Summary Table of Kenya Company Registration

Kenya business setup summary

The recently launched Huduma Centres, Kenya’s one-stop shops for accessing government services, enable entrepreneurs to easily reserve a company name and receive a stamp duty assessment. Other government agencies involved in the completion of a new company incorporation include  i) the Registrar of Companies at the Attorney General’s office and ii) the Kenya Revenue Authority;

The Kenya Companies Act 2015 provides for various corporate structures, including;

• A private limited liability company is the preferred choice for foreign entrepreneurs and investors looking to do business in the country. It is suitable for small and medium-sized enterprises.
• A public limited company: this legal entity is preferred by investors looking to establish large corporations with the intention of listing them on the Nairobi Stock Exchange.
• A limited liability partnership: This type of entity is perfect for individual skilled professionals, including lawyers and consultants, looking to establish partnerships.
• A branch office: foreign companies looking to do business in Kenya without setting up a subsidiary will find this entity the best establishment for their intended venture in Kenya;
• Representative office: Although not provided for in the Companies Act, foreign banks seeking to establish representative offices in Kenya may do so by applying directly to the Central Bank of Kenya.

Benefits and problems

1. Our clients will find registering a limited liability company in Kenya easy because;

• A Kenyan LLC requires only i) one shareholder, ii) one director, and iii) no minimum paid-up capital to be incorporated.
• The company can be incorporated and registered for tax, and our clients do not need to travel during the engagement.
• Kenyan banks are efficient and can open a multi-currency corporate account with internet banking within four weeks, without our clients travelling to Kenya.
• Kenya’s formal language is English, and foreign nationals will find it easy to communicate with Government officials as well as bank officers during this period.

2. We recommend to our clients interested in forming a company in Eastern Africa to Kenya because:

• Nairobi is the undisputed transportation hub of Eastern and Central Africa, and the Port of Mombasa is the region’s largest port.
• The transportation infrastructure is superb, with high-quality railways, airports, ports and roads. Further improvements include a new port at Lamu, currently under construction, and a planned dry port at Naivasha.
• Kenya is an emerging economy, with the International Monetary Fund projecting growth of approximately 5.8% per year through the end of the decade. It also has a large population of 42 million.
• Kenya is active in several regional trade blocs, including the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), which provide a free trade area across more than 20 member states.
• Also, Kenya has established a customs union with the EAC, eliminating all duties and non-tariff trade barriers among member countries.
• Kenya is a member of the East African Community, allowing extended judicial protection through the East African Court of Justice for International Trade with i) Uganda, ii) Burundi, iii) Rwanda and iv) Tanzania.

3. Our clients forming a manufacturing company in Kenya are advised to establish within an export processing zone because;

• Kenya has seven Export Processing Zones (EPZs) which offer export-oriented foreign companies: i) exemption from corporate income tax and withholding tax up to ten years, and iii) exemptions from VAT, customs import duty, and stamp duty indefinitely.

• Any company registered with an EPZ can operate under a single license. The Kenya Export Processing Zones Authority also fast-tracks EPZ projects, ensuring that licenses are approved within 30 days.

• The Kenyan Government allows EPZ companies to sell their products within the East African Community, provided they comply with applicable tax procedures, for up to 20% of the company’s annual output.

• The Kenyan EPZ also offers excellent export infrastructure, with ample serviced land, ready factory buildings, and office premises, including 24-hour security, street lighting, and landscaping.

4. Kenya is a great and cheaper alternative to South Africa for entrepreneurs looking to enter the African region because;

• A Kenyan company benefits from lower utility costs, with basic water and electricity bills averaging US$40 per month, compared with US$120 per month in South Africa.
• Mobile phones and internet plans are also significantly cheaper in Kenya.

• Entrepreneurs stand to benefit from low labour costs, as Kenya’s average wage bill is approximately US$600, compared with South Africa’s US$1,423.

• A top-class office space in Nairobi CBD would not cost more than US$11.5 per sqm. In South Africa, this would be at least US$19 per sqm.

5. Our clients will enjoy the following when employing locals in Kenya:

• English is one of Kenya’s two official languages, with an estimated 80% of the population able to speak English at a conversational level. Therefore, investors will easily be able to communicate with employees, customers and suppliers;

• Computer literacy among the population is 74%, which increases employee productivity.

• While skilled labour standards are of poor quality compared with Western countries, they are the second-best on the continent, after South Africa.

6. The Kenya Free Trade Zone (KFTZ) is an excellent location for Kenyan company incorporation, as it is the country’s premier logistics and distribution hub, offering investors a range of benefits.

• Numerous tax benefits, including i) complete exemption from import tariffs and corporate taxation and ii) 0% taxation on dividends;

• Excellent strategic location that enables companies to serve neighbouring countries in Sub-Saharan Africa and the Middle East.

• Excellent infrastructure, such as i) modern port facilities; ii) transit airports, and iii) roads and railways network.

 Problems with the Kenya company registration

1. Non-free zone businesses in Kenya are subject to significantly high taxes. The corporate income tax rate is 30%, the withholding tax rate is 20%, and the VAT rate is 16%. Kenya has also signed only 7 double taxation treaties, which do not reduce the tax burden for foreign entrepreneurs.

2. Kenyan laws restrict 100% foreign ownership in the following industries i) aviation, where 51% Kenyan shareholding is required ii) insurance, where at least 33% Kenyan shareholding is required for a agents and a minimum of 60% Kenyan shareholding is required for brokers iii) telecommunications, where at least 20% Kenyan shareholding must exist within three years of the issuance of the business license iv) agriculture, where foreigners are barred from purchasing or leasing agricultural land v) listed companies, where 25% of their ordinary share must be reserved for investment by Kenyan nationals.

3. Doing business in Kenya presents the following challenges:

• Obtaining a work permit requires entrepreneurs pursuing a Kenyan business setup to have at least US$100,000 in a Kenyan bank account, or an auditor’s report confirming that at least US$100,000 was previously invested.

• Kenya suffers from governmental inefficiencies. It takes an average of i) 3 months to get immigration visas, ii) 4 months to receive refunds of VAT and withholding taxes, and iii) 1 month to obtain customs clearance.

• A Kenyan company also raises security and safety issues. Given Kenya’s relatively high crime rate and the instability in neighbouring Somalia, investors will likely need to spend additional funds on security and insurance when operating in Kenya.

• While a Kenyan company can freely repatriate funds from Kenya, any transaction involving US$10,000 or more must be supported by documentary evidence of the transfer’s purpose.

• Foreigners will have difficulty acquiring land in Kenya due to a lack of transparency and cumbersome regulations within the Ministry of Lands.

• Companies in Kenya are likely to face infrastructure limitations due to poor quality and inadequate supply. This hinders companies’ growth from the outset of their operations. Later, the companies are required to incur slightly higher overhead costs to equip their offices with modern technology and infrastructure to address these limitations and operate more effectively.

 Best uses for a Kenyan company

1. Business process outsourcing: Kenya’s low labour costs, English-speaking population and good 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 on more convenient hours than other popular BPO locations like India.

When complete, Konza Technology City will provide office space, infrastructure, and incentives to business outsourcing companies. KTC is being built as part of Kenya’s Vision 2030 initiative.

FAQs

Frequently Asked Questions About Company Registration in Kenya

What are the different types of company registration options available in Kenya?

Kenya offers several corporate structures for registration, including private limited liability companies (LLCs), public limited companies (PLCs), limited liability partnerships (LLPs), branch offices, and representative offices, each catering to different business needs and investment scales.

How long does it typically take to incorporate a company in Kenya?

The process of incorporating a company in Kenya usually takes about 7 weeks, with some variations depending on the type of entity and the specific procedures involved.

What are the tax considerations for foreign investors establishing a company in Kenya?

Foreign investors in Kenya are subject to a corporate tax rate of 30%, additional turnover tax of 3% for turnover under US$48,000, and VAT of 16%. Some special zones like EPZs offer tax exemptions and incentives.

Are there restrictions on foreign ownership of companies in Kenya?

Yes, there are restrictions in certain sectors such as aviation, insurance, telecommunications, and agriculture, where foreign ownership is limited and requires local Kenyan participation or approval from relevant authorities.

What are the main advantages and challenges of setting up a business in Kenya?

Kenya offers advantages such as a strategic location, excellent infrastructure, a large and English-speaking workforce, and regional trade benefits. Challenges include high taxes for non-free zone businesses, regulatory restrictions on certain industries, infrastructure limitations, and security concerns, which should be carefully considered by investors.

Inquiries:

Visit our Contact Us page or email us directly at rna@raynessanalytica.com.

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