Doing business in Kenya
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
15 – 30 days
What is the minimum investment needed?
Investment depends on the size of the project and the model of business.
How can I raise finance?
Investor will fund the entire capital investment
Where there are local investors, they may contribute a certain percentage as share capital.
What are the legal requirements for setting up my business?
With the exception of certain specific distinctions, as outlined in the various laws and regulations, the effect of establishing a Kenyan company as opposed to a branch of foreign company does not considerably differ from a Kenyan legal perceptive. Both have similar powers to operate in the country.
It is, however, prudent for investors to verify whether there is any anticipated change before selecting the business model.
What structure should I consider?
The following are the available options as guided by the various government regulations:
Limited liability companies
• The most common form of business vehicles in Kenya are private limited liability companies.
• There are no minimum or maximum share capital requirements.
• For a limited liability company there is no legal requirement for a maximum or minimum share capital.
• The initial nominal share capital of a company registered or to be registered with limited liability is exempt from stamp duty.
• The investor will be required to pay incorporation costs which will vary with the amount of share capital to be subscribed.
Branch of a foreign company
• Foreign enterprises can establish themselves in Kenya as branches of foreign companies, although branches of foreign companies are charged corporate tax at the rate of 37.5% if they enter into trading activities. This is as compared to Kenyan companies, which pay corporate tax at the rate of 30%.
• The Companies Act contains extensive disclosure and compliance requirements for companies that are incorporated outside Kenya that wish to register a branch or representative office to do business in Kenya.
• A foreign company that establishes a place of business in Kenya must file certain documents and information with the Registrar within 30 days of its establishment of a place of business in Kenya.
• A branch of a foreign company is required to file its accounts alongside the parent company’s accounts with the Registrar every year, unless it was incorporated in the Commonwealth in which case it is exempted from having to file its balance sheet and profit and loss account.
• Any changes to the details of the branch of a foreign company must be notified to the Registrar within 60 days of such changes.
• Other statutory compliance including NHIF, PAYE and VAT are as per the set regulations in Kenya.
Company limited by guarantee
• This is “not for profit” or “Charitable company”. The parties involved do not remove the profit from the company as shareholders can in a company limited by shares.
• Any profit made by the company is re-used for the good of the business.
• The company has members who act as guarantors. This means that it allows the entity to have multi-membership.
• The members and directors are required to undergo vetting by the National Intelligence Service (NIS). When the vetting is complete, then the process of registration can proceed.
There are three distinct types of partnerships in Kenya: general partnerships, limited partnerships and limited liability partnerships.
• These are the traditional partnership models where each partner has unlimited liability.
• it is the partners who have the general responsibility for the business of the partnership.
• For a limited partnership to exist there should be one or more general partners, each with unlimited liability and;
• one or more registered limited partners, each with limited liability.
Limited liability partnership (LLP)
• This combines some of the features of a traditional partnership with the limited liability benefits normally associated with a company.
• When registered under the LLP Act, an LLP becomes a body corporate with perpetual succession and with a legal personality separate from that of its partners.
• An LLP is required to have at least two (2) partners.
• In all cases the relationship between the partners is governed by a partnership deed.
What advice can you give me in regards to payroll and taxation requirements?
• On inception of the company, it is a requirement by the Government of Kenya that the company registers for Kenya Revenue Authority (KRA) PIN, National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF). This will facilitate the employer to submit the PAYE taxes of its employees, NSSF and NHIF deductions. All these are governed by the Employment Act, the Income Tax Act, NHIF Act and NSSF Act.
o PAYE submission due date is 9th of each month
o NHIF submission date is 9th of each month
o NSSF falls due on the 15th of each month
• A company may choose to employ an accountant or outsource accountancy/HR companies which provide these services.
The compensation packages differ from one company to another and depending on the agreement between the employer and an employee. These may include: basic salary, house allowance, travel allowance, medical cover, etc.
In addition, a company is required to file the following taxes:
- VAT at 16% on or before 20thof each month through iTax portal using Tax Invoice Management System (TIMS)
- Income tax which is charged at 30% for resident companies and 37.5% for non-resident companies.
Is there anything else that I should know?
In addition to the above mandatory requirements, a company is required to have the following:
• Business permit as required by the County Government regulations.
• There may be also other operation permits/certificates required depending on the sector and industry of specialization of the business.
It is also prudent to undertake a feasibility study for the type of business, the area where the business will be located as well as understand the needs of the target market.
Companies are required to file company annual return with the Registrar of Companies on annual basis. This is done by the Company Secretary.
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