SETTING UP BUSINESS IN
KENYA
2022
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Branch Office form of Business Entity Legal form
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Remarks
Branch Office
The following documents would be required & must be translated into English and certified by an Advocate or Notary Public in the country of origin: • Memorandum and Articles of Association of the Foreign Company (Original + Certified Copy required); • Certificate of Incorporation (Original + Certified Copy required); • List and Particulars of Directors and Company Secretary; • List and addresses of potential other people authorized to accept service and conduct business; • Notice of Location of Registered Office and proof of at least one Local Representative • A Statement of all existing charges entered into the company affecting properties in Kenya (known as a Prescribed Fee) if required; • Declaration of beneficial ownership For an individual investor: • Passport (original) • Passport Photo of the Investor (recent, coloured passport size photo) For an authorized representative • Passport (original) • Passport Photo of the Investor (recent, coloured passport size photo) Costs: • The Registration Fee is Kshs. 10,650/=
Suitable for foreign companies looking for a presence in Kenya to initiate business or maintain contacts with business partners, especially in cases of uncertain success.
Sole Proprietorship form of Business Entity Legal form
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Sole Proprietorship
I) Business Name Search You will need to perform a Business Name Search to find out whether the business name is available to be registered. This process takes 1-3 days to be completed. It will cost you Ksh. 150 per name.
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Remarks
II) Business Name Registration Form (BN/2) Once Business Name has been approved, you will need to prepare the following information in order to fill out the form;
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Sole Proprietorship
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Nature of Business – One needs to come up with one specific nature of business e.g. Tours & Travel, Computer Repairs, Mobile Phone & Accessories Shop etc. General words such as “shop” or “retail”, trade” are not sufficient for Company Registry to proceed to register your business. You will need to avoid things like “General Supplies” which is popularly used but it will not be approved. Date of Commencement – One need to write down the date in which you started your business using that name. If you haven’t yet started, then you will need to indicate when you will begin using that Business name to trade. Make sure that the date is not too far in the future, this could affect your application and you might be told to apply at a later date. Address of the principal place of business (Plot No./Land Office Reference Number, Section, and Name of Street or Road, Name of Building) – For the plot number, please find the electricity bill or water bill of your business premises. If you don’t have business premises, you can use your home residential plot number/land reference number for registration that’s if you are starting your business from home, but you will need to update the records at Company Registry once you have a Business Premises. Postal Address – If you don’t have one, you can register your very own postal office box for Ksh. 2,500 at the nearest Postal Office Address of any other place of business (Branch Office under the above name) – Only applicable to businesses that are currently operating a business in other counties or have other branches under the same business name. Full Names of you and any other partners – Any person who has changed his name must give all former names unless the change occurred before he attained the age of two years. For Sole Proprietor Business, it only requires 1 person. For Partnership Business, it only requires a minimum of 2 people and maximum of 20 people). Nationality – You will require to enter your nationality as indicated on your identification e.g. Kenyan, German, British, American, Chinese, South African etc. Age – Make sure you give your correct age. Gender – Male (M) or Female (F). Usual place of residence – Where you currently reside e.g. Nairobi, Nakuru, Kisumu, London, Paris etc. Other business occupation – You will need to enter your occupation e.g. engineer, farmer, hair stylist, web designer etc. If you don’t have one you can simply write either “Businessman” or “Businesswoman”.
III) All you will need to do now is to submit the documents to eCitizen. The registration is normally completed within 7 days. Cost Registration fees is Kshs. 950 SETTING UP BUSINESS IN
KENYA
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Partnership form of Business Entity Legal form
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Partnerships
Limited liability partnership (LLP)
Remarks
This kind of entity is among the best for a person who wants to start a business in Kenya as a If you want to register an LLP, you should first begin with a name search, which is done online on the foreigner. It can be wholly owned by a foreigner and some argue that a work permit may not be eCitizen portal. Afterwards, you are required to fill out an LLP1 form. required in its formation. A partnership deed that outlines the agreement between the partners of a firm the terms and conditions of partnership among them should be prepared and signed by both partners. However, although it is a requirement, it is not submitted during registration. The letter of consent of the manager to act as manager of that partnership is also required and submitted. There is no requirement for a resident director or a company secretary. Registration •
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To register a Limited Liability Partnership (LLP), log into your E-Citizen account, click on the reserved name and there will be link prompting you to register the LLP. Click on it and you will be required to fill in the details on the link. The details include; the name(s) of the partner, ID Number, KRA PIN Number, email address, mobile number, the physical address of the LLP and the nature of the business. Each of the partners/proprietors will be required to attach a copy of their KRA PINs and a passport photo. Once you have filled in all the details, the system will generate a form called Statement of Particulars (LLP1) which you will be required to download and print. Once printed, the form should be signed by each partner and then upload the signed form back onto the system. The process is usually done within 1-2 working days.
Cost: Registration fees for LLP is Kshs. 25,000.
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Limited Liability Company form of Business Entity Legal form
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Limited Liability Company
Registration procedure is the same as registering a sole proprietorship, with a few addendums. As it stands, there are five common ways for foreigners to set up or own a limited company in Kenya. 1.
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Register a Foreign Company With a Kenyan Partner as Director
This is one of the easiest ways for a foreigner to set up a company in Kenya. A foreigner owner who has a Kenyan partner will not be required to provide a KRA PIN and Alien ID which take enormous time and effort to acquire. Kenyan partner can be a family member, friend or business partner. Do you already have a Kenyan business partner whom you can start the business together? He or she needs that have a copy of ID, a copy of iTax KRA PIN, passport photo, and other details. 2.
Register a Foreign Company with Nominee Director
This option will make it easier for you to register your company conveniently and with ease. This route will provide you with a service where a nominee will act as a director of your company during the registration process to meet the requirements needed to set up a company. Nominee Director will only hold a 1% share of the company. Once the company has been registered, they will stay as nominee director for up-to 6 months allowing you ample time to find your potential local business partner to replace the nominee director and transfer the shares that were being held. Please note that to replace a director of your company, it usually cost around Kshs 10,000 - Kshs20,000. Duration: up to 3 weeks 3.
Opening a Branch of an Existing Foreign Company
To open a branch or subsidiary in Kenya of an existing foreign company, you will need to register for a Certificate of Compliance. You must provide a copy of your Certificate of Incorporation, a copy of Memorandum and a Company Tax Registration Certificate of the existing foreign company. These documents need to be certified as genuine by a Public Notary. You will also be required to provide details of the intended/ actual physical location of your business in Kenya. You will need an agent in Kenya to represent you in the application process; who will be able to provide their ID and KRA PIN as well as sign Form 238 on your behalf. You will also need to have an Alien ID, in order to open an eCitizen account as a foreigner. 4.
Register a Foreign Company Fully Owned by Foreign Nationals
Foreign owners intending to register their company without a Kenyan partner will be required to provide a KRA PIN for the application. In order to acquire this document as a foreigner, they will first have to get an Alien ID, for which they become eligible for after three months of consecutive residency in Kenya. Alien ID application can take up to five weeks to be processed. Alternatively, foreign owners who already have $100,000 and above to invest in Kenya, they can apply to KenInvest to facilitate obtaining a KRA PIN for the directors that will facilitate the registration of the company while avoiding the need to have an Alien ID.
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Limited Liability Company
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Acquire an Existing Company Previously Owned by Kenyans
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Through acquisition or merger, foreigners can pay an agreed amount for a target Kenyan business and start the process of changing ownership by adding and removing directors and shareholders.
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This process will be more rigorous if buying a public limited company as opposed to a private company limited by shares.
Resources For Foreign Limited Company •
Alien ID Card – This is a document for foreign nationals which enables them to have an ID recognized by Kenyan government institutions and gives access to services such as KRA PIN and applying for a work permit, opening a business bank account, applying for Company KRA PIN, making tax returns and much more.
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Single Entry Visa – It is meant for any person who is looking to enter Kenya to carry out business activities. The visa is valid for three (3) months only. Issued at a cost of $51 by the government.
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Work Permit – There are different types or classes of work permits available in Kenya. For business owners who have registered their companies in Kenya and are looking to work in Kenya, they will need to apply for Class G permit which is valid for two (2) years and subject to renewal.
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KRA PIN – This is the most important document your company must obtain to do any business in Kenya. Kenya Revenue Authority (KRA) PIN can be used to open a business bank account, perform tax returns on rental income, applying for Government tenders, purchase of land, buying and selling a property and many other business transactions.
Public Company Limited by Shares form of Business Entity Legal form
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Public Company Limited by Shares
1. Choosing a name is a necessary step
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Your business name must be unique.
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The proposed names will be rejected if they are the same or similar to business names already registered in Kenya.
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You can present maximum 3 (three) options
Remarks
You need to fill out form CR14, found on http://www.statelaw.go.ke/wp-content/uploads/2016/07/CR-14-APPLICATION-FOR-RESERVATION-OF-A-COMPANY-NAME1.docx •
The Registry will check if it is too similar to names already registered.
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The Registry will check if a name is prohibited for other reasons (such as being offensive).
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Words must be in full: initials are not accepted as a Company Name.
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The approval for a reserved Company Name lasts for 30 days
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It can be renewed for a further 30 days if necessary.
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Renewal is applied for at the Attorney General’s office. SETTING UP BUSINESS IN
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Public Company Limited by Shares
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2. Prepare Memorandum and Articles of Association and a Statement of the Nominal Capital The Memorandum and Articles of Association lay the foundation for establishing a company. The Memorandum of Association gives information regarding the business, including the wish to form a company or the agreement to become member of the company (i.e. a guarantor for a Company Limited by Guarantee). The Articles of Association gives the specific objectives of the company, i.e. the specific functions which the company intends to carry out as well as responsibilities of the Directors, Secretary, etc. There is a model memorandum available for each specific Company Structure which makes the process of registering your business easier: •
For a Company Limited by Shares, download Form CR3.
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Form CR2 is a model article for Memorandum of Articles of Association.
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The Statement of Nominal Capital can be downloaded in a separate document.
3. To Register your Company you must disclose the details of the Directors and, if required, the Company Secretary •
Details of the Director(s) running the Company must be disclosed. i.e. The Director(s) personal and contact information is required, including certified copies of Identity Documents.
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Private Companies with a Share Capital of less than Kshs. 5,000,000/= (Five Million Kenya Shillings) are NOT required to have a Company Secretary.
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All Public Companies must have a Company Secretary.
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Where a Company Secretary is required, the personal and contact information must also be disclosed.
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Organizational Questions Topic
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Commercial Register
A company is expected to file its resolutions, written memorandum and agreements affecting the Company’s constitution within 14 days of passing of such a resolution. There are penalties ranging from Kshs. 200,000 to Kshs. 15,000,000 for companies that fail to comply. For instance, Section 873 of the Act provides that where a company fails to comply with its lodgment obligations, the Registrar or any member or creditor may give notice to the company requiring it to comply with the obligation and if the company fails to comply within 14 days after service of the notice, the registrar, member or creditor of the company may apply to the court for an order directing the company and any specified officer of the company to comply within a specified time. The court may also order that all costs of or incidental to the application are to be borne by the company or by any officers of it responsible for the default.
Beneficial ownership
Kenya introduced section 93A of the Companies Act of 2015 in July 2019, through the Statute Law (Miscellaneous Amendments) Act. This Act provides that companies incorporated or registered in Kenya should keep a register of beneficial owners with the relevant information relating to such owners. Under the Regulations, a beneficial owner is a natural person who directly or indirectly:
Remarks
• holds at least ten percent (10%) of the issued shares of the company; • exercises at least ten percent (10%) of the voting rights in the company; • holds the right to appoint or remove a director of a company; or • exercises significant influence or control over a company. Failure by a company to comply with the disclosure requirements is an offence which on conviction attracts a fine not exceeding KES 500,000 payable by the company and each officer of the company in default. Further, if the non-compliance continues, the company and the officers shall be liable an additional fine not exceeding KES 50,000 per day. Trade Register Notification
The Kenya National Chamber of Commerce and Industry (KNCCI) is a membership based trade support institution (TSI) working to protect commercial and industrial interests of Kenyan business community. KNCCI advocates for the creation of a favorable commercial, trade and investment environment that supports enterprise expansion. The membership of KNCCI constitutes small, micro enterprises (MSEs), medium and large enterprises. Joining is optional not a mandatory requirement.
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KENYA
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Bank Account
Theoretically banks can offer financial products to non-residents, although each bank decides for itself which accounts it makes available and the conditions attached to them. This means that in some cases the restrictions placed on opening accounts might make it hard to do so in practice if you’re not a resident. Passport or another proof of ID such as a national identity card and a copy of this document Proof of your home address Passport size photograph - occasionally more than one is needed Application from Reference from an employer or an intermediary who already holds an account with the bank and will act as your ‘introducer KRA PIN to prove you’re registered to pay tax
Transfer of Goods and Personnel arriving for a new contract into the country are exempted from paying taxes on their personal Machinery effects/household goods and one motor vehicle under part A paragraph 4 of the 5th Schedule of the , provided that the contract is for a term not East Africa Community Customs Management Act 2004 less than two years. Used household goods and personal effects are duty exempt provided goods have been owned and used by the client for a minimum of one year and goods are imported within three months of the Work Permit being issued. Duties and Taxes Payable: Taxes are payable depending on the value of the imported item(s) and the duty rate applicable outlined under different legal documents as given below. • Import Duties Depending with the item to be imported, the Import tax rates vary between 0%, 10% and 25% as provided by the East Africa Community Common External Tariff (CET). However, Sensitive items Attract duty higher than 25%. The sensitive items are listed in the schedule 2 of the EAC Common External tariff. • Excise Duties Excise Duty depends on whether the imported item is excisable or not. The Excise duty rates are prescribed under the Excise Duty Act 2015. • Value Added Tax (VAT) The normal rate of VAT is 16%. However, the Items exempted from VAT as provided by the VAT Act of 2013 attract a rate of 0%. • Import Declaration Fees (IDF) & Railway Development Levy (RDL) An import declaration fees of 2% and Railway development Levy of 1.5% are levied on value of imports as provided by the miscellaneous Fees and Levies Act of 2016.
SETTING UP BUSINESS IN
KENYA
Imported items must have their import duties paid. Documents required are: A Certificate of Conformity (CoC) from the PVoC agent for regulated products; an import standards mark (ISM) when applicable; Valid Commercial Invoice from the exporting firm valid pro forma invoices from the exporting firm. Bill of Lading (sea cargo)/Airway Bill (air cargo) Certificate of origin Freight invoice for sea cargo Logbook and its translation if it is not in English (motor vehicle) Permit/License for restricted goods Personal or Taxpayer Identification Number (PIN certificate) Exemption letter (in case goods are exempted) Purchase Orders/Contracts Certificate of Roadworthiness for Motor Vehicles Packing List Letter of Credit (if available) The customs clearing agent is then allowed to declare the goods you are importing in the customs system (Create an entry).
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Partnership form of Business Entity Topic
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Transfer of Capital
Foreign entities are free to transfer funds into Kenya and to remit sales and The gains referred to in the tax are any incremental differences in the conversion into local currency. investment proceeds from Kenya.
Remarks
Capital Gains Tax (CGT) was re-introduced with effect from 1st January 2015. The tax rate is 5% of the net gain on the transfer of property. There are exemptions on certain classes of shares and on specific transfers of property. CGT is a final tax and cannot be offset against other income taxes. The CBK Regulations permits any person leaving or entering Kenya may take out or bring into Kenya currency up to a maximum of five hundred thousand (500,000) shillings, or the equivalent of five thousand United States dollars (US$5,000), in foreign currency. Visa and Residency Permit
Work/Residence Permits are issued to any Non-Kenyan wishing to engage in General Requirements are: Duly filled and signed application Form 3. employment in Kenya whether in gainful employment or voluntary service. The Work/Residence Permits issued by the Department are classified from A Covering letter from employer/self/organization depending on the class (as applicable) to M inclusive. Copies of the National Passport. They are issued under Kenya Citizenship and Immigration Act 2011 of Laws Two coloured Passport size photographs. of Kenya. There are different classes, further information can be found on NOTE: https://www.immigration.go.ke/department-of-immigration-services/ Application fees are only payable upon receipt of an approval notification. Duly completed Entry Permit applications should be submitted at immigration Aliens counter 9 located at Nyayo House Ground floor (south wing) for acknowledgement. Applications for renewal of entry permits should be done three months prior to expiry date. These permits are normally issued for period of two years.
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Employment Topic
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Work Permit
Work/Residence Permits are mandatory and are issued to any Non-Kenyan wishing to engage in employment in Kenya whether in gainful employment or voluntary service.
Labour Laws
Paid absences required by law
Remarks
In addition to public holidays, an employee is entitled to fully paid sick leave of up to 7 days followed by up to 7 days on half pay in each period of 12 months and fully paid holiday or vacation leave of not less than 21 days in each period of 12 months. Female employees are entitled to fully paid maternity leave of 3 months in addition to their annual leave, whilst males are entitled to 2 weeks paternity leave. Standard working hours The statutory number of days of work in a week is six (6) days with a rest period entitlement of one (1) day. There is nothing in Kenyan Law which states that Saturday is a rest day and employers can insist on their employees working on that day at no higher rate than normal. Severance pay If employment of an employee is terminated on account of redundancy, the employee is entitled to severance pay at the rate of 15 days for each year served plus one month’s notice or pay in lieu of notice plus any accrued leave or leave pay which is due to the employee. Health, welfare and life insurance schemes Under the Employment Act, an employer is under an obligation to provide medical treatment to an employee taken ill or make full reimbursement of the costs incurred. As a result, many employers participate in medical insurance schemes for their employees. National Social Security Fund Participation in this fund is mandatory and is intended to provide a state retirement benefit for salaried workers. The employer pays a standard contribution of approximately 12% of the salary. One half of the contribution is deductible from the employee’s salary while the other is contributed by the employer to an upper limit of KES 2,160 for employees earning above KES. 18,000. National Hospital Insurance Fund The employee contributes a fixed sum, which must be deducted by the employer from the employee’s salary before receipt of the same. The maximum contribution is KES. 1,700 per month. The contributions are used to offset the costs of medical treatment but only cover a fraction of actual costs. Social Systems
Pension schemes are generally personal arrangements made by the employees with the employer with specific amounts or percentages contributed by the employee and a corresponding amount to be contributed by the employer to a dedicated pension scheme/organization. Arrangements generally terminate with employment of the employee. SETTING UP BUSINESS IN
KENYA
There are multiple pension providers in Kenya and a company may take upon itself a policy of remitting pension contributions.
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Taxation – Non Residents Topic
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Corporate Income tax
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Non-resident companies (branch) 37.5%
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Resident companies (and subsidiaries) 30%
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1% of gross turnover from businesses whose turnover is more than Kshs. 1,000,000 and does not exceed or is not expected to exceed Kshs 50,000,000 in any given year.
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Branches of foreign entities pay tax at the rate of 37.5%
Remarks
PAYE
Capital Gains Tax
Capital Gains Tax applies at a rate of 5% from 1st January 2015. For individuals, the tax is imposed on the transfer of land and shares. For companies, the tax is applicable to the transfer of money, goods, choses in action, land and every description of property, whether movable or immovable; or property acquired or held for investment purposes other than a motor vehicle
VAT
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The VAT rates are 16% and 0%. Exports are zero rated. Industrial fuel is vatable at 8 % and electricity is vatable at 16%.
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Some services, such as Ambulance services are exempt from VAT.
Digital service tax (DST)
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Tax payable on income derived or accrued in Kenya from services offered through a digital marketplace by non-resident persons. It is taxed at 1.5% of the gross transaction value and it is a final tax for non-residents who don’t have a permanent establishment in Kenya. DST is filed on a monthly basis on or before the 20th of the following month.
Tax Losses
Tax losses in Kenya are carried forward as allowable deductions against future income. The 10 year limit that was in place was removed to allow taxpayers to offset the losses against future profits until they are fully exhausted.
Fringe and employment benefits tax
Generally, non-cash benefits are taxable on the cost incurred by the employer or the fair market value (depending on which is higher). The taxable value is added to the emoluments for tax purposes. Tax exemption will be granted should the aggregate total not exceed KES 36,000 per annum.
Motor Vehicles
The benefit is the higher of 2% per month of the initial cost of the vehicle or the prescribed rates. For leased vehicles the benefit is the cost of leasing.
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Housing
For non-executive directors the benefit is the higher of 15% of total income (emoluments – for a whole time service director), market value and rent paid. For agricultural employees, it is 10% of emoluments and for other employees it is the higher of rent paid and 15% of emoluments.
Loans to employees
These are taxed at the corporate tax rate on the difference between the interest rate prescribed by the Commissioner and the actual rate paid by the employee.
Other benefits
Other taxable benefits include: Furniture – 1% of cost per month and Telephone – 30% of cost per month.
Employee share ownership plans (ESOPs)
Is the difference between the market price of shares and offer price at date option is granted.
Other taxes: Land rates
Land rates are based on a percentage of the site value.
Single business permit Depending on the nature of business undertaken, this permit costs between KES 2,000 and KES 100,000 Dividends
Dividends are taxed on a withholding tax basis which is a final tax. Expenses are therefore not allowable on the dividends’ income or on any other income of the taxable person. Dividends are tax-exempt for resident companies controlling more than 12.5% of shareholding. Dividends received by financial institutions are exempt.
Compensating tax
May arise if non-taxed income is distributed, e.g. capital gain or profits on capital allowances. It is worked out through an annual dividends tax account which traces the movement of dividends received or paid and taxes paid.
Interest deductions/ payments
The Act has introduced a provision that prohibits a deduction of interest paid/ payable to related non-resident and third parties in excess of 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). Any amount above 30% of EBITDA shall be disallowed. Previously, the thin capitalisation restriction was based on a debt-to-equity ratio of 3 to 1
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Withholding tax
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This guide has been prepared by JM ASSOCIATES, an independent member of Antea JM ASSOCIATES 8th Floor, West Park Towers Mpesi Lane Off, Muthithi Road Westlands, 2359800625, Nairobi, Kenya. Phone: +254 733 818 835 mwangi@jmassociates.co.ke www.jmassociates.co.ke
SETTING UP BUSINESS IN
KENYA
This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it. © 2022 ANTEA