Business Guide for Kenya
Starting a business in Kenya
Business structureWhich business structure should I use?
The most common type of business structure is a company limited by shares.
Companies limited by shares can come in two forms: private or public.
A private company limited by shares can be registered by a sole director and shareholder, while the public version must have a minimum capital of Kenya Shillings (KES) 6.75 million (~S$68,000) and at least two directors, one of which must be a resident.
How long does it take to register my business in Kenya?
It generally takes about 10 working days to register a company limited by shares.
Directors and shareholdersHow many directors do I need to set up a private company?
You need one director for a private limited company.
You need two directors for a public limited company.
Do I need a minimum number of resident directors?
Your director does not need to be a resident when you are starting your business in Kenya. However, it is important to have a director that is based in Kenya to help you obtain Kenya Revenue Authority PIN for your business. This is because the corporate PIN requires a director PIN to be linked to it before it becomes operational. A non-resident can get a non-resident PIN, but it is a lengthy process.
Are there any restrictions on who I can appoint as a director?
There is no restriction on who can be appointed as a director. You only need to be 18 years old and above.
Can I appoint only foreigners as directors of my board?
Yes, you can appoint only foreigners as your board members.
Can a company in Kenya be wholly owned by foreigners? Do I need a minimum percentage of local shareholders?
Yes, your company in Kenya can be wholly owned by foreigners. However, for restricted sectors such as telecommunications, there is a requirement for local ownership.
How many shareholders do I need to set up a company?
You need a minimum of one shareholder.
Business activitiesDo I need approval from the local authorities before my company operates?
You do not need to seek approval from the local authorities before you commence your business activities.
Are there business activities which foreign companies cannot do?
You are generally not restricted from carrying out any business. While you cannot purchase agricultural land, you may lease it. There are regulated industries where the industry regulator approvals will be required. These include, but are not limited to, banking, insurance, telecoms, etc.
LicencesWhat types of licences do I need to operate my company?
A business normally requires a single business permit (also referred to as trade licence) once it leases or purchases commercial premises.
How should I go about applying for the necessary licences?
Your application is made with and submitted to the local municipal authority. You need to obtain separate licences if your business has branches in different locations.
Typically, do I apply for licences before or after setting up my company?
The fees will depend on the type of business, size of its premises, and the number of employees. The application can only be made after incorporation and the leasing or purchase of premises.
Do I need to renew my licences each year?
Yes, the licence will require an annual renewal.
Should I display the business licence prominently at my business location?
Yes, the licence needs to be displayed in a prominent place.
What are other things to note about applying for licences in Kenya?
In addition to the trade licence, and depending on the county of operation, there might be operational-based permits typically referred to as “cess fees”. Paying these fees allow you to carry out activities, such as carrying out promotional activities or distributing advertising items.
Additionally, your business needs to be certified under the Occupational Health and Safety Rules, which is administered by the municipal authority.
If your business carries out manufacturing or processing activities, you will need to have an Environmental Impact Assessment, which will be administered by National Environmental Management Authority (NEMA).
Share capital and capital contributionWhat is the minimum share capital or investment capital I need to set up a company?
There are no minimum share capital and capital contribution requirements for private companies. For public companies, the minimum capital is currently at KES 6.75 million (~S$68,000).
You may also need to meet the capital requirements if you are doing business in regulated sectors such as insurance and banking.
Do I need approval from the local authorities to increase my share capital or investment capital? How long does approval take?
You do not need approval to increase your share capital, except for regulated sectors. Your company can increase its share capital, but you are required to pay stamp duty at 1% of the increased amount, and a further registration fee which is capped at KES 60,000. The approval by the Registrar takes at least 10 working days.
What is the typical share capital requirement for an investment holding and trading company?
KES 1,000,000 (~S$10,000).
What is the common unit issue price per share?
KES 1,000 (~S$10).
Can I issue shares in a currency other than Kenya’s currency?
No, the currency will have to be converted to Kenyan Shillings (KES).
Are there any restrictions on bringing capital out of Kenya?
There are no restrictions. Foreign investments are allowed, subject to the transfer adherence of pricing rules.
BankingDo I need a separate bank account to receive capital?
There is no requirement for a separate bank account to receive capital.
How long does it take to set up a corporate bank account?
A bank account can take up to six weeks from its application. This assumes that all the necessary documents and prerequisites are in place (e.g. tax registrations for the company and signatories)
Do I need to keep a minimum amount as capital in my bank account at all times? Or can my company use the entire amount for business activities?
There is no requirement to keep a minimum amount as capital. The initial capital injection can be used for business activities.
TaxesWhat is the current corporate tax rate?
- The current corporate income tax rate for resident companies in Kenya is 30%.
- For non-resident companies, the tax rate is 37.5%.
- Subsidiary companies incorporated in Kenya are deemed to be tax residents, whereas Branch entities registered in Kenya are deemed to be permanent establishments of non-resident companies. This means that Branch entities are subjected to corporate tax rate of 37.5%.
Are there any tax incentives I can use?
- There are various income tax allowances and incentives that you can tap if your business is a resident company in Kenya. These include capital allowances granted in the form Investment Deductions claim at various percentages depending on the nature of the investments made in Kenya, location of the investments and capital injected.
- Furthermore, companies operating in Preferential Tax regimes such as Special Economic Zones and Export Processing Zones in Kenya.
Any special grants for foreign companies or for specific industries which the local government encourages?
- There are special Investment Deduction (ID) rates for the manufacturing industry on the capital investments of accumulated amounts of KES 5 billion (~S$50.1 million) in the preceding three or four years.
- Companies which invest outside the County Governments of Nairobi and Mombasa are entitled to claim up to 100% ID on the total cost of investment in the first year of using the investment, while some companies are entitled to claim 150% in the first year of use. The ID claim above varies because of the Income Tax amendments in 2022 which affect companies that invested before 1 January 2022 and those that invest after that date.
The 100% Investment Deduction claim is where:
- The cumulative investment value in the preceding three years (from 1 January 2022) outside Nairobi and Mombasa is at least KES 2 billion (~S$20.5 million); or
- The investment value outside the Counties of Nairobi and Mombasa is at least KES 250 million (~S$2.5million); or
- The capital investments are made in a Special Economic Zone.
The 150% Investment Deduction claim is for investments made outside the Counties of Nairobi and Mombasa if they meet the following criteria:
- The cumulative investment value for the four years preceding 1 July 2022 is at least KES 2 billion (~S$20.5 million); or
- The cumulative investment for the three years succeeding 1 July 2022 is at least KES 2 billion.
- There are also other incentives to various industries.
When and how do I pay corporate tax?
- Corporate tax is paid via four instalments before the 20th day of the fourth, sixth, ninth and 12th month of the year. The instalments are computed either through the current year basis (i.e. quarterly tax computations) or prior year basis (i.e. prior year tax payable multiplied by 110% and divided in four equal instalments).
- Furthermore, a balance of tax is payable by the end of the fourth month following the year end where the actual tax for the year is lower than the instalment taxes already paid.
- You are required to generate a payment slip for the corporate tax vide the revenue authority’s online portal. The tax can be remitted through bank transfers, cheque payments or mobile money transfer to the revenue authority accounts.
Do I need to pay tax when I send dividends back to Singapore?
Dividends are distributed from profits after tax. On dividends paid to Singapore, there shall be withholding tax deduction at the non-resident rate of 15%.
What are the withholding tax rates on interest, dividends, and royalties?
- Dividends paid to non-residents are subject to withholding tax at the rate non-resident rate of 15%. However, when the dividend is paid to a resident, it is subject to withholding tax at 5%.
- Furthermore, interest and royalty payments to non-residents are subject to withholding tax at 15% and 20% respectively. However, when interests and royalties are paid to residents, the applicable withholding tax rates are 15% and 5% respectively.
Are there any value-added tax or goods & services taxes in Kenya?
- Value Added Tax (VAT) is applicable on most goods and services in Kenya. The VAT Act, 2013, contains a list of VAT-exempt goods and services in the First Schedule to the VAT Act and a list of zero-rated goods and services in the Second Schedule of the VAT Act.
- Any item not listed as an exempt or zero-rated goods or service is VAT-able at the general VAT of 16%. Only petroleum products are subjected to a VAT of 8%.
Are there any tax treaties between Kenya and Singapore?
- The Double Taxation Avoidance (DTA) Agreement between Kenya and Singapore has been signed on 12 June 2018. However, it has not been ratified. There shall be a process for ratification and exchange of information between the two Governments before it is effective.
- This is to avoid double taxation of taxpayers in the two contracting states and to provide preferential withholding tax rates for various sources of income.
Human resourceWhat basic employment benefits must I give to my employees?
There are no basic employment benefits where you must provide to an employee. These are negotiated between you and your employee.
Do I need to pay taxes or social security contributions for employees?
Tax (PAYE) and other statutory deductions (social security & hospital insurance) are deducted from the employee’s gross salary. However, there is an equivalent employer contribution for social security, which has increased to KES 1,080 from KES 200.
If I send a Singaporean employee to work in Kenya for less than a year, does the employee need a work pass?
If your Singaporean employee is sent to work in Kenya for less a than a year, they will require a work permit.
There are many types of work permits, such as Special Pass, Work Permit Class D, Investor Pass Class G, etc. Typically, most companies use an agent to facilitate this process as it is very cumbersome.
Must I have a physical office in Kenya? Can I use another business' address or a virtual office address?
Your business need not have a physical office. You can nominate the registered office as the physical office of the company secretary (or legal advisor), which is a common practice.