospective investors with a well-developed business infrastructure due to its substantial resources in areas such as business support services.