SETTING UP BUSINESS IN KENYA
Branch Office form of Business Entity
Legal form Feature
Branch Office The following documents would be required & must be translated into English and certified by an Advocate or Notary Public in the country of origin:
• Memorandum and Articles of Association of the Foreign Company (Original + Certified Copy required);
• Certificate of Incorporation (Original + Certified Copy required);
• List and Particulars of Directors and Company Secretary;
• List and addresses of potential other people authorized to accept service and conduct business;
• Notice of Location of Registered Office and proof of at least one Local Representative
• A Statement of all existing charges entered into the company affecting properties in Kenya (known as a Prescribed Fee) if required;
• Declaration of beneficial ownership
For an individual investor:
• Passport (original)
• Passport Photo of the Investor (recent, coloured passport size photo) For an authorized representative
• Passport (original)
• Passport Photo of the Investor (recent, coloured passport size photo)
Costs:
• The Registration Fee is Kshs. 10,650/=
Sole Proprietorship form of Business Entity
I) Business Name Search
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You will need to perform a Business Name Search to find out whether the business name is available to be registered. This process takes 1-3 days to be completed. It will cost you Ksh. 250 per name.
II) Business Name Registration Form (BN/2)
Once Business Name has been approved, you will need to prepare the following information in order to fill out the form;
Remarks
Suitable for foreign companies looking for a presence in Kenya to initiate business or maintain contacts with business partners, especially in cases of uncertain success.
Limited Liability Company form of Business Entity
Legal form Feature Remarks
Limited Liability Company
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Registration procedure is the same as registering a sole proprietorship, with a few addendums.
As it stands, there are five common ways for foreigners to set up or own a limited company in Kenya.
I. Register a Foreign Company With a Kenyan Partner as Director
• This is one of the easiest ways for a foreigner to set up a company in Kenya. A foreigner owner who has a Kenyan partner will not be required to provide a KRA PIN and Alien ID which take enormous time and effort to acquire.
• Kenyan partner can be a family member, friend or business partner. Do you already have a Kenyan business partner whom you can start the business together?
• He or she needs that have a copy of ID, a copy of iTax KRA PIN, passport photo, and other details.
II. Register a Foreign Company with Nominee Director
• This option will make it easier for you to register your company conveniently and with ease. This route will provide you with a service where a nominee will act as a director of your company during the registration process to meet the requirements needed to set up a company. Nominee Director will only hold a 1% share of the company.
• Once the company has been registered, they will stay as nominee director for up-to 6 months allowing you ample time to find your potential local business partner to replace the nominee director and transfer the shares that were being held. Please note that to replace a director of your company, it usually cost around Kshs 10,000 - Kshs20,000.
• Duration: up to 3 weeks
III. Opening a Branch of an Existing Foreign Company
• To open a branch or subsidiary in Kenya of an existing foreign company, you will need to register for a Certificate of Compliance. You must provide a copy of your Certificate of Incorporation of the parent company, a copy of Memorandum and a Company Tax Registration Certificate of the existing foreign company.
• These documents need to be certified as genuine by a Public Notary. You will also be required to provide details of the intended/actual physical location of your business in Kenya.
• A certified copy of the board resolution authorizing the establishment of the branch office and the appointment of the local agent in Kenya to represent you in the application process; who will be able to provide their ID and KRA PIN as well as sign Form 238 on your behalf. You will also need to have an Alien ID, in order to open an eCitizen account as a foreigner.
• Once you register a branch in Kenya, you will require a bank account for business transactions and a KRA Pin for compliance purposes.
• This process may take 2-3 weeks
IV. Register a Foreign Company Fully Owned by Foreign Nationals
• Foreign owners intending to register their company without a Kenyan partner will be required to provide a KRA PIN for the application. In order to acquire this document as a foreigner, they will first have to get an Alien ID, for which they become eligible for after three months of consecutive residency in Kenya.
• Alien ID application can take up to five weeks to be processed. Alternatively, foreign owners who already have $100,000 and above to invest in Kenya, they can apply to KenInvest to facilitate obtaining a KRA PIN for the directors that will facilitate the registration of the company while avoiding the need to have an Alien ID.
Limited Liability Company
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V. Acquire an Existing Company Previously Owned by Kenyans
• Through acquisition or merger, foreigners can pay an agreed amount for a target Kenyan business and start the process of changing ownership by adding and removing directors and shareholders.
• This process will be more rigorous if buying a public limited company as opposed to a private company limited by shares.
Resources For Foreign Limited Company
• Alien ID Card – This is a document for foreign nationals which enables them to have an ID recognized by Kenyan government institutions and gives access to services such as KRA PIN and applying for a work permit, opening a business bank account, applying for Company KRA PIN, making tax returns and much more.
• Single Entry Visa – It is meant for any person who is looking to enter Kenya to carry out business activities. The visa is valid for three (3) months only. Issued at a cost of $51 by the government.
• Work Permit – There are different types or classes of work permits available in Kenya. For business owners who have registered their companies in Kenya and are looking to work in Kenya, they will need to apply for Class G permit which is valid for two (2) years and subject to renewal.
• KRA PIN – This is the most important document your company must obtain to do any business in Kenya. Kenya Revenue Authority (KRA) PIN can be used to open a business bank account, perform tax returns on rental income, applying for Government tenders, purchase of land, buying and selling a property and many other business transactions.
• The cost to register a foreign company is Ksh 7,550.
• Other additional costs may apply depending on the nature and form of the business.
Public Company Limited by Shares form of Business Entity
1. Choosing a name is a necessary step
• Your business name must be unique.
• The proposed names will be rejected if they are the same or similar to business names already registered in Kenya.
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• You can present maximum 3 (three) options
You need to fill out form CR14, found on http://www.statelaw.go.ke/wp-content/uploads/2016/07/CR-14-APPLICATION-FOR-RESERVATION-OF-A-COMPANY-NAME1.docx
• The Registry will check if it is too similar to names already registered.
• The Registry will check if a name is prohibited for other reasons (such as being offensive).
• Words must be in full: initials are not accepted as a Company Name.
• The approval for a reserved Company Name lasts for 30 days
• It can be renewed for a further 30 days if necessary.
• Renewal is applied for at the Attorney General’s office.
Transfer of Goods and Machinery Personnel arriving for a new contract into the country are exempted from paying taxes on their personal effects/household goods and one motor vehicle under part A paragraph 4 of the 5th Schedule of the East Africa Community Customs Management Act 2004 , provided that the contract is for a term not less than two years.
Used household goods and personal effects are duty exempt provided goods have been owned and used by the client for a minimum of one year and goods are imported within three months of the Work Permit being issued.
Duties and Taxes Payable:
Taxes are payable depending on the value of the imported item(s) and the duty rate applicable outlined under different legal documents as given below.
• Import Duties
Depending with the item to be imported, the Import tax rates vary between 0%, 10% and 25% as provided by the East Africa Community Common External Tariff (CET). However, Sensitive items Attract duty higher than 25%. The sensitive items are listed in the schedule 2 of the EAC Common External tariff.
• Excise Duties
Excise Duty depends on whether the imported item is excisable or not. The Excise duty rates are prescribed under the Excise Duty Act 2015, Tax Laws (Amendment) Act 2024.
The Tax Laws (Amendment ) Act 2024, has adjusted the excise duty rates of goods and services with effect from 27th December 2024. The Act has introduced excise duty on excisable services provided by non-residents offering excisable services through a digital platform that would be paid to KRA by the non-residents.
• Value Added Tax (VAT)
The normal rate of VAT is 16%. However, the Items exempted from VAT as provided by the VAT Act of 2013 attract a rate of 0%.
The Amended Tax Laws have introduced the following changes: The Act stipulates that the time of supply for exported goods is after the receipt of the certificate of export or upon receipt of any such document from Customs.
Input VAT relief application should be applied for within 6 months of the effective date of the Tax Laws(Amended Act).
• Import Declaration Fees (IDF) & Railway Development Levy (RDL)
An import declaration fees of 2.5% and Railway development Levy of 1.5% are levied on value of imports as provided by the miscellaneous Fees and Levies Act of 2016.
Social Systems Pension schemes are generally personal arrangements made by the employees with the employer with specific amounts or percentages contributed by the employee and a corresponding amount to be contributed by the employer to a dedicated pension scheme/organization. Arrangements generally terminate with employment of the employee.
The Act has increased the limit for tax free pension from KES 240,000 per annum to KES 360,000. Tax contributions of up-to 15,000 for post-retirement medical funds are now tax deductible.
National Social Security Fund (NSSF)
The NSSF Act has increased the Lower Limit from KES 7000 to KES 8000 and the upper limit from KES 36000 to KES 72000.
Contributions have thus increased from KES 420 to KES 480 from both the employer and the employee bringing it to a total of KES 960 for Tier I and from KES 2,160 from both the employer and the employee to KES 3,840; a total of KES 7,680 for Tier II.
The Act exempts payments made to NSSF from being taxed or any other contribution to a post-retirement benefit scheme as long as the individuals have attained the retirement age outlined in their respective postpension benefit scheme, those who have withdrawn due to extenuating circumstances such as ill-health and those who have withdrawn from their pension schemes having been members for 20 years.
Housing Levy On 19th March 2024, the Kenyan president signed into bill the AHL (Affordable Housing Levy) following a series of court proceedings which had rendered it unconstitutional.
Taxpayers are expected to remit 1.5% of their gross salary or gross income for non-salaried employees before the 9th of the next month.
There are multiple pension providers in Kenya and a company may take upon itself a policy of remitting pension contributions.
For more information: https://www.rba.go.ke/the-tax-lawsamendment-act-2024-a-detailed-analysisof-the-amendments-benefiting-theretirement-benefits-sector/
The new NSSF rates pursuant to NSSF Act 2013.
These changes are set to take effect as from February 2025 in compliance with the thirdphase of the NSSF Act 2013 which states that the pension scheme rates will increase after every 5 years.
Loans to employees These are taxed at the corporate tax rate on the difference between the interest rate prescribed by the Commissioner and the actual rate paid by the employee.
The Act has increased the deductible interest payments for loans borrowed from certain accredited institutions from KES 300,000 p.a. to KES 360,000
Other benefits Other taxable benefits include:
Furniture – 1% of cost per month and
Telephone – 30% of cost per month.
Employee share ownership plans (ESOPs) Is the difference between the market price of shares and offer price at date option is granted.
Other taxes: Land rates Land rates are based on a percentage of the site value.
Single business permit Depending on the nature of business undertaken, this permit costs between KES 2,000 and KES 100,000
Dividends Dividends are taxed on a withholding tax basis which is a final tax.
Expenses are therefore not allowable on the dividends’ income or on any other income of the taxable person.
Dividends are tax-exempt for resident companies controlling more than 12.5% of shareholding. Dividends received by financial institutions are exempt.
Compensating tax May arise if non-taxed income is distributed, e.g. capital gain or profits on capital allowances. It is worked out through an annual dividends tax account which traces the movement of dividends received or paid and taxes paid.
Tax Amnesty The Act has provided an extension from the initially decided date of the Amnesty of 30th June 2024 to 30th of June 2025 and which will cover penalties and interests accrued before 31st December, 2023.
The Kenyan Finance act 2023 introduced the tax amnesty to cushion the taxpayers.
Interest deductions/ payments
The Act has introduced a provision that prohibits a deduction of interest paid/ payable to related non-resident and third parties in excess of 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). Any amount above 30% of EBITDA shall be disallowed.
Previously, the thin capitalization restriction was based on a debt-to-equity ratio of 3 to 1
Withholding tax
Withholding tax for Multinationals 15%
Gains from financial derivatives
Gain from financial derivatives (other than those traded on the Nairobi Securities Exchange) are subject to withholding tax of 5% effective 27th December, 2024.
Financial derivative is a financial instrument, the value of which is linked to the value of another instrument underlying the transaction which is to be settled at a future date.
The Finance Act 2023 introduced he new schedule of the withholding tax rates.
Country by Country Reporting(CBC)
A threshold for CbC reporting with effect from 1 January 2023. For companies with gross revenues of KES. 95 billion or more, including extraordinary and investment income. Parent entity or a constituent of a MNE group that is tax resident in Kenya, and that has a gross turnover of over KES. 95 billion, is be required to file a CbC report of its financial and economic activities in Kenya as well as other jurisdictions in which the MNE has a taxable presence. The report must contain all information of the group’s revenue, profit or losses before tax, income tax paid, income tax accrued, accumulated earnings, number of employees, tangible and intangible assets, cash and cash equivalents and any other information as requested by the Kenya Revenue Authority.