What are the legal requirements for running a successful business in Kenya as a foreign investor? Depending on the structure of your business, your business in Kenya will be subject to several different types of legal requirements.
It is vital for businesses to seek relevant advice when setting up in Kenya to understand and meet their legal obligations. It is important to be aware of the statutory framework of a business. Non-compliance can result in sanctions, prosecution and reputational damage to the company.
Let’s dive into these legal requirements to better understand what an investor should keep in mind when starting a business in Kenya.
The first step to operating in a market is the registration of the structure. Once the registration process is complete, the investor receives a certificate of registration; this may be a certificate of compliance, a certificate of incorporation or a certificate of business name. Don’t forget to ask for other documents related to the registration of your business. For example, the CR12 is very important as it details the ownership and mandate of the company.
You will need to appoint a certified Company Secretary (CS) in the following cases; Either none of the directors are physically in the country; Or the share capital of the company is over KES 5 million. The role of the CS is to ensure compliance with regulatory requirements and the proper implementation of the decisions of the Board. To this end, it will keep the statutory books of the company. As for a branch office, it is mandatory to appoint a local representative residing in Kenya.
With respect to the company registry, annual returns must be filed for all local entities. This is irrespective of whether the business has commenced operations or not. This is necessary to ensure that your business information is updated regularly. This ensures that the company register always has valid information.
Kenya Revenue Authority (KRA)
What is a PIN?
Following the issuance of a certificate of registration, the Personal Identification Number (PIN) is one of the next requirements for a business in Kenya. It is a unique tax number issued by the Kenya Revenue Authority (KRA). The PIN allows KRA to track the company’s compliance with taxes, declarations and statutory obligations under Kenyan law. Note that tax compliance applies to any type of permanent establishment. Businesses and individuals.
What is a PE?
By definition, a permanent establishment (PE) is a fixed place of business that gives rise to an income or value added tax liability in a particular jurisdiction. Kenya essentially operates a source-based tax system. It effectively taxes all income accruing or arising in Kenya. Therefore, Kenya taxes all residents and non-residents. Non-residents may either have a permanent establishment in Kenya or have no tax presence at all. Non-residents with no tax presence are taxed through the withholding tax system, where withholding tax is applicable. While those with a permanent establishment are taxed through the corporate tax system. There is little difference in the taxation of Kenyan residents and non-residents who have permanent establishments.
What is PAYE?
As an employer, you must deduct income tax (PAYE) from your employees’ wages and salaries at the prevailing rates. You must remit them to KRA by the 9th of the following month. PAYE is payable by persons with employment income of Kshs. 24,000 and above per month.
What is CIT?
Unsurprisingly, corporate income tax is one of the obligations of a business in Kenya. The corporate tax rate for resident companies, including subsidiaries of foreign parent companies, is 25%. The corporate tax rate for branches of foreign companies is 37.5%. Resident companies are taxable in Kenya on income accruing or arising in Kenya. Resident companies carrying on business activities outside Kenya are also taxed on income derived from business activities outside Kenya.
What is VAT?
With respect to VAT (Value Added Tax), registration can be mandatory or voluntary; voluntary where the business activities involve the purchase and sale of goods or services for sale. However, VAT registration becomes mandatory when the company reaches the threshold of KES 5 million in annual sales. VAT is currently 14% and is remitted to KRA by the 20th of the following month.
What is WHT?
Withholding Tax (WHT) is levied at varying rates (3% to 30%) on a range of payments to residents and non-residents. For residents, the WHT is either a final tax or credited against the corporation tax. For non-residents, the WHT is a final tax. In the case of consulting or professional services, a 5% withholding tax is applied to the taxable amount. This tax is remitted to KRA on behalf of the taxpayer who receives the WHT certificate.
What is a TCC?
Finally, you can apply for a Tax Compliance Certificate (TCC). This certificate can be very useful for businesses in Kenya as it is equivalent to tax compliance. The main advantage of the TCC is that it facilitates a number of administrative procedures.
There are many requirements for a business in Kenya. These vary and often change depending on the nature of the business conducted within the company. Some of the government agencies to name a few may include; The Kenya Bureau of Standards (KEBS) which promotes standardization in industry and commerce; The National Construction Authority (NCA) regulates and builds capacity if you are looking to get into the construction sector; The Kenya Information and Communication Technology (ICT) office sets and enforces ICT standards and guidelines for human resources, infrastructure, processes, systems and technologies for public offices; The Communications Authority of Kenya (CAK) and the Central Bank of Kenya (CBK) cover all businesses engaged in communication and financial services respectively.
Hire and run payroll in Kenya without setting up an entity: KENYA EOR