Kenya is a country in East Africa with coastline on the Indian Ocean. Kenya is divided into forty-seven counties each with devolved government. Kenya lies across the equator on the East Coast of Africa. It borders Somalia, Ethiopia and Sudan to the North, Uganda to the west, Tanzania to the South and the Indian Ocean to the East.
Kenya’s capital city is Nairobi, meaning ‘the place of cool waters’. It is the highest city in East Africa at 1 700m above sea level. Modern and fast-growing, Nairobi is estimated to have over four million inhabitants. Other major cities and towns include Eldoret, Kisumu, Machakos, Mombasa, Nakuru and Nyeri.
Kenya is a regional hub for business and trade throughout east and central Africa. It is a member of the East African Community (EAC), which is an economic trading bloc currently comprising the economies of Kenya, Rwanda, Tanzania, Uganda, Burundi and most recently congo and South Sudan. Kenya is also a member of the Common Market for Eastern and Southern Africa (COMESA), another regional trading bloc comprising 21 countries.
Kenya is a market-based economy and is a key economic, commercial, financial and logistics hub for East Africa. Kenya has a population of approximately 55 million people. Its national language is Kiswahili and both Kiswahili and English are official languages.
The country has a well-established legislative base with laws inherited from the UK as well as many modern statutes. English case law is of persuasive value in the Kenyan courts, and the formal business sector largely follows the European/ American model of free market economics and capitalism
The legal system is based on the English common law system.
The Judicature Act 1967 sets out the sources of law in Kenya as follows:
- Written laws (statutes).
- Common law.
- Doctrines of equity.
- Statutes of general application in force in England on or before 12 August 1897.
- African customary law.
Common law and doctrines of equity are applied in Kenya subject to Kenyan statutes. African customary law applies to the extent that it is consistent with written laws.
The Constitution of Kenya, which is the supreme law of the land, states that the general rules of international law and treaties and conventions that have been ratified by Kenya also form part of its laws. It has evolved from the inheritance of its English Common Law tradition to modern day system adapting to the changing social, economic and political trends.
FORM OF BUSINESS IN KENYA
At the beginning of 2018, the Companies Registry announced that all transactions regarding companies (including the incorporation of companies, changes in directorship, filing of annual returns, changes in share capital and changes in the shareholding structure of companies) were to be carried out via the Companies Registry’s online platform accessible on e-Citizen, Kenya’s official Government platform for citizens’ and other non-citizen residents’ transactions (such as renewing driver’s licences and passports).
This move to a digital platform has been successful for the most part, increasing efficiency in registering business entities and managing company records electronically. In April 2018, the Lands Registry commenced a process of digitizing land records to enable all transactions regarding land (including the transfer of land, the leasing of land as well as paying land rent and land rates) to be carried out via the Lands Information Management System (LIMs).
However, implementation of online services is yet to be fully operationalised on account of the delays and challenges the Lands Registry has faced in migrating manual records onto the digital platform. Currently, the system supports payment of land rent and land rates but we await the roll-out of processing land transfers and leases. The online services have been operationalized in Nairobi county.
Very closely linked to the Companies Act is the Business Registration Service Act (BRSA), which came into force in 2015. The BRSA was enacted to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships and firms.
To this effect it establishes the Business Registration Service (BRS). The service conducts company registrations, maintains corporate registers and records, and carries out other related functions. It is based in Nairobi but has established branches in every county for easy access. The BRS is headed by the Registrar-General who is responsible for its overall operations and its staff.
The most common form of business vehicles in Kenya are private limited liability companies as they are straightforward and inexpensive to establish and there are no minimum or maximum share capital requirements. Private companies must have at least one director who is a natural person. Private companies must have at least one shareholder. Single-member companies are now permitted under the New Act.
There is no requirement to have local Kenyan national shareholders or local Kenyan directors save where the entity is intended to operate in a regulated field. While this is the case, the Kenya Revenue Authority (KRA) has been insisting that non-resident directors have a PIN number. While there is no explicit law which requires this, it does seem to be the practice. This then creates a filing requirement for non-resident directors.
The most common forms of business organization in Kenya are:
- Companies limited by shares (private or public) established under the Companies Act 2015.
- Limited liability partnerships (LLPs) established under the Limited Liability Partnership Act 2011.
- Sole proprietorship/business name under Registration of business name act 2012.
The most common form of business vehicle used by foreign companies in Kenya is a private company limited by shares. This has the advantage of limited liability and fewer corporate governance requirements (compared to other limited liability vehicles).
Foreign companies can register branches in Kenya under the Companies Act 2015. Registered branches maintain the same legal personality as the foreign company.
Foreign investment is actively encouraged in all sectors of the economy. However, there are certain ownership and control restrictions, and authorizations that are applicable in specific sectors, including banking, insurance, mining and telecommunications.
Restrictions are also applicable to:
• companies listed on the Nairobi Securities Exchange; and
• companies holding (by lease or purchase) agricultural land.
These companies require approvals or exemptions from the Land Control Board under the Land Control Act (Chapter 302, Laws of Kenya). More importantly, a company that has a foreign shareholding may not acquire agricultural land (unless a specific presidential exemption is granted).
In addition, it is necessary for entities operating in certain sectors to be licensed by the relevant regulator, for example:
- banks require licences from the Central Bank of Kenya;
- insurance companies require licences from the Insurance Regulatory Authority;
- mining companies require licences from the Mineral Rights Board;
- telecommunications companies require licences from the Communications Authority of Kenya; and
- companies listed on the Nairobi Securities Exchange are regulated by the Capital Markets Authority.
- Construction companies require approval from the national construction authority.
There are currently no foreign exchange controls in Kenya and the Kenyan currency is freely tradable with all major world currencies. Banking transactions are required to be conducted through authorized and licensed banks. Most banks allow customers to operate foreign currency accounts although they are required to report all transactions in excess of USD 10 000.
Import/ Export Regulations
Import and export is primarily regulated by the East African Community Customs Management Act, 2004. This is a regional statute enacted by the East African Legislative Assembly and regulates the levying of import taxes on goods imported into the EAC member states.
In addition, Kenya has enacted the Miscellaneous Fees and Levies Act, 2016 and the Excise Duty Act, 2015 which impose certain levies and provide regulations regarding imports and exports into and out of Kenya. The Value Added Tax Act also provides for the levying of VAT on imports of goods and services into Kenya.
OPERATING A BUSINESS IN KENYA
main laws regulating employment relations
Labour matters in Kenya are governed by various pieces of legislation namely the:
• Employment Act, 2007 (Employment Act);
• Labour Relations Act, 2007;
• Labour Institutions Act, 2007;
• Regulation of Wages (General) Order, which is subsidiary legislation under the Labour Institutions Act, 2007;
• Employment and Labour Relations Court Act, 2011;
• Work Injury Benefits Act, 2007;
• Occupational Safety and Health Act, 2007.
Terms and conditions of employment are regulated under the Employment Act and the Regulation of Wages (General Order).
The Employment Act provides for the minimum terms and conditions of employment. However, an employer and employee are free to enter into contractual arrangements providing for terms more favorable than the prescribed minimum. The Employment Act does not apply to independent contractors; their terms of services, rights and obligations are regulated by contract.
The following laws regulate tax in Kenya:
• Income Tax Act
The Income Tax Act, Chapter 470 of the Laws of Kenya is the law providing for the levying of income tax for businesses and individuals as well as other taxes such as capital gains tax (CGT), employment taxes etc.
Tax Procedures Act
The Tax Procedures Act, 2015 is the substantive law for tax administration in Kenya.
It provides for the appointment of tax representatives who are the appointed representatives of a resident or non-resident person who accrues or is likely to accrue a tax liability in Kenya, with the duty to ensure that the person complies with the tax laws. The Tax Procedures Act also provides for the licensing of tax agents who are duly authorised to prepare tax returns, notices of objection, or otherwise transact business with the Commissioner under a tax law on behalf of a taxpayer. In addition to the Tax Procedures Act, dispute resolution rules and procedures with respect to tax disputes are provided for in the Tax Appeals Tribunal Act
Value Added Tax Act
The Value Added Tax Act, 2013 (VAT Act) imposes VAT on various supplies of goods and services in Kenya. The VAT Act came into force in September 2013. One of the intentions of the VAT Act was to reduce the number of exempt and zero rated items as these were eroding the tax base for VAT. However, since its enactment, the list of exempt items has increased by two thirds. However, the Tax Laws (Amendment) Act, 2020 attempts to remedy this by reducing the number of zero rated items and also reducing the number of VAT exempt items
The Excise Duty Act
The Excise Duty Act, 2015 (Excise Duty Act) imposes excise duty on certain goods and services such as money transfer services, mobile cellular phone services, alcoholic products, tobacco products and fuels.
This Act came into force in December 2015 and repealed the Customs and Excise Duty Act, which had been in force since 1978.
The various provisions of the repealed Act are now contained in various statutes including the Excise Duty Act, the Miscellaneous Fees and Levies Act and the East African Community Customs Management Act.
The Miscellaneous Fees and Levies Act
The enactment of the Miscellaneous Fees and Levies Act, 2016 reintroduced certain levies that were previously provided for in the repealed Customs and Excise Duty Act. The Act imposes an ad valorem Railway Development Levy (RDL) at (2%) and an ad valorem Import Declaration Fee (IDF) at (3.5%) on all goods imported into Kenya (although certain exemptions are available) as well as an export levy on the export of specified products, such as animal hides and skins, and waste and scrap metal. A reduced rate of RDL and IDF at 1.5% is available for approved manufacturers importing raw materials and intermediate products.
East African Community Customs Management Act
Customs matters and the imposition of import duty on imports into East Africa are uniformly governed by the East African Community Customs Management Act, 2004. Generally, import duty on finished goods is levied at 25% on finished products and at 10% for intermediaries other than raw materials.
The following are the main taxes that apply to businesses in Kenya:
Income (or corporation) tax Under the ITA, Chapter 470 Laws of Kenya, income is taxed in Kenya provided that it accrues in or is derived from Kenya, irrespective of the tax-residence of the business vehicle. The taxation regime can therefore be said to be source-based. Business profits for a company are taxed at different rates depending on whether the company is tax resident in Kenya or not.
Withholding tax on the payment of dividends and interest
Withholding tax (WHT) is applied to a wide range of payments made to both residents and non-residents such as management, technical or professional fees; royalties; consultancy and agency fees; and fees earned from entertainment, sport and promotion. The WHT rate on payment of dividends to non-residents is 15% (and 5% for Kenya residents) and on payment of qualifying interest is 15%. Other withholding taxes apply on management fees, royalties and other service payments to non-residents. These rates may be lower where there is a DTA between Kenya and the country of residence of the trading partner.
Capital gains tax
(CGT) was re-introduced with effect from 1 January 2015. A capital gain is the net gain from the disposal of capital assets. It is chargeable on the whole of a gain that accrues to a company or an individual on or after 1 January 2015 on the transfer of property situated in Kenya, whether or not the property was acquired before 1 January 2015. The rate of tax is 5% of the net gain and is a final tax that cannot be offset against other income taxes. For a company, the ‘property’ whose transfer is subject to CGT covers all property and includes immovable and movable property, as well as interests arising out of such property (such as leases, intellectual property (IP) and goodwill), as well as stocks and bonds.
The duty is charged on goods imported into Kenya depending on their assessed customs value. The East African Community Customs Management Act provides for several methods of ascertaining the customs value of goods imported into the EAC for purposes of levying customs duty and the transaction value method is the primary method for ascertaining the customs value. The transaction value method generally relies on the declared cost, insurance and freight (CIF) value of the goods imported.
Value added tax Value added tax
(VAT) is chargeable on goods and services imported into Kenya unless the goods or services are exempted from VAT. The applicable rate could be the standard rate of 14% (since 1 April 2020 and 16% prior to that) or the zero rate. Zero rating and exemption from VAT is granted sparingly to essential goods and services.
Railway development levy
A railway development levy is payable at the rate of 2% of the customs value of goods imported into Kenya for home use (use in Kenya). Exemption from this fee is only available to very few specific goods prescribed in the Miscellaneous Fees and Levies Act. A lower rate of 1.5% is available on the importation of raw materials and intermediary goods by approved manufacturers. Additionally, an exemption is available on the importation of any other goods as provided for in the in the Miscellaneous Fees and Levies Act.
is chargeable on the manufacture and importation of goods which are classified as excisable goods pursuant to the Excise Duty Act, 2015, at the rates prescribed in the Excise Duty Act.
An export levy is payable on certain goods exported out of Kenya as specified in the Excise Duty Act. Such goods include hides, skins and other animal products used in the production of leather and fur clothing, and scrap metal. The applicable rate of the export levy is an ad valorem rate based on the custom value of the goods. The export levy does not apply to goods exported to the EAC partner states.
Pay as you earn and personal income tax returns
Pay as you earn (PAYE) is the method of deducting income tax from salaries and wages. It applies to all income and benefits from any employment (namely wages, salaries, bonuses, commissions, directors’ fees and taxable benefits).
FOREIGNERS WORKING IN KENYA
A Work Permit is a document issued by the Director of Immigration Services, under the provisions of section 40 of the Kenya Citizenship and Immigration Act, 2011, to enable foreign national (s) enter Kenya and engage in trade, prospecting, farming, business, professional employment, missionary activities or even reside in Kenya.
The following are the categories of work permit in Kenya:
• Class A permit – issued to persons who intend to engage, whether alone or in partnership, in prospecting for minerals or mining in Kenya and who have obtained or are assured of obtaining any prospecting or mining right licence and have sufficient capital or resources for the purpose.
• Class B permit – issued to those who intend to engage in the business of agriculture and animal husbandry in Kenya and who have acquired permission to hold an interest in land in Kenya and have sufficient capital and resources for the said purpose.
• Class C permit – issued to members of a prescribed profession who intend to practise that profession, whether alone or in partnership, in Kenya and who possess the prescribed qualifications and have sufficient capital or resources for the purpose.
• Class D permit – issued to persons offered specific employment by a specific employer, and who are qualified to undertake that employment.
• Class F permit – issued to persons who intend to engage, whether alone or in partnership, as a specific manufacturer in Kenya and have obtained or are assured of obtaining any licence, registration or other authority or permission as may be necessary and have sufficient capital and resources for the said purpose.
. Class G permit – issued to investors in specific trade, business or consultancy.
• Class I permit – issued to persons who are members of societies approved by the Government and engage in religious and charitable activities.
• Class K permit – issued to persons who are not less than 35 years old; have an assured annual income that is derived from a source other than employment, occupation, trade, business or profession and being an income that is derived outside of Kenya but remitted in Kenya; derived from a property, pension or annuity payable from sources in Kenya; or derived from sufficient investment capital to produce such assured income that will be brought into and invested in Kenya; and undertakes not to accept paid employment of any kind.
• Class M permit – issued to persons granted refugee status or any spouse of such refugee who intends to take up employment or engage an occupation, trade, business or profession. The main consideration in issuing work permits is whether or not the presence of the foreigner will be of benefit to Kenya.
SOCIAL CONTRIBUTION IN KENYA
National Social Security Fund(NSSF)
National Social Security Fund Social security contributions are made to the National Social Security Fund (NSSF). Participation in this fund is mandatory and is intended to provide a State retirement benefit for salaried workers. Contribution is made by both the employer and the employee. The employee’s portion is deducted from his or her salary and the total amount is paid by the employer to NSSF.
National Hospital Insurance Fund
National Hospital Insurance Fund Each employee contributes a sum, depending on his or her salary, that must be deducted by the employer from his or her salary and submitted to the National Hospital Insurance Fund. The contributions are used to offset the costs of medical treatment, but they only cover a fraction of actual costs.
REQUIREMENTS TO OPEN A COMPANY BANK
The following are the requirements needed by a foreigner to apply for bank account in Kenya.
- Bank application form duly completed.
- Board of Directors resolution to open accounts.
- Certificate of incorporation/Registration.
- Company PIN & VAT.
- Passport & PIN copies of all directors.
- Copy of Annual Returns/CR 12.
- Single business permit
REQUIREMENTS TO OPEN PERSONAL BANK ACCOUNT
Bank application form duly completed
Kra pin copies
VISA SERVICES IN KENYA
Visitors can apply for their travel visa online. The following are the type of visa in Kenya.
- Single Journey Visa: Issued for Single or Multiple entries to persons whose nationalities require visas to enter Kenya.
- Transit Visa: Issued for periods not exceeding three days to persons whose nationalities require visas to enter Kenya and who intend to transit through Kenya to a different destination.
- Diplomatic Visa: Issued for Single or Multiple entries to holders of Diplomatic passports who are on official duty.
- Courtesy/ Official Visa: Issued to persons holding Official or Service passports on Official duty and to Ordinary passport holders who are not entitled to a Diplomatic visa; but where it is considered by the Director to be desirable on the grounds of international courtesy.
- East Africa Tourist Visa: This is a joint tourist visa that entitles holders to travel to and within the Republic of Kenya, Republic of Rwanda and Republic of Uganda for the purpose of tourism. Validity of East Africa Tourist Visa: 90 (Ninety days) Multiple Entry.
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