The Meritas Foundation in collaboration with one of our Senior Partners Jinaro Kibet (email@example.com), has researched and combined an article about the African Legal Guide for Business Investment and Expansion.
Africa : A Legal Guide for Business Investment and Expansion
There is no regulation on foreign direct investment in Kenya except in specific sectors where state corporations have a monopoly (such as firearms, currency printing and port infrastructure). There are specific governmental agencies that promote and assist foreign investment and they include the following:
Limited Liability Companies. The most common forms of business vehicles used by foreign investors in Kenya are Private Limited Liability Companies as they are relatively inexpensive to establish and there are no minimum or maximum share capital requirements. This type of company is legally required to have one director but will usually have at least 2 directors for practical purposes. It is required to have at least 1 shareholder in a one-man company. Kenya’s Companies Act, 2015 mirrors the UK’s Companies Act, 2005.
Branches of foreign companies. It is also relatively common for foreign enterprises to set themselves up in Kenya as branches of foreign companies. Branches of foreign companies are liable to be charged corporate tax at 37.5% (as compared to Kenyan Companies which pay corporate tax at a rate of 30%).
Limited Liability Partnerships. Limited Liability Partnerships (LLPs) are partnerships that enjoy unique benefits. They have several advantages over companies incorporated under the Companies Act. LLPs differ from ordinary partnerships in that they accord the players a separate legal identity and also give the arrangement a corporate identity but they are treated as a tax transparent vehicle by the revenue authority
There is no regulation on commercial joint ventures in Kenya.
There are very few restrictions on foreign ownership of businesses in Kenya. The following sectors are restricted:
For purposes of insurance brokers, the Insurance Act requires that 60% of the paid-up share capital of an insurance broker shall be owned by Kenyan citizens or partnerships whose partners are citizens of Kenya or by corporate bodies whose shares are wholly owned by citizens of Kenya or wholly owned by the Government of Kenya.
at least 20% of its shares to Kenyans on or before the expiry of three years after issuance of a licence.
2016 provides for the Cabinet Secretary to prescribe limits on local equity participation. It remains to be seen what these are. Preference is, however, to be given to local products. The holder of a mineral right shall, in any dealings in minerals, give preference to the maximum extent possible to materials and products made in Kenya, to services offered by Kenyan citizens, and to companies or businesses owned by Kenyan citizens. The old Mining Act provided a requirement of 35% local equity participation for all mineral rights. A mineral dealer’s permit was at the time only to be issued to
The Employment Act (No. 11 of 2007) and The Labour Relations Act (No. 14 of 2007) may be relevant if there is to be a termination of employment or if workers are to be made redundant. There is no automatic transfer of employment contracts to an acquirer on a business combination except where the employer company is taken over, in which case there is no change of employer, merely a change in its shareholders. It is common for the terms of the transaction agreements to provide for the acquirer of business assets to undertake to offer to hire all staff of the business on like terms and to honour all past-service obligations on condition that the employees waive their rights to receive terminal payments. If the acquirer does not take on some of the employees (or all of them), the company would have to terminate and compensate.
Immigration Act. Expatriates who want to work in Kenya are required to obtain a work/entry permit under the Immigration Act (Chapter 172, Laws of Kenya). These permits are categorized according to the areas of work to be undertaken. An entry permit holder can apply to be granted a dependant’s pass for each of his dependants. If the application is approved by the immigration officer, an entry permit will be issued subject to the payment of a fee (which varies depending on the class issued). The period of validity of an entry permit or its renewal is at the discretion of the immigration officer but is restricted under the regulations to the Immigration Act to a period not exceeding five (5) years from the date of issue or renewal. In general, a permit is for two (2) years. A person wishing to enter Kenya for the purpose of conducting any business, trade or profession can make an application to an immigration officer for a visitor’s pass. The validity period for a visitor’s pass is six (6) months from the date of the person’s entry into Kenya. The validity of a visitor’s pass may be extended by an immigration officer for such further periods as the officer may determine. However, such an extension will at no time exceed six (6) months.
None outside those already discussed.
Withholding tax was introduced into Kenya in 2012. It is tax which is payable in respect of the amount or value of the consideration from the sale of property.
This tax is payable at the rate of 20 per cent for payments to non-resident persons and 10 per cent for payments to resident persons. With the exception of the above, there have not been any recent major overhauls of the tax legislation with respect to foreign investment, and all businesses would be subject to the following taxes; income tax, corporate tax, customs and excise dependent on the sector of operations.
Kenya has a comprehensive legal framework to ensure intellectual property rights (IPR) protection. These include the Anti-Counterfeit
Act, the Industrial Property Act, the Trade Marks Act, the Copyright Act, the Seeds and Plant Varieties Act, and the Universal Copyright Convention. Kenya is a member of the World Intellectual Property Organization
(WIPO) and of the Paris Union
(International Convention for the Protection of Industrial Property), along with the United States and 80 other countries. The African Intellectual Property Organization (AIPO) embodies a future prospect for patent, trademark, and copyright protection, although its enforcement and cooperation procedures are still untested. Kenya is a member of the African Regional Intellectual Property Organization (ARIPO). Kenya is also a signatory to the Madrid Agreement Concerning the International Registration of Marks.
The court system is slow and expensive in Kenya, with some cynicism about the objectivity of certain executive and judicial branch decisions. Recent major reforms in the judicial system in Kenya have been targeted at addressing these challenges. There are dedicated commercial courts of the status of high courts. The delays and legal costs involved in solving disputes through courts have seen the emergence of alternative dispute resolution methods such as arbitration and mediation. Kenya is a signatory to the 1958 New York Convention and has adopted the UNCITRAL model of arbitration. There is also an active local chapter of the Chartered Institute of Arbitrators. Kenya also recently established the
Nairobi International Arbitration
Centre which mirrors the London Court of International Arbitration modalities and operations. Parties can agree on the criteria that this arbitration tribunal must have so that complex issues are only heard by suitably qualified arbitrators.
There are no special requirements imposed on foreign investors. All investors (foreign and local) receive the same treatment in the initial screening process. The particular sector regulations are as discussed herein. 1 11. What are the regulations, protocol, and practicalities around public procurement and financing in Kenya?
Public procurement in Kenya is regulated by the Public Procurement and Asset Disposal Act. The Act contains all the regulations and protocols for public procurement but there are no restrictions or regulations on financing those projects.
Kenya has recently enacted the Bribery Act 2016 which creates a legal obligation (statutory duty to act) on a person holding authority in a private entity, who becomes aware of an act of bribery, to report the matter to the Ethics and Anti-Corruption Commission within 24 hours. The Act requires all public or private entities to put in place appropriate measures to prevent bribery and corruption. Directors or senior officers of private entities who fail to take such prevention measures are liable of committing punishable offences.