BUSINESS REGISTRATION IN KENYA
Starting a Business
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 favor limited liability companies which offer advantages similar to those offered by corporate bodies in other countries.
The principal types of business enterprises in Kenya are:
- Registered Companies (Private and Public)
- Branch offices of companies registered outside Kenya
- Sole Proprietorships; and
Starting a business
The Registrar of Companies is responsible for business registration in Kenya. He/she issues certificates of compliance for foreign companies, certificates of incorporation for local companies and certificates of registration for sole proprietorships. Firms must then obtain registration with National Social Security Fund (NSSF) , National Hospital Insurance Fund (NHIF) , Kenya Revenue Authority (KRA) and Business permit from the County Government depending on the type of business activity.
New: Local Companies are currently able to obtain registration with National Social Security Fund (NSSF), National Hospital Insurance Fund (NHIF) and Kenya Revenue Authority (KRA) during the company incorporation process.
The Registrar of companies has tentatively ceased registration of branches of foreign companies to allow the implementation of the changes brought by the New Companies Act 2015.
Starting a local company
A local company is a company incorporated in Kenya. It may take the form of:
- company limited by shares
- company limited by guarantee
- Unlimited company
The registration process for the various forms of local company is the same though the requirements and costs vary.
Registering a branch of a foreign company
Companies incorporated outside of Kenya can do business in Kenya by registering a branch. The registrar of companies issues a certificate of compliance once all the requirements have been met
Opening a branch office of an overseas company
An overseas company wishing to open a branch office in Kenya should deliver the following to the Registrar of Companies:
- A certified copy of the Charter, Statutes or Memorandum and Articles of Association of the Company, or other instruments defining the constitution of the company;
- A list of the directors and secretary of the company, giving full names, nationality and other directorships of companies in Kenya;
- A statement of all existing charges entered into by the company affecting properties in Kenya;
- Names and postal addresses of one or more persons resident in Kenya authorised to accept, on behalf of the company, service of notices required to be served on the company;
- Full address of the registered or principal office of the company in its home country and;
- Full address of place of business in Kenya
Registering a business name (sole proprietor)
Business name (sole proprietorship) is a business structure operated and owned by one person. The owner is the sole decision maker in the business and is liable for all the losses and returns of the business. As the legal costs of formation are minimal (e.g. a lawyer is not required to draw memorandum and articles of association), it is an attractive business structure for smaller entrepreneurs.
Registering a limited liability partnership – LLP
A limited liability partnership (LLP) is a unique business association provided for in the Limited Liability Partnership Act which combines the characteristics of both a company and partnership. Once it is registered, it gains a corporate legal entity different from its members and is able to own property in its own name. In addition, it is effective from a tax perspective as the partnership income is taxed in the hands of each partner.
A partnership is a form of business structure between two or more people who have a common view of making profit. The level of financial risk in partnerships is less when compared to sole proprietors as any loss incurred is shared between all the partners. Since it also involves more than one person’s expertise, the chances of the business failing is also reduced. In addition, the formalities of registration (cost, requirements, duration) are minimal making it an attractive business structure.
You will then be issued with a Certificate of Incorporation by the Registrar of Companies. For public companies, in addition to the Certificate of Incorporation, the Registrar will issue a Trading Certificate
The various county governments in Kenya are responsible for issuing single business permits to the various business types operating within the counties. The type of business permit to be issued depends on factors such as the geographical location of the business, the number of employees, business type, activities of the business among others.
Business name reservation
The Company Registry requires that a name search be conducted and approved before the registration process of any local business. One can do it online through the e citizen portal or manually at the various Huduma Centers in the country
When you want to register a business in Kenya the first thing you need to do is conduct a name search. This is a must for all businesses. It costs Ksh. 100 per name and it takes three days. It is advisable to search for more than one at a time so as to save on time. The company name reservation lasts 30 days and can be renewed for a similar period
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. Recent liberalization measures and reform programmes have enhanced the investment environment.
It’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. There are no internal tariffs between EAC countries for locally manufactured goods.
A new Constitution approved in August 2010, has had far reaching changes in Kenya. Among these are a greater separation of powers between the legislature, executive and judiciary, and an expansive bill of rights. The government’s privatization programme is still in operation and an established Privatisation Commission ensures greater transparency and competitiveness.
A 2008 publication of a Kenyan economic blueprint, Vision 2030 outlines the aim of becoming ‘ a newly industrializing middle income country providing a high quality of life to all its citzens by 2030’’. It is based on three pillars, Economic which aims at sustained economic growth of 10%per annum, social seeking a just and cohesive society enjoying equitable social development in a clean and secure environment and lastly political which aims for a people-centred, esults oriented and accountable democratic political system.
Vision 2030 places infrastructure at the heart of its developmental goals, both in the public and private sector. It’s priority sectors include infrastructure development, agriculture, tourism, manufacturing ICT/BPO, wholesale and retail, financial services, education, health and real estate and the natural resources extraction.
Ports, energy, sugar production, tourism, banking and insurance offer investment opportunities under privatization.
The legal framework for FDI is provided by the Companies Ordinance, the Partnership Act, the Foreign Investment Protection Act and the Investment Promotion Act. The minister for trade and industry is responsible for investment related matters and minister of finance is responsible for fiscal and monetary matters.
An important focus is investment in geothermal and wind, solar and biomass to diversify the power sources and facilitate growth and expansion of the economy.
From 2007-2012, a year before Vison 2030 was published, the country recorded a compound annual growth of 77.8 per cent in terms of foreign direct investments (FDI) into other African countries.
The Formal Procedures:
These are to a great extent determined by the type of business one wishes to establish and the sector which the business belongs.
Investors must first 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.
Forms that must be completed include Statement of Nominal Capital, Particulars of Directors and Shareholders, Situation of Registered Office and Certificate of a Lawyer involved in the Formation of the Company.
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.
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.
Register with KenInvest
The Investment Promotion Act 2004 constitutes of a powerful body, the Kenya Investment Authority (KIA) – a semi-autonomous agency – which replaced the Investment Promotion Corporation. Its mandate is to promote and facilitate investment.
A foreign investor may obtain an Investment Certificate from the KIA provided he invests US $ 100 000, (a local must invest KES 1 million), 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.
A Certificate of Incorporation or Registration, Memorandum and Articles of Association and Royalty and Management Agreement (in case of joint ventures) must be submitted to KIA.
Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial as Kenya has an extensive licensing requirement.
The Authority encourages investments that are labour intensive, local resource-based, earn or save foreign exchange and lead to efficient transfer of technology.
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.
Exiting a Business
Exit options are determined by the agreement held between investors on specific projects. Companies wishing to exit need to satisfy legal requirements and clearances stipulated in the Companies Act. Exit options are flexible, there are limited obstacles in asset divesting procedures and there are both voluntary and compulsory winding up processes.
Investment in Kenya:
Advantages: The liberalization measures include a shift to market force control of price setting, a repeal of the Exchange Control Act, removal of discretionary clauses in the tax laws, a removal of duty rates on capital goods and abolishing trade licenses to reduce bureaucracy in venture start-ups
A Business Regulatory Reform Unit was established by the Ministry of Finance to simplify the complex licensing regulations. In 2007, 315 out of 1,325 licenses were eliminated and 379 simplified.
Export Processing Zones:
These areas offer businesses a 10year tax holiday, duty and VAT exemption, single license, exemption from stamp duty, exemption for withholding tax, 25% corporate tax for 10years after the first 10years expire and 1OO%investment allowance
Investors in the manufacturing and hotel sectors outside Nairobi and Mombasa are eligible for an investment allowance of 85% on plant, machinery, buildings and equipment. Investments in the manufacturing and hotel sectors in Nairobi and Mombasa are eligible for an investment allowance of 35% on plant, machinery, buildings and equipment. For manufacturers under bond, the applicable rate is 100% for all locations.
Manufacturing under Bond (MUB):
To encourage manufacturing in Kenya for World Markets, the Government has established an in-bond programme open to both local and foreign investors. Enterprises operating under the programme are offered the following incentives: exemption from duty and VAT on imported plant, machinery, equipment, raw materials and other imported inputs, 100% investment allowance on plant, machinery, equipment and buildings. Bonded manufacturing enterprises can be licensed to operate in Nairobi, Mombasa, Kisumu, Eldoret, Nakuru, Nyeri and Thika or within the immediate environs of these towns.
Areas of Opportunity:
Kenya is aiming to be among the world’s top 10 long-haul tourist destinations. Diversification includes developing resort cities as well as investing in conference and business tourism facilities
Expanded processing activities, improvement in crop yields, use of uncultivated land, and expanded irrigation schemes are at the top of the agenda
Manufacturing for the Regional Market:
Kenya is looking to develop agro-processing industries to target local and international markets. Economic clusters and SME business parks are foreseen for the near future.
Business Process Outsourcing:
The country’s goal is to become the ‘top BPO destination for Africa’, with an emphasis on attracting investment from transnational corporations.
There are no restrictions on the percentage of equity that foreign nationals may hold in a locally incorporated company; The Kenyan government also does not exclude foreign companies from government financed research and promotion programs are available to both local and foreign goods. The Kenyan constitution also guarantees against expropriation of private property
The government encourages foreign firms to form joint ventures with Kenyan companies or entrepreneurs. There are no regulations restricting these partnerships, and are left to mutual agreements between partners.
Foreign ownership of equity in insurance, telecommunications and companies listed on the Nairobi Stock Exchange is however restricted to 66.7%, 80% and 75% respectively. Foreign equity in companies involved in fishing activities is restricted to 49% of the voting shares under the Fisheries Act. Telecommunications companies are allowed a three-year grace period to find local investors to achieve the local ownership requirements
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.
Kenya is a member of the World Intellectual Property Organisation (WIPO) with protocols and conventions that protect both foreign and local investors equally.
Taxation in Kenya
The Kenyan tax system consists comprises both direct and indirect form of taxes the following taxes:
- Corporate tax –Resident Companies 30%, non-resident companies 37.5
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. Duties paid for capital expenditure in excess of US$70,000 can be recovered from corporate tax.
- Personal Income Tax – Rate depends on tax band, 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. A resident is defined as someone with a permanent home in Kenya who has spent part of the working year in the country, or someone without a permanent home who has worked 183 days in one year or 122 days per year over the previous two years. Pay As You Earn (PAYE) is the method of collection for individuals in gainful employment.
- 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.
- Excise Taxes
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.
- 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. The normal rate of VAT is 16%. Hotel and restaurant services are however taxed at a VAT rate of 14%.
These include Dividends, Management fees and Royalties.
Employment Income (in Kshs per annum):Rate (%)
121969 – 236880 : 15%
236881 – 351792: 20%
351793 – 466704: 25%
466704 +: 30%
The Constitution categorises land into public, private and community land. There are currently seven land-tenure systems. Freehold tenure, leasehold tenure and land allocated by the Government.
Foreigners can own land under a leasehold tenure not exceeding 99 years, whereas Kenyan citizens can hold land on a freehold tenure basis.
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.
To have land allocated to you, a developer must first identify the land for development, and then lodge the application with the Land Board. In agricultural land, the application needs the approval of the Land Control Board in the relevant District.
NEMA The National Environment Management Authority is the principal regulatory agency for investors to comply with Kenyan environmental standards. Developers of particular projects are required to carry out Environmental Impact Assessments (EIA) prior to project implementation and compliance is regulated through the licensing regime
Kenya’s telecommunications have grown expansively. It has four mobile operators, is connected to three undersea fibre-optic cables, ensured broadband access to the main urban centers and is looking to establish an ICT Technology Park near the Jomo Kenyatta International Airport.
The working population in Kenya is 47.5% of the overall population. Employment relations are reflected by constitutional rights, statutory rights, collective agreements and individual labour contracts. The Trade Union Act, the Trade Dispute Act and the Industrial Relations Charter 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 Organization 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 at 90%. 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.
Winston_Tony Eboyi is a Project Manager who runs programs on Personal Development and matters Business Branding.