Kenya Business Setup Summary

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• Advantages of doing business in Kenya

  1. Kenyan business setup is easy if you know how to do it. Specifically:
     • Within a month, a Kenyan LLC can be legally incorporated, and a tax registration number can be received;
     • Only one director and one shareholder are required; there is no minimum paid-up capital requirement and no travel requirement;
     • All is going well; within four weeks, Rayness Analytica’s banking team can open a Kenya multicurrency corporate account with quality e-banking. Our Clients are not required to travel to meet the bank;
     • For multinational Clients looking to secure a government contract in Kenya, we also offer a fast Kenya business setup solution;
     • To streamline company setup formalities, the Kenyan government operates several ‘one-stop shops’ nationwide that assist with business registration, licensing, and support services.
  2. Kenya is a gateway to serve African regional markets because:
     • Kenyan exporters enjoy low- or zero-tariff access to more than 20 countries and 450 million people because of the country’s membership in regional trade blocs, including the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC);
     • Compared to other countries in East Africa, Kenya has reasonable road, rail, airport and port networks, including Mombasa Port, a new deep-water port at Lamu under construction, and a new dry port at Naivasha, which opened in 2020;
     • East Africa is the continent’s fastest-growing region. For example, Ethiopia registered a 9% average annual GDP growth since 2010, while in 2019, Kenya’s economy grew 5.7%, one of the fastest in sub-Saharan Africa. The World Bank says growth was underpinned by a ‘stable macroeconomic environment, positive investor confidence and a resilient services sector’.
  3. Kenya boasts seven Export Processing Zones (EPZ), ideal for export-orientated foreign investors, particularly manufacturers. A Kenyan EPZ company enjoys many benefits, including:
     • Being legally exempt from corporate income tax and withholding tax for up to 10 years;
     • Indefinite exemption from VAT and customs import duties and stamp duties;
     • Can operate with a single licence that will be approved within a month;
     • Good infrastructure within the free zone compared to outside the zone, including modern ready-made factories, good security and serviced land;
     • When it is complete, Konza Technology City will provide office space, infrastructure, and incentives to business process outsourcing companies. KTC is being built as part of Kenya’s Vision 2030 initiative.
  4. The Kenyan domestic market is also attractive for some multinational Clients because:
     • Spending power among ordinary Kenyans is increasing. For example, in 2019, disposable personal income was US$79 billion, up from US$72 billion in 2018. The country’s population of 52 million is growing fast, thereby boosting demand for consumer goods such as electronics, cars, etc;
     • A significant growth sector in Kenya is telecoms. In the coming years, a huge demand will be for expanding the country’s telecom networks. Kenya already ranks 3rd in Africa in terms of telecoms network quality. About one-fifth of the country’s population currently has internet access;
     • Kenya is also an emerging African e-commerce hub. More Kenyans are using e-payments and banking online via mobile phone. The Covid-19 situation in 2020 accelerated this trend;
     • Business process outsourcing: Kenya’s low labour costs, English-speaking population, and sound educational standards make it an increasingly popular destination for business process outsourcing. Being in the UTC+3:00 time zone, Kenya can serve both Europe and the Middle East at more convenient hours than other popular BPO locations like India.
  5. Compared with South Africa, running a business from Kenya is cost-effective. For example:
     • Water and electricity bills in Kenya are one-third of those in South Africa, making it attractive for energy-intensive industries such as manufacturing;
     • Communications tariffs (e.g., mobile and internet plans) are significantly cheaper in Kenya;
     • The average monthly salary in Kenya is US$1,263, compared with US$2,088 in South Africa. Furthermore, grade A office space in Nairobi CBD is about half the going rate in Johannesburg;
  6. Kenya has the largest qualified talent pool in East Africa. For example, i) an estimated 80% of the population is proficient in English, the second highest figure on the continent after South Africa. Therefore, foreign business owners in Kenya should have little difficulty communicating with government workers, bank officers, customers, suppliers and fellow entrepreneurs. It is also easy to recruit English-speaking staff for a Kenyan business. Ii) three-quarters of the population is computer literate, making employees more employable and productive; and iii) skilled labour standards are the second best on the continent after South Africa;

• Problems with doing business in Kenya

  1. Outside free zones, Kenyan businesses suffer high taxes. For example, i) corporate income tax is 30%, ii) withholding tax is 20%, and iii) VAT is 16%. The withholding tax burden on Kenyan companies has increased since Kenya has signed only seven double taxation treaties with other countries;
  2. Although the World Bank ranks it one of Africa’s best places to do business, our multinational Clients complain of:
     • Challenges in everyday dealings with inefficient government departments. Examples of government inefficiency include i) taking an average of three months to secure a work visa for a foreign employee, ii) taking four months to receive refunds for VAT and withholding taxes, and iii) one month to obtain customs clearance;
     • Corrupt public servants that raise the costs of doing business;
     • A weak judicial system. Foreign investors receive little support in resolving disputes;
     • Frequent project delays and frequent power cuts;
     • Poor security for employees, exacerbated by regular deadly terror attacks by Al Shabab and high crime rates in general. Kenya has a high crime rate. In addition to taking care of their safety, investors often have to spend money on securing property, offices, land and their employees. Business insurance premiums are high;
     • While Kenya’s infrastructure is better than most East African countries, it is nevertheless in poor shape and hinders the movement of people and goods. Electricity supply is erratic, roads and railways are in varying conditions, and telecoms networks are prone to outages. To run a modern, efficient office in Kenya, an investor will have to spend money;
  3. Getting a work permit for a skilled expatriate is difficult. Usually, a Kenyan company must deposit at least US$100,000 in a bank account or have an auditor’s report confirming that at least US$100,000 was previously invested before the authorities grant the visa. This unwelcome cash flow consideration impacts small businesses in particular;
  4. While in theory, it is possible to freely repatriate money out of Kenya, in practice, any transaction exceeding US$10,000 must be supported by documentary proof of the reason for the transfer;
  5. It is challenging for a foreigner to acquire land in Kenya for a project. Land regulations are opaque, and the Ministry of Lands has cumbersome regulations;
  6. Foreign ownership of Kenyan companies is restricted to aviation, insurance, telecommunications, gambling and agriculture. National resident shareholders are required.
  7. Kenya Revenue Authority (KRA) requires foreign-owned Kenyan companies to i) appoint a local registered tax agent and ii) show a minimum investment of US$100,000 in a foreign or local bank account before allotting a Corporate Tax Number.

If you have further questions or concerns, please get in touch with us through our Contact Us page. We aim to become your preferred choice for online business lawyers in Nairobi, Kenya.