Kenyan investment law is modeled on English investment law. The formal procedures for starting a business in Kenya are to a great extend determined by the type of business one wishes to establish and the sector which the business belongs.
Ownership structure
Forms of legal incorporation of business enterprises in Kenya include: incorporated limited liability companies, sole proprietorships, partnerships, cooperatives, companies limited by guarantees for most non-profit organizations, and representative offices.
There are no restrictions on the percentage of equity that foreign nationals may hold in a locally incorporated company, although the government encourages foreign firms to form joint ventures with Kenyan companies or entrepreneurs. Foreign ownership of equity in insurance, telecommunications and companies listed on the Nairobi Stock Exchange is however restricted to 66.7%, 70% and 75% respectively. Foreign equity in companies involved in fishing activities is restricted to 49% of the voting shares under the Fisheries Act.
Legal requirements
Legal requirements that registered businesses must acquire include VAT number, Personal Identification Number (PIN), National Social Security Fund (NSSF) number, and the National Hospital Insurance Fund (NHIF) number. Other requirements are specific to business type.
Investment Certificate
An investor may obtain an Investment Certificate from the Kenya Investment Authority (KIA) provided the investment capital is at least $500,000 and that the investment and the activities related to it are beneficial to Kenya. Beneficial activities are determined by such criteria as creating employment, skills upgrading, transfer of technology, foreign exchange and tax revenue generation, among others.
An Investment Certificate grants the investor such benefits as entitlement to all licenses required for his or her operations, and work permits for three members of management or technical staff and three shareholders or partners valid for 2 years each. Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial because Kenya has a rather extensive licensing requirement.
Trademarks and Patents
Trademarks are regulated by the Trade and Service Marks Act, and patents are administered by the Kenya Industrial Property Institute (KIPI). The duration of trademarks is seven years from the date of filing and renewable every 14 years. Kenya is an active member of World Intellectual Property Organization with several recognized IP lawyers.
Incorporation
Investors must log their proposed business names with the Registrar of Companies at the Attorney General’s office. This application can be made by the applicants directly or through legal representatives and policy experts. Once approved, Memorandum and Articles of Association are filed with the Registrar who issues a Certificate of Incorporation. A foreign company wishing to open a branch office in Kenya can do so at the Registrar of Companies. Both private and public companies may allot shares for considerations other than cash as long as the registrar of companies is informed of such allotments.
Work Permits
Work permits are required for all foreign nationals wishing to work in the country. Investors are allowed to have expatriate staff in senior management, or where locals with specific skills are not available. Work permits are valid for a maximum of two years and can be renewed by the Immigration Department.
Recruitment
Foreign employees are expected to be key senior managers or have special skills not available locally. Foreign investors are required to sign an agreement with the government stating training arrangements for phasing out expatriates. Any enterprise, whether local or foreign, may recruit expatriates for any category of skilled labor if Kenyans are not available.
Sectors with Restrictions
The Kenyan government focuses its investment promotion on opportunities that earn foreign exchange, provide employment, promote backward and forward linkages, and transfer technology. The only significant sectors in which investment (both foreign and domestic) are constrained are those where state corporations still enjoy a statutory monopoly. These are restricted almost entirely to infrastructure (e.g., power, posts, telecommunications and ports) and the media, although there has been partial liberalization of these sectors. For example, in recent years, five Independent Power Producers (IPPs) have begun operation in Kenya. Foreign telecom companies can also establish themselves in Kenya, but must have at least 30% local ownership.
Taxes
All resident companies are subject to tax on their incomes at the rate of 30%. Branches of non-resident companies pay tax at the rate of 37.5%. Taxable income is generally defined to be income sourced in or from Kenya. Value Added Tax (VAT) is levied on goods imported into or manufactured in Kenya, and taxable services provided. The standard VAT rate is 16%.
Expropriation of Property
In terms of security of foreign investments in Kenya, the Kenyan Constitution guarantees the sanctity of private property such that the State cannot appropriate property or investments without promptly paying just compensation. The Foreign Investment Protection Act also guarantees against expropriation of private property by the Government. Kenya has no history of expropriating foreign investments.