Doing business in Kenya

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, branches of foreign companies are charged corporate tax at the rate of 30% if they enter into trading activities.
• 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.

Partnerships

There are three distinct types of partnerships in Kenya: general partnerships, limited partnerships and limited liability partnerships.

General 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.

Limited partnerships

• 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 commencement of operations, a company with employees in Kenya is generally required to register with the Kenya Revenue Authority (KRA) for the relevant tax obligations, the National Social Security Fund (NSSF) and the Social Health Authority (SHA). This enables the employer to account for and remit PAYE, NSSF contributions, Social Health Insurance Fund (SHIF) contributions and other applicable payroll deductions and levies.

The main payroll obligations include:

• PAYE: Employers are required to deduct PAYE from employees’ remuneration and remit the tax to KRA on or before the 9th day of the following month.

• Social Health Insurance Fund (SHIF): SHIF replaced the former National Hospital Insurance Fund (NHIF). Employers are required to deduct and remit employees’ SHIF contributions to the Social Health Authority. For salaried employees, the contribution is generally 2.75% of gross salary or wages, subject to a minimum monthly contribution of KES 300. Contributions are due by the 9th day of the following month.

• National Social Security Fund (NSSF): Employers are required to register eligible employees and deduct and remit the applicable NSSF contributions. Contributions are due on or before the 9th day of the following month.

• Affordable Housing Levy (AHL): The employee and employer are each required to contribute 1.5% of the employee’s gross monthly salary. The employer is responsible for deducting the employee contribution and remitting both the employee and employer contributions.

A company may employ its own accounting and HR personnel or outsource these functions to professional accountancy, payroll or HR service providers.

Compensation packages vary between employers and according to the terms agreed with individual employees. They may include basic salary, housing allowance, travel allowance, medical cover and other benefits.

In addition, a company may be required to account for and file the following taxes:

• Value Added Tax (VAT): The standard VAT rate is 16%. VAT returns and payments are generally due on or before the 20th day of the following month. VAT-registered taxpayers are required to comply with KRA’s electronic Tax Invoice Management System (eTIMS) requirements.

• Corporate Income Tax: The standard corporate income tax rate is 30% for resident companies and 37.5% for non-resident companies, subject to applicable exemptions, incentives and special regimes.

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.