Starting A Business In Kenya

Kenya’s strategic location in East Africa has always attracted foreign investors from all over the globe. Since 2000, Kenya has been prioritizing private sector-led economic growth and making the country more business-friendly for native and foreign businesses. 

In 2007, the Kenyan Government announced the country’s development plan for the next 23 years with ‘Vision 2030’. It aims to transform Kenya into a competitive and prosperous nation and provide high-quality life to citizens with a clean and secure environment. To achieve this, the Kenyan Government is constantly reforming the laws, improving the country’s infrastructure, and encouraging the Ease of Doing Business Agenda.

By reducing and removing the hindrances to private sector growth, Kenya improved its ranking for the Ease of Doing Business by 80 places since 2014 and ranking 56th globally in 2019. 

Recently another amendment was made in Business Laws Act No. 1 of 2020 to enhance the ease of doing business in Kenya by making significant changes in business processes. 

Kenya is also a member of the Common Market for Eastern and Southern Africa (COMESA) with 21 countries. In 2018, it signed the African Continental Free Trade Agreement (AfCFTA), connecting businesses to other African countries and opening a big market for them.

The good location, market-based economy, and constantly reforming business-friendly laws make Kenya a favorable place to start a business. 

Benefits of Starting a Business in Kenya

Kenya is the largest economy in East Africa, with a domestic market of over 50.92 million people (2022). The increasing need for quality goods and services among the urban middle class gives excellent opportunities for businesses to grow in the region by tapping the emerging market.

At the same time, starting a business in Kenya can help you run your company profitably because of the following advantages: 

  • Skilled and youthful workforce (75% of the population is under the age of 35)
  • Improving the Ease of Doing Business environment helps to reduce operation costs
  • Similar benefits like local companies
  • The business and logistic hub of East Africa

Undoubtedly, Vision 2030 has opened the doors for foreign direct investments in Kenya. Special Economic Zones Act, 2015 is one of the initiatives taken by the Kenyan Government.

Kenya has 10 Special Economic Zones (SEZs) that support private manufacturing firms and specified services with incentives.

Business opportunities in Kenya

Some of the key sectors in Kenya where businesses can find good opportunities.

  • Agriculture is the key to Kenya’s economy and responsible for 65% of merchandise export. It opens opportunities in Agritech.
  • Manufacturing is an ever-growing sector because of a constant increase in domestic demand.
  • The financial sector is the third-largest contributor to the economy and job creation. 
  • Real estate and construction opportunities are increasing because of a growing population and rising demand for affordable housing.
  • Tourism is an essential industry in Kenya and directly links to other sectors such as transport, hotels and hospitality, retail, and entertainment. 
  • The infrastructure development sector requires improvement and expansion to fulfill ‘Vision 2030’ goals.
  • Under the Government’s Big 4 Agenda, the healthcare sector aims to offer affordable and quality healthcare services to the citizens, which opens great opportunities.  

Requirements for starting a business in Kenya

To start a business in Kenya, employers first need to get a work permit from the Government and get themselves registered with National Social Security Fund (NSSF), National Hospital Insurance Fund (NHIF), and the Kenya Revenue Authority (KRA). 

To incorporate a company in Kenya following documents are required: 

  • Memorandum of Association
  • Articles of Association
  • Company Registration form (Form CR1)
  • Particulars of directors’ share (Form CR2)
  • Notification director’s residential address (Form CR8)
  • Application for Company name reservation (Form CR14)
  • Statement of Nominal Capital
  • Tax PIN Certificates
  • Passport-sized photos of each director

Types of Business Structures in Kenya

For foreign businesses, two types of business structures are available in Kenya. Each type comes with a different scope of activities, degree of commitment, registration process, and benefits.

Subsidiary / Local Companies 

The subsidiary has a separate legal entity from its parent company but is owned by Parent Corporation. The incorporation procedure for foreign subsidiaries in Kenya is similar to the registration process of a local company owned by citizens. Types of companies under Kenyan local companies are:

  • Private Companies
  • Public Companies
  • Unlimited Companies
  • Limited Companies
  • Limited by shares
  • Limited by Guarantee 

 Branch Office 

An office set up at a new location under the company’s original entity is considered a branch. 

Subsidiary Vs. Branch Comparison 

Type of Business

Pros

Cons

Subsidiary / Company

  1. Little risk for parent company to found liable for wrong doings of the subsidiary
  2. Tax advantages and legal protection
  3. When properly structured, a subsidiary’s income alone is considered taxable with no liabilities to the parent company.
  4. Subsidiary can file tax return
  5. Liabilities and credit cannot be transferred to parent company
  6. Subsidiary can joint venture with other companies
  7. Profit and loss of subsidiary cannot affect parent company
  1. If the parent company has full control of the subsidiary then both are considered as one entity.
  2. The subsidiary incorporation process is long and costly. 
  3. Internal conflict can rise if the parent company is excessively controlling the subsidiary which is partially owned by another company.

Branch 

  1. Opening a branch in Kenya is a simpler process than registering a subsidiary through incorporation process.
  2. It is cost-effective to setup the branch than subsidiary
  3. May get immunity from filing the returns at the branch office. 
  1. Put the parent company through the taxation on entire income
  2. Parent company can be held liable for wrongdoing at branch level
  3. Losses of branches affect the parent company’s income statement directly.

Key Considerations When Choosing a Business Structure in Kenya

There are different types of business structures available in Kenya that can confuse employers on what to opt for when registering a company. Some of the factors you can consider to select the right business structure for your company: 

  • Nature of business
  • Future plans for the business
  • Complex procedures
  • Liabilities
  • Investment capital
  • Number of owners
  • Control
  • Intellectual property protection
  • Exit plan
  • Asset protection

The business structure directly impacts on a company’s taxes, liabilities, degree of risk, and capacity to get investment. 

Some other key factors

  • The taxation rate in Kenya differs for foreign companies. Foreign companies have to pay corporate tax at 37.5% compared to local companies, which is 30%. Withholding tax is also 20% for foreign employers, whereas it is 5% for Kenyan companies.
  • According to the National Construction Authority (NCA), a foreign company interested in investing in the construction business has to share 30% of the contract value with resident companies. 
  • As per the Communication Commission of Kenya (CCK), if a foreign company wants to apply for a telecommunication license, it has to allot 20% of the total share to Kenyan individuals within the 3 years of the date of the license.  

Company Registration in Kenya

To start a company in Kenya requires proper registration. We have already shared the essential documents required for the procedure. 

The registration process can vary depending upon the employer’s choice of business structure. The steps employer need to follow for registering a company in Kenya is outlined below: 

Subsidiary registration procedure in Kenya for foreign companies

Register with Registrar for Foreign companies 

The first step foreign companies need to follow to start a business in Kenya is to register with the Registrar. For this, the following documents are required that should be translated into English and certified by an advocate. 

  • Certificate of Incorporation (Original + Certified copy)
  • Memorandum of Article of Association of the Foreign company (Original + Certified copy)
  • List and Particulars of Directors and Company Secretary
  • List and address of potential other people authorized to accept service and conduct business
  • Notice of the location of registered office and proof of one Local Representative
  • A statement of all existing charges entered into the company affecting properties in Kenya 

For an individual investor

  • Passport (original)
  • Passport photo of the investor

For an authorized representative 

  • Passport (original)
  • Passport photo 

Apply for Entry Permit

As per Kenya Investment Authority, it is mandatory under the Investment Promotion Act for foreign investors to get a permit if projects’ worth 100 000 USD. An employer needs to get it from the Directorate of immigration and registration of persons. 

Type of Permit

Meant for

Class A work Permit

Investors in Prospecting and mining

Class B work Permit

Investor in Agriculture and animal husbandry

Class F work Permit

Investors in manufacturing sector

Class G work Permit

Investors want to engage in specific business, trade, and consultancy

 Register for Tax in Kenya

To run a business in Kenya, foreign employers need to register with KRA to file taxes.

  • For this, first, you need to get the Directors’ Personal Identification Number (PIN) certificate. You can apply for the same online at http://www.kra.go.ke/index.php/kra-portal
  • You need to apply for a Company Tax Identification Card with KRA.

You would need these PIN and TIN for registering 

  • VAT
  • Turnover Tax
  • Local Service Tax
  • Pay as You Earn 

Apply for a business permit

When applying for a business permit, you need to understand that this process can vary a bit depending upon the business location, industry and business type, number of employees, and size of business premises.

You can visit http://ebusiness.go.ke/ebusiness.html for getting a business permit.

Here you will find all the information related to business permits such as permit validity, fee, permit requirement, licensing body responsibility, and required forms. You can fill it out accordingly and get the business permit.

Register with the National Social Security Fund (NSSF)

NSSF provides a retirement benefit to the employees. It is mandatory for every business to register here and get a membership for employees. 

You can apply for the same online through http://www.nssf.or.ke/employers

Or can download the form online from http://www.nssf.or.ke/downloads

An employer needs to attach the following documents with this form:

  • Certificate of Incorporation
  • Registration of Business name
  • Business permit

NSSF registration is free of charge and takes one day usually. 

Apply for the National Hospital Insurance Fund NHIF employer registration 

 An employer needs to register with the National Hospital Insurance Fund. You can register at NHIF online through http://www.nhif.or.ke/healthinsurance/

 It is free of cost registration and takes one day only. 

 Company registration procedure for Kenyan Residents (For Limited Liability Partnership and Unlimited Liability Partnership)

For LLP and ULP, it is not mandatory to have a memorandum of article of associations. These are a separate entity from its members. 

Apply for business name registration 

To apply for business name registration in Kenya, the employer needs to select three name options and fill out the form CR14 to apply for a name reservation. You can apply for the same online through https://ecitizen.go.ke/ . It is a quick process. A name once reserved is only approved for 30 days. 

The Registrar will check purposed names on the following grounds:

  • It is not already in use.
  • The name should not be offensive
  • The name should not include initials and abbreviations that are restricted to use.

 

Register with Kenya Revenue Authority

 This process is the same as mentioned above for foreign employers

Register company with Registrar of companies

You can apply for company registration online at https://www.ecitizen.go.ke/ 

After this, you have to follow steps 4 to 6 mentioned for foreign employers above.

How Much Does It Cost to Incorporate a Company in Kenya?

The cost to incorporate a company in Kenya can vary depending on the type of business entity you choose to register. 

Government Assistance for Foreign-Owned Businesses

Kenya Special Economic Zones Authority offers great incentives for both domestic and foreign direct investments in SEZs. To get these benefits and start a company in SEZs, the company has to get a developer, operator, or enterprise license.

Companies under SEZs get the following benefits:

For setting-up business in Kenya, SEZs licensed enterprise, developers, and operators enjoy the following benefits: 

  • Ease of setting-up business
  • Protection of investment and investor
  • Granted tax exemptions from all taxes and duties that are payable under the East African Community Customs Management Act, Excise Duty Act, and Value Added Tax Act.
  • 10% Income Tax for the first 10 years of operation and 15% thereafter.
  • Low operation costs
  • Freedom from stamp duty on the execution of instruments required for business activities
  • Relief from advertisement fees and business service permit fees levied by the respective county Governments’ Finance Acts
  • Exemption from manufacturing license under tea act, general liquor license, and hotel liquor license under the Alcoholic Drinks Control Act, 2010
  • Immunity from rent or tenancy controls under the Landlord and Tenant (Shops, Hotels, and Catering establishments) Act.

Along with it, SEZ shall be granted work permits for 20% of their total full-time workforce. To get a SEZs license, the business has to fulfill the criteria mentioned by the Government under Special Economic Zones Act, 2015.

Tax Benefits (as given by government)

Tax Head

Tax Charge

Corporate Tax

10% for the first 10 years after the start of operation

15% for the next 10 years

30% for the subsequent years

VAT

The supply of goods or taxable services to an SEZ is perpetually VAT exempt.

Stamp Duty

Perpetual exemption from stamp duty on any executing documents on instruments relating to the business activities of SEZ enterprises, developers, and operators.

Investment Deduction

Outside Nairobi and Mombasa counties – 150%

In other cases – 100%

This is applicable on all construction of a building and purchases/installation of machine

Excise Duty

Excise Duty is perpetually exempt

IDF & RDL

Perpetual exemption from payment of IDF and RDL

Withholding Tax

WHT rate of 5% on all payments by the SEZ Enterprise developer or operator o\to non-resident persons

How Can Multiplier Help?

Even though Kenyan Government is continuously reforming laws to increase the Ease of Doing Business in the country, setting up a business in Kenya is still a lengthy process that requires proper registration of a subsidiary or branch. 

Furthermore, the cost of company incorporation in Kenya and the time-consuming hassle that involves registration may not feel worthwhile for some businesses. 

Multiplier helps businesses facilitate the company registration process in Kenya with the help of their network. You can outsource this work to professionals and make this process easy for you. 

Before starting a business, if you want to try how Kenya can help grow your business, you can hire a team in Kenya using Multiplier’s EOR solution. It allows businesses to hire international talents without establishing a local entity.

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