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Front Page
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Doing business in Kenya
THE CONSTITUTION AND THE GOVERNMENTUnder the Constitution, legislative power is vested in a Parliament consisting of a President and a National Assembly. This comprises the Speaker, the Attorney-General, 216 elected members of the Assembly and 12 nominated members. The life of the Assembly is five years and members are elected by universal adult suffrage.Executive power lies with the President of Kenya who is also the Commander-in-Chief of the Armed Forces. The Cabinet serves as the policy making body of the Executive. Its decisions, if they do not require legislative approval, are carried out by the individual Ministers and their ministries. As cabinet members they draft the legislation to be presented to the National Assembly. The Bill of Rights in the Constitution provides for a strong and detailed protection of fundamental rights and freedom of the individual. Both substantive and procedural rights are affirmed, as are traditional political and civil liberties. The judiciary is independent of both the Executive and the Legislature. The Chief Justice and the judges of the Court of Appeal are appointed by the President. All other judges are appointed by the President acting on the advice of the Judicial Service Commission. EDUCATIONEducation takes the largest share of Government spending, amount to 30% of the total recurrent expenditure. Most of this expenditure is allocated to teacher training and higher education. Over 5 million pupils enrolled in primary schools and more than 12,000 students enrolled at Nairobi, Kenyatta, Moi and Egerton University in 1989. A number ofpolytechnics and technical and agricultural institutes also exist. THE KENYAN BUSINESS ENVIRONMENTThe Government of Kenya welcomes the flow ofprivate foreign investment into the country. Currently, the Government is seeking to diversify its export base encouraging non-traditional exports. As an incentive to foreign investors, the Government in 1990 enacted a bill to create trade zones known as Export Processing Zones (EPZs). Companies operating within an EPZ receive concessions on customs duties, tariffs and taxes amongst other incentives. The Government is seeking to reduce state participation in industry by divesting from companies where it holds an interest. Kenya has some 900 major manufacturers. There are over 200 multinationals in the country mainly from Britain, France, the US and West Germany. Total registered foreign investment is estimated to be in excess in one billion dollars. INVESTMENT OPPORTUNITIESAgriculture remains the largest sector of the Kenyan economy providing a livelihood for approximately 75% of the population and accounting for 20% of GDP while generating 60% of foreign exchange earnings.There is considerable scope, within, the agricultural sector, for diversification and expansion, particularly in the area of non-traditional exports. Tourism is Kenya's second largest foreign exchange earner. The enduring appeal of the country's scenery, wildlife, climate and tropical coastline has allowed the establishment of a large hotel industry and a sound tourism base. Kenya has the best developed hotel industries in sub-Saharan Africa, offering on an average some 31,400 beds per night. The high standard of services in Kenya hotels is assisted by the Utalii College which offers training programmes in all aspects of tourism and catering. The average increase of visitors outstrips the available infrastructure and significant opportunities exist for providers of more specialised resorts and activities, health spas, water-sports facilities and novelty attractions which develop the appeal of spectacular but hitherto relatively little visited parts of the country. (for more information contact: Kenya Tourism Foundation, PO Box 51351 Nairobi, Kenya, Tel. 254(2)241188, Fax: 254(2)252466, Email: seekenya@pobox.com). Most foreign investment in Kenya is governed by the Foreign Investments Protection Act (FIPA). There are no legal limitations on the percentage of foreign ownership but general preference is given to those projects with Kenyan participation, guaranteed export markets , potential for employment of labour , or those with a rural base . Priority sectors are export-oriented ventures, intermediate industry, and agro-processing. Investments in EPZs are approved by the EPZ Authority. The Authority is responsible for the issuing of licences and provides a “one-stop” regulatory approval centre for intending EPZ investors. Several zones , both private and government-owned have been earmarked for EPZ development. These are located in Nairobi, Mombasa, Athi River and Nakuru. Public utilities such as power generation, water supply and telecommunications are now open to foreign investors. Specific guidelines exist for foreign investors who are interested in oil exploration and mining. Acquisition of Real EstateNo restrictions currently apply to leasing or ownership of land by foreign-owned companies unless the land is classified as agricultural.INVESTMENT INCENTIVESKenya has no generalised incentives schemes governed by an industrial development law. Certain fiscal incentives may be available on a case-by-case basis.To encourage industrial development the Government allows an investment allowance of 85%, (35% in Nairobi and Mombasa) on plant, machinery, buildings and equipment in the first year of business. This is also applicable to the hotel industry. The allowances are given as tax deductions in the year of expenditure. Depending on the earnings of the business, the investment allowance can produce a tax free holiday of several years. COMPANIESThe principal legislation governing the operation of companies in Kenya is the Companies Act.FormationThe initial step in forming a company is to obtain the approval of he Registrar of Companies for a name and to reserve it. The company’s Memorandum and Articles of Association are than drawn up and filled with the Registrar of Companies. When the Memorandum and Articles and other necessary documents are registered, the Registrar issues a Certificate of Incorporation and the company becomes a legal entity.Share CapitalThere are no limitations as to the maximum but the minimum amount of a company’s authorised capital is Kshs. 20,000/-. Shares of no par value are not permitted in Kenya.ACCOUNTING PRACTICESThe Institute of Certified Public Accountants of Kenya (ICPAK), governs the accounting profession in Kenya. ICPAK is a member of the International Federation of Accountants (IFAC) and recommends adoption of International Accounting Standards.Audit RequirementsAll companies incorporated under the Companies Act are required by that Act to have their annual financial statements audited by external auditors. Branches of foreign companies are not required by law to have independent audits.Business TaxationCompanies resident in Kenya are taxable on their worldwide trading profits, currently at the rate of 32.5%. Income earned by a branch of a resident company carrying on business outside Kenya is subject to tax in Kenya, regardless of whether or not it is taxed overseas.DividendsTax is levied at flat rate of 10%. But if the receiving company owns more than 12.5% of the voting power of the subsidiary concerned, the dividends received from the subsidiary are tax free.Export Processing Zone (“EPZ”) EnterprisesGenerous tax and other incentives are to be given to companies carrying on business in an EPZ. These include: a corporation tax holiday for 10 years, a reduced rate of corporation tax of 25% for the next ten years, zero rating for VAT purposes, exemption from withholding tax on certain payment to non-residents, certain reliefs from exchange control.Withholding TaxThe main withholding tax rates for residents are: 15% on commissions paid by insurance companies to agents, 10% on interest, except when this is paid to banks and financial institutions, 10% on dividends, 5% on sale of certain farm produce.Value Added Tax (VAT)VAT was introduced in 1990. It is charged on: the manufacture and supply of taxable goods, the import of taxable goods or services, the supply of taxable services, and dealings in certain designated goods.LABOUR RELATIONSIn Kenya, there is a Trade Union Act and also a Trade Dispute Act to regulate employer/employee relations. The trade union movement in Kenya is numerically strong. It is estimated that 40% of the labour force in the modern sector belongs to various trade unions.Foreign Personnel and Work PermitsAll foreign personnel coming to work in Kenya must have an entry permit, usually referred to as a “work permit”. A foreign worker’s dependants require dependants’ passes. Application in both cases has to be made to the Principal Immigration Officer. Non-citizens of Kenya also require Aliens Registration Certificates and should obtain re-entry passes if they travel outside Kenya. All these permits are usually valid for two years. The issue of work permits is closely controlled. But the Kenya Government does recognise that foreign investors or shareholders should be represented in senior management. A sympathetic view is also taken on the number of expatriates to be employed in new industries during the start-up phase.THE FINANCIAL SECTORThe Central Bank of Kenya (CBK), established in 1966, is the controlling authority of the Kenyan financial system. It is responsible for the issue, control and monitoring of Kenya currency, together with the development and maintenance of a sound banking system conducive to the economic development of the country. The tight monetary policies in force since 1994, which were aimed primarily at maintaining the low inflation rates.The Central Bank in 1995 broadened the range of instruments available, and so increased the number of participants in the money market. Firms listed on the Nairobi Stock Exchange were allowed to issue commercial paper and treasury bills with maturity cycles of five years. Foreigners were permitted to invest in the local money market. Exchange ControlThe Government has eliminated exchange controls and import licensing and lifted restrictions on inward portfolio investments.Banking ServicesHistorically, the main role of the commercial banks has been of act as financial intermediaries. Interest rates on both deposits and loans were deregulated by the Central Bank of Kenya in 1991. Interest rates are determined by market forces. In recent years with increasing competition banks have begun to extend their range of services. A number of regional and international development banks and institutions are prepared to contribute finance to major private sector investment in Kenya.CAPITAL MARKETSThe Capital Market Authority Act was passed into law early in 1990 Under this Act, the Capital Markets Authority was established with the following objectives:- Develop all aspects of the capital markets, create, maintain and regulate a system in which the market participants are self-regulatory to the maximum practicable extent, protect investor interests, operate a fund to compensate investors if a licensed broker or dealer fails to meet his obligations. |