investment guide - africa legal network · in 2017, kenya conducted its second elections under the...

ALGERIA

ETHIOPIA

GUINEA

KENYA

MADAGASCAR

MALAWI

MAURITIUS

MOROCCO

MOZAMBIQUE

NIGERIA

RWANDA

SUDAN

TANZANIA

UGANDA

ZAMBIA

INVESTMENT GUIDE2017/2018

INVESTMENT GUIDE 2017/2018 | KENYA i

About ALNALN is an alliance of leading corporate law firms currently in fifteen key African jurisdictions, including the continent’s

gateway economies. We have a presence in Francophone, Anglophone, Lusophone and Arabic speaking Africa: Algeria,

Ethiopia, Guinea, Kenya, Madagascar, Malawi, Mauritius, Morocco, Mozambique, Nigeria, Rwanda, Sudan, Tanzania, Uganda

and Zambia. The firms are recognised as leading firms in their markets and many have advised on ground breaking, first-of-a-

kind deals. ALN also has a regional office in Dubai, UAE.

ALN firms work together in providing a one-stop-shop solution for clients doing business across Africa. ALN’s reach at the

local, regional and international levels, connectivity with key stakeholders, and deep knowledge of doing business locally and

across borders allows it to provide seamless and effective legal, advisory and transactional services across the continent.

Our high level of integration is achieved by adherence to shared values and an emphasis on excellence and collaboration. We

share sector-specific skills and regional expertise thus ensuring our clients benefit from the synergies of the alliance.

ALN is proud to have won the “Africa Network/Alliance of the Year” award at the 2018 African Legal Awards hosted by

Legal Week, which recognises its leadership in the market in legal expertise and innovation, strategic vision, business

winning, service delivery across the continent and commitment to CSR.

Chambers Global has consistently ranked the ALN alliance as Band 1 in the “Leading Regional Law Firm Networks –

Africawide” category.

ALN In Kenya

ALN Kenya | Anjarwalla & KhannaA&K is generally considered the leading corporate law firm in Kenya, and is the largest full-service corporate law firm in East

Africa with close to 100 lawyers. A&K has developed specialist expertise in several practice areas, including corporate and

commercial law, mergers and acquisitions, private equity, energy, infrastructure, project finance, real estate, competition,

capital markets, banking and finance, intellectual property, tax and dispute resolution. A&K operates Africa-wide, handling

deals in several countries across Africa, both in its own capacity and in collaboration with ALN firms across the continent.

A&K was in 2018 named Kenyan Law Firm of the Year by Chambers & Partners. Additionally, the firm has won “African Law

Firm of the Year – Large Practice” four times in the last six years, awarded by the prestigious African Legal Awards, which

celebrate ‘excellence, achievement and innovation in the legal profession’. A&K has been ranked for this distinction in 2017,

2016, 2015 and 2013 and been shortlisted for it in 2018 and 2014. A&K is ranked first in Kenya by various legal guides,

including Chambers Global, IFLR, and Legal 500. As reported in Chambers Global 2018, clients noted that A&K has ‘in-depth

knowledge of the African market, especially East Africa, from M&A to tax, defence and general advisory work’. Legal 500’s

most recent edition praised A&K for its ‘speedy’ responses, ‘attention to detail’ and ‘deep knowledge’. IFLR1000 in their 2017

edition noted that ‘A&K has become the largest legal practice in Sub-Saharan Africa, outside of South Africa, and continues

to work on the largest and most complex transactions in the region’. A&K is ranked by Chambers as having Africa-wide

capabilities. The firm has on-the-ground presence coupled with regional and international connectivity and expertise.

A&K has offices in both Nairobi and Mombasa, Kenya’s two main commercial centres, providing a broad range of legal

services in both. In addition, A&K has established a legal consultancy firm in Dubai, Anjarwalla Collins & Haidermota (AC&H),

which provides corporate and commercial legal services. AC&H is the first and only African firm to be licensed in Dubai. Our

close ties with AC&H allow us to seamlessly service clients based in the UAE on their transactions in Africa.

CAPITAL CITY:Nairobi

POPULATION:48,46 million (2016)

GDP:GDP 70,53 billion USD (2016)

AREA:581,309km2

PRESIDENTUhuru Muigai Kenyatta

GOVERNMENT:Unitary republic with a federal

system

TIMEZONEGMT + 3

CURRENCYKenya Shilling (KES)

LANGUAGESEnglish, Swahili

DRIVES ONThe Left

CALLING CODE+254

TOP LEVEL DOMAIN.ke

INVESTMENT GUIDE 2017/2018 | KENYA iii

CONTENTS

OverviewPolitical Overview 1

Economic Overview 2

Investment PromotionInstitutes Governing Investment Promotion 6

Investment Incentives 6

Export Processing Zones (EPZs) 6

Special Economic Zones 7

TaxCapital Gains Tax 9

Withholding Tax 10

Value Added Tax 11

Import Duty 11

Excise Duty 12

Stamp & Transfer Duty 12

Transfer Pricing & Thin Capitalisation 12

Doing BusinessAccounting Principles 14

Industrial Relations 14

Competition 16

Consumer Protection 17

Real Property 18

Legal Forms Of Incorporation 19

Intellectual Property 21

Dispute Settlement 22

Industry SectorsAgriculture 25

Banking & Financial Services 25

Manufacturing 26

Mining, Oil & Gas 27

Real Estate & Construction 27

Telecommunications 29

Tourism 30

Key DevelopmentsThe Big 4 31

Crude Exports 31

Infrastructure 31

Financial Sector Regulation 32

INVESTMENT GUIDE 2017/2018 | KENYA 1

Political OverviewKenya is a Constitutional Democracy with a multi-

party political system. In 2010, Kenya enacted a new

Constitution that specifically addresses longstanding

historical, geographic, demographic inequalities as well

as human rights violations that hindered progressive

development. Since 2010, certain functions of government

were devolved from the National Government to 47

County Governments in order to give local decision-making

bodies more influence over the choices that affect their

constituencies.

2017 ElectionsIn 2017, Kenya conducted its second elections under

the new Constitution. The incumbent President, Uhuru

Kenyatta, won the poll conducted in August 2017.

However, the outcome of this election was challenged in

the courts by the opposition party led by Raila Odinga. In

an historic finding, the Supreme Court of Kenya annulled

the election outcome based on failures by the Independent

Electoral Commission and the integrity of their IT system.

This decision was accepted by the President and his party

and they immediately began campaigning for the election

re-run which the court ordered. This showed the maturity

of the Kenyan political system and was a strong step

forward for the rule of law in Kenya.

The second election took place on 26 October 2017 but

Raila Odinga boycotted the poll and did not participate.

The incumbent, Uhuru Kenyatta, won with over 98% of

the votes cast. President Kenyatta was sworn in on 28

November 2017.

National Government There are three arms of the national government. These

are:

1. The Executive arm led by the President. The President

is the Head of State and Government, and the

Commander in Chief of the Kenya Defence Forces.

The President is elected by more than half of the votes

cast in an election and must obtain at least 25%of the

vote in each of at least 24 counties. The law requires

the President to appoint between 14 to 22 Cabinet

Secretaries reflecting ethnic, gender and regional

diversity.

2. The Legislature is comprised of two houses: the

National Assembly and the Senate.; The National

Assembly consists of 290 members, each elected by

the registered voters of the 290 constituencies; 47

women representatives, each elected by the registered

voters of the 47 counties; and 12 members nominated

by parliamentary political parties according to their

proportion of members of the National Assembly

to represent special interests, including the youth,

persons with disabilities and workers; and the Speaker,

who is an ex officio member. The Senate comprises 47

members, each elected by the registered voters of the

counties, each County constituting a single member

Constituency; 16 women members nominated by

political parties according to their proportion of

members of the Senate; 2 members, being 1 man

and 1 woman, representing the youth; 2 members,

being one man and one woman, representing persons

with disabilities; and the Speaker, who is an ex officio

member.

3. The Judiciary is headed by the Chief Justice. The

Judiciary consists of the judges of the superior courts,

magistrates, other judicial officers and staff. The

superior courts are the Supreme Court which is the

highest court in the country, the Court of Appeal, the

Overview

OVERVIEW


High Court, the Employment and Labour Relations

Court, and the Environment and Land Court. The

lower courts consist of the Magistrate’s Courts. There

are also various tribunals established under various

statutes to deal with specific matters such as the Tax

Tribunal and Competition Tribunal.

County GovernmentsEach of the 47 counties has two arms of government - an

executive comprised of an elected Governor and their

appointees and a County Assembly with members elected

from separate constituencies.

The Constitution apportions responsibility for various

functions between the County and National Governments.

The Constitution requires the National Government to

allocate the Counties with at least 40% of the national

budget to enable them to perform their functions.

The functions and powers of the County Government

include agriculture, County health services, control of air

pollution, noise pollution, other public nuisances, cultural

activities and public entertainment, County transport,

animal control and welfare, trade development and

regulation, County planning and development, County

public works and services, pre-primary education and

village polytechnics and implementation of specific

National Government policies on natural resources and

environmental conservation.

Since 2013, various laws have been passed by County

Governments pertaining to these areas of responsibility but

the availability of these laws for review and consideration is

somewhat erratic. It is therefore important for businesses

and investors to not only comply with the National laws

but to also check whether there are any relevant County

laws to comply with in the Counties in which they seek to

operate.

Economic Overview

Economic PerformanceKenya’s economy has experienced considerable growth

in the past few years and remains the largest in the East

African region. According to the IMF estimates, Kenya’s

economic growth was close to 5% in 2017. This is a

reduction from recent years when growth has been closer

to 6% which may well be the result of the tumultuous 2017

election and its rerun which caused a significant slowdown

in economic activity. However, it seems likely that political

stability will lead to a rebound in activity in 2018 as

deferred projects come on stream.

The positive outlook is predicated on booming

infrastructure investments. Kenya enjoys the advantage of

a well-educated labour force, a vital and growing port that

serves as an entry point for goods destined for countries

in the East African and Central African interior, abundant

wildlife for tourism, miles of attractive coastline, increasing

discoveries of natural resources and a government that is

committed to implementing business reforms.

DemographicsThe population of Kenya is estimated at around 47 million

and is expanding. It is estimated that 40% of the population

is under 15 which means there will be a huge bulge of

workers and consumers entering the workforce over the

next couple of decades. Combining these statistics with

Kenya’s strong education system points to the potential for

a transformed future - provided that the correct policies

are in place and the economy stays strong enough to create

adequate jobs to allow the country to take advantage of

these positive demographics.

The United Nations forecasts a doubling of the current

population by 2050 and a huge rural-urban migration.

Presently, just 25% of the population (about 12 million

people) live in cities but this is projected to increase to 44%

(42 million people) by 2050. This will create a huge need

for infrastructure and services in the major hubs of Kisumu,

Nairobi and Mombasa, amongst others.

OVERVIEW


Vision 2030The Government is currently pursuing Kenya’s “Vision

2030” which is the country’s development blueprint

covering the years 2008 to 2030. The Vision aims at

turning Kenya into a “middle income economy in providing

high quality life for all its citizens by the year 2030”. The

Vision is based on three pillars namely; the economic pillar,

the social pillar and the political pillar. The economic pillar

aims at providing prosperity of all Kenyans through an

economic development programme aimed at achieving an

average Gross Domestic Product (GDP) growth rate of 10%

per annum over the next 25 years. The social pillar seeks

to build “a just and cohesive society with social equity in a

clean and secure environment”. The political pillar aims at

realising a democratic political system founded on issue-

based politics that respects the rule of law, and protects

the rights and freedoms of every individual in the Kenyan

society.

The six key sectors in the Vision which have been given

priority as key growth drivers include tourism, agriculture,

manufacturing, ICT and business process out-sourcing,

wholesale and retail trade and finance.

In addition, the current ruling party (The Jubilee Party led

by President Kenyatta) unveiled what the term as their ‘Big

Four Agenda’ listing four other key pillars on which they

intend to focus over the coming years – manufacturing,

universal healthcare, affordable housing and food security.

External Debt RatingsAs at December 2017, Kenya is rated as a B+ or

equivalent, by all of the ratings agencies. The country’s

Government debt has recently increased significantly to

fund infrastructure projects and is now approximately 60%

of GDP. This trajectory is starting to cause concern with

international bodies like the IMF who will be mindful of the

growth in debt and how that can affect future ratings.

Ease of Doing Business Improving the ease of doing business has been a priority for

the Government and it has witnessed some notable success

in this regard. The World Bank Group’s Doing Business

Report, 2017 ranked Kenya 80 out of 190 (previously

108th) economies in ease of doing business, 92nd in

protecting minority investors (previously 115th) and 29th in

getting credit (previously 28th).

EAC/COMESAKenya is part of the East African Community (EAC), a

regional intergovernmental organisation of six Partner

States. Other members include Tanzania, Uganda, Rwanda,

Burundi, and South Sudan which officially joined the

EAC in April 2016. As one of the fastest growing regional

economic blocs in the world, the EAC is widening and

deepening co-operation among the Partner States in

various key spheres for their mutual benefit. These spheres

include political, economic and social.

The members of the EAC entered into a Common

Market Protocol (the Protocol), with effect from July

2010 and steps are being undertaken to realise the full

implementation of the Protocol in 2016. In particular, the

four freedoms of the Protocol demand free movement of

people, goods, services and capital within the common

market. In this regard, member states are required to

review domestic legislation to ensure their compliance with

the Protocol’s objectives.

Progress on implementing these ideals has been erratic,

but progress has been made in a lot of areas, especially by

Kenya and Rwanda.

Kenya is also a member of the 19 member Common Market

for East and Southern Africa (COMESA), opening up the

way for trade across Eastern and Southern Africa for nearly

400 million people which is about half of Africa’s total

population.

OVERVIEW


Capital MarketsKenya has one of Africa’s most vibrant capital markets. As

at December 2017 the Nairobi Securities Exchange (NSE)

had 65 listed companies. The Capital Market Authority

(CMA), the regulator of the Kenya capital markets, has

developed and is implementing the Capital Markets Master

plan (2013-2023) which aims at turning Kenya into the

heart of capital markets in East Africa.

This move has seen a significant focus on corporate

governance and shareholder rights. The introduction of

the Code of Corporate Governance Practices for Issuers

of Securities to the Public in 2016 has had a significant

impact on raising the level of compliance relating to

corporate governance amongst these listed companies

Bilateral & Multilateral TreatiesKenya is a member of the EAC, COMESA, African,

Caribbean and Pacific States and the World Trade

Organisation (WTO). Kenya has also recently signed up to

the African Continental Free Trade Agreement (AfCFTA)

aimed at paving the way for a liberalised market for goods

and services across the continent. .

Currently, Kenya has signed double taxation agreements

(which are in full force and effect) with Canada, Denmark,

France, Germany, India, Netherlands, Norway, Qatar,

South Africa, South Korea, Sweden, the United Kingdom,

and Zambia. Kenya has recently signed double taxation

agreements with Iran, Seychelles, Nigeria, United Arab

Emirates, EAC partner states, Mauritius and Italy. The

treaties will come into force once the requisite notifications

are made to the respective foreign governments, but in any

case not earlier than 1 January 2019.

As from 1 January 2015, the Income Tax Act (the ITA) limits

the relief from double taxation to a person resident in a

country that has a double taxation agreement with Kenya,

or a company that is resident in a country that has a double

taxation agreement with Kenya, and where 50% or more of

its underlying ownership is held by an individual(s) resident

in that country. An exception to this rule is where the

non-resident company is listed in the stock exchange of the

counterpart state, in which case the 50% ownership rule

will not apply in accessing treaty benefits.

Kenya has entered into Investment Promotion and

Protection Agreements (bilateral investment agreements)

with France, Finland, Germany, Italy, Netherlands,

Switzerland, China, Libya, Iran, Burundi and the United

Kingdom and is currently negotiating agreements with

other countries.

In March 2016, Kenya signed the Multilateral Convention

on Mutual Administrative Assistance in Tax Matters

(commonly known as the Common Reporting Standards)

which provides for all forms of administrative assistance

in tax matters, such as the exchange of information on

request, spontaneous exchange, automatic exchange,

tax examinations abroad, simultaneous tax examination

and assistance in tax collection. It is not clear when the

Government of Kenya intends to operationalise the

provisions of the Common Reporting Standards but

we understand that it will be in the foreseeable future.

As a precursor the Common Reporting Standards, the

Government of Kenya has announced a tax amnesty on

foreign income which expires on 30 June 2018.

Regulatory EnvironmentThe legal system in Kenya consists of a mixture of

statutory written law as well as elements of Statutes of

general application in England before 12th August 1987

and customary law. Much of Kenya’s business laws were

adopted from English law.

One of the most significant changes to take place in Kenya

in the last decade is the enactment of the Constitution in

2010. The Constitution has brought about unprecedented

change and development in the law. Since it was enacted,

over 270 new statutes have been introduced.

This flurry of new and modernised legislation has changed

the investment regulatory system significantly. The key

corporate and investment laws that have changed in

the last five years include the Companies Act, 2015, the

Insolvency Act, 2015 and, the Competition Act, 2012.

Each of these has gone through several amendments or

enhancement through regulations in order to improve and

fine-tune their application.

The Constitution also envisions numerous pieces of

legislation to be enacted by Parliament covering a wide

OVERVIEW


range of subjects, including land ownership, consumer

protection and the exploitation of natural resources.

The Mining Act 2016 reflects a dramatic overhaul of the

regulatory framework for mining activity in Kenya brought

on by Constitutional imperatives. The Mining Act now

creates separate licensing regimes for small scale and

large scale mining operations with streamlined application

processes and approval time frames.

The Competition Act, which seeks to ensure a more

competitive market, has seen a number of guidelines

and rules in relation to the assessment of mergers and

restrictive trade practices published in 2015. In 2017, the

principal act was amended to align it with the provisions

of the Constitution and further rules were introduced in

respect to the procedures and guidelines to be used by the

Competition Tribunal in determining appeals by persons

aggrieved by decisions made by the Competition Authority.

Over the past few years there have been major efforts

to privatise commercial sectors that were previously

government owned or managed in order to encourage

foreign investment in these sectors. The stated aim of the

Government is to have minimal interference in business,

and it is increasingly adopting the role of a regulator, rather

than an active market participant.

The Public Private Partnerships (PPPs) Act, 2013, (the

PPP Act) aims to expand the participation of the private

sector in infrastructure and development projects through

concessions or contractual profit sharing arrangements.

The Public Private Partnership Regulations of 2014 set out

the mechanisms for giving effect to various provisions of

the PPP Act. Pursuant to these Regulations, the PPP Unit

within Government is working on a pipeline of projects.

With the evolution of a devolved system of government,

County Governments are targeting private investors to

collaborate with them through PPPs in order to enable

them to carry out their constitutional functions. Potential

projects include administration of county transport and

infrastructure (including construction, street lighting,

traffic, ports and parking), providing county health services,

fire-fighting services, pre-primary education, disaster

management and the implementation of other specific

National Government policies.

Additionally, procurement by Government entities is now

governed by the Public Procurement and Asset Disposal

Act, 2015, (the PPAD Act). The PPAD Act gives effect to

Article 227 of the Constitution which seeks to set out

procedures for efficient public procurement and asset

disposal by public entities and for connected purposes. The

PPAD Act provides a framework for the private sector to

partake in public procurement in an efficient manner.

OVERVIEW


Investment Promotion

Institutes Governing Investment Promotion

Kenya Investment AuthorityIn a bid to encourage investment in Kenya, the National

Assembly enacted the Investment Promotion Act, 2004

(the IPA). The IPA aims to reduce bureaucratic delays

in relation to licensing, immigration and negotiating tax

incentives and exemptions from the relevant authorities.

The IPA established a corporate body known as the Kenya

Investments Authority (KenInvest) to implement the goals

of the legislation. For a foreign investor to qualify for an

investment certificate, the minimum value of his proposed

investment should be USD 100,000 or the equivalent

in another currency. In deciding whether to issue an

investment certificate, KenInvest considers the extent

to which the investment will contribute to the Kenyan

economy by increasing the number and quality of jobs

in Kenya, training Kenyans in new skills or technology,

encouraging economic development, allowing the transfer

of technology, adding to tax revenue or affecting foreign

exchange.

Nairobi International Finance CentreThe Nairobi International Finance Centre (NIFC) has been

created to lead a stable, efficient and globally competitive

financial services sector in Kenya that encourages both

domestic and foreign investment. However, there are no

agreed regulations to allow investors to consider whether

to seek registration. There is further information on the

NIFC in the Recent Developments chapter.

Investment IncentivesAn investment certificate granted under the IPA offers

investors important benefits, most notably that KenInvest

facilitates the issuance of all necessary licences and permits

required for an investor’s operations. Such assistance is

particularly helpful when making applications for work

permits and tax personal identification number (PIN)

registration.

In order to spur economic growth, there has been a number

of targeted, industry specific incentives in recent years

in the form of tax exemptions and lower tax rates for the

following sectors: energy, mining, hospitality and tourism,

fishing and automotive.

Export Processing Zones (EPZs)Kenya has established EPZs under the Export Processing

Zones Act (Chapter 517) to promote and facilitate export-

oriented investment. The activities eligible to be carried out

within EPZs include manufacturing, commercial and service

activities geared towards exportation. Persons may set up

an EPZ by obtaining a licence to develop or operate a zone

on land gazetted as an EPZ.

EPZ licensed businesses are granted certain tax exemptions

including:

1. exemption from VAT and customs duties on raw

materials, machinery and equipment, spare-parts,

tools, raw materials, intermediate goods, construction

materials and equipment, office equipment and

supplies as well as transportation equipment;

INVESTMENT PROMOTION


2. exemption from income tax for the first 10 years from

the date of the first sale as an EPZ enterprise, and

income tax shall be limited to 25% for the next 10

years following the expiry of the exemption;

3. exemption from withholding tax on dividends and

other payments made to non-residents, during the

period that the EPZ enterprise is exempted from

payment of income tax; and

4. exemption from stamp duty on the execution of any

instruments relating to the business activities of an

EPZ enterprise.

Special Economic ZonesKenya also has a Special Economic Zones Act, 2015 (the

SEZ Act). The SEZ Act allows the Cabinet Secretary for

Industry, Investment and Trade to create Special Economic

Zones (SEZs) which will be designated geographical areas

where business-enabling policies will be implemented and

sector-appropriate on-site and off-site infrastructure and

utilities will be provided for by the Kenyan Government.

It is intended that all goods manufactured in and specified

services provided from an SEZ will enjoy incentives and be

exempt from most of Kenyan taxes and duties including:

1. exemption from excise duty, customs duty, VAT and

stamp duty;

2. SEZs will also enjoy a corporate income tax rate of 10

percent for the first 10 years of operation, increasing

to 15 percent for the next 10 year period;

3. exemption from acquiring certain licences specific to

their businesses;

4. up to 20 percent of their full time employees can be

foreigners; and

5. dividends received by SEZs will be exempt from tax.

The SEZ Act establishes the Special Economic Zones

Authority (the SEZ Authority) which will be responsible for

designing, approving, establishing, developing, operating,

promoting and regulating SEZs. The SEZ Authority is

expected to make regulations on how affairs in SEZs will be

conducted.

In light of the new SEZ regime, we understand that the

Government intends to stop issuing new EPZ licences, as it

transitions to the SEZ model.

So far, SEZs have been gazetted in the Uasin Gishu and

Kiambu counties, though the Ministry of Industrialisation

proposes setting up SEZs in Kisumu, Mombasa and Lamu

– areas with fairly well developed transport infrastructure,

youthful and educated populations and counties in need

of industrialisation. Naivasha has also been proposed as

a potential fourth zone owing to its proximity to cheap

geothermal power from Olkaria.

INVESTMENT PROMOTION


Tax

INCOME TAX

Resident and non-resident corporate entities with a

permanent establishment in Kenya are subject to tax on

all income accrued in or derived from Kenya. A company

is tax resident if it is incorporated under Kenyan law, if

the management and control of its affairs are exercised

in Kenya, or if the Cabinet Secretary in charge of the

National Treasury declares the entity to be tax resident

for a particular year of income in a notice published in the

Kenya Gazette. An individual is resident if he or she has

a permanent home in Kenya and is present for any time

during the year; if he or she is present in Kenya for at least

183 days in the tax year; or if he or she has been in Kenya

for an average of 122 days in the tax year and the previous

2 years.

The corporate income tax for a locally incorporated

company is 30%. The corporate income tax rate for a

non-resident company having a permanent establishment

in Kenya (a foreign branch/taxable presence in Kenya) is

37.5 percent. The following is the rate of tax for listed

companies:

Listed Company Rate Duration

Newly listed on any securities exchange approved under the

Capital Markets Act with at least twenty percent (20%) of its

issued share capital listed

27% three (3) years commencing

immediately after the year of income

following the date of listing


Capital Markets Act with at least thirty percent (30%) of its


25% five (5) years commencing




Capital Markets Act with at least forty percent (40%) of its


25% five (5) years commencing



Individual income tax rates are based on a graduated scale

based on income brackets with the lowest tax rate being

10% and the highest tax rate being 30%.

Further, the Finance Act of 2017 proposes a corporate tax

rate of 15% for the first five years of operation, in the case

of a company whose business is local assembling of motor

vehicles, provided that the rate of 15% shall be extended

for a further period of five years if the company achieves

a local content equivalent to 50% of the ex-factory value

of the motor vehicles. A similar preferential rate of 15%

is applicable where a company constructs at least 100

residential units annually, subject to the approval of the

Cabinet Secretary in charge of housing.

Residential Rental Income Tax (RRIT) is applicable on any

income accrued in or derived from Kenya by a resident

person for the use or occupation of residential property.

The rate of RRIT is 10% of the gross rental receipts

between KES 140,000 (approx. USD 1,440) and KES

10,000,000 (approx. USD 100,000) in a year of income.

This means that any residential rental income that is below

USD 1,440 per year would be free of tax. However, once

the rental income exceeds USD 100,000, the RRIT regime

is no longer applicable to the resident person and all the

rental income would be chargeable to tax at the resident

corporation tax rate of 30%. A taxpayer can elect to opt

out of the residential rental income regime by issuing a

notice in writing to the Commissioner.

TAX

INVESTMENT GUIDE 2017/2018 | KENYA 9 TAX

From 1 January 2017, a separate 10% withholding tax

regime was introduced on rental income where tenants and

estate agents are appointed as withholding tax agents by

the Commissioner.

In the oil and gas sector, farm-out transactions for

contractors are taxed by including the nett gain as part of

the taxable income of the transferor. Other areas of interest

include the ring fencing of petroleum blocs, indefinite carry

forward of tax losses, tax treatment of the assignment

of future work obligations, reporting requirements for

changes of more than 10% in underlying ownership in

addition to specific thin capitalisation thresholds.

In an effort to curb the proliferation of betting, gaming

and lottery currently experienced in place in Kenya, the

Government of Kenya introduced the following rates of tax

that are effective 1 January 2018:

Income on betting, gaming and lottery (effective 1 January

2018)

Previous rate chargeable New Chargeable Rate

Gross turnover less the amount paid out to customers as

winnings.

7.5% 35%

Lottery turnover 5% 35%

Cost of entry to a competition which is premium rated 15% 35%

Gross turnover less the amount paid out to customers as

winnings.

12% 35%

The taxes set out above would be in addition to the

corporation tax rates that would be applicable on the

entity. While this increase in tax is aimed at discouraging

the youth and vulnerable members of society against

participating in betting, it may negatively impact the

sector’s attractiveness to investors.

The Tax Procedures Act, 2015 (the TPA) contains provisions

targeted at harmonising the procedural aspects of tax

administration in Kenya. The TPA makes senior officials of

companies, partnerships, trusts etc. tax representatives of

these entities.

A tax representative is responsible for performing any

duty or obligation imposed by a tax law, including the

submission of returns and the payment of tax. However,

any tax payable by a tax representative would only be

recoverable to the extent that the taxpayer’s income or

assets are in the tax representative’s control. In this regard,

senior officers of corporate bodies may be held personally

liable for tax offences committed by their corporate

employer.

The TPA also introduced the concept of transfer of tax

liabilities when business assets are transferred between

related persons, allowing the KRA to recover such tax

liabilities from either the transferor or transferee. It

also makes it an offence to engage in (or for a tax agent

assisting) a transaction or scheme designed to avoid the

liability of tax under any tax law. A tax avoidance penalty

of double the amount of tax avoided is imposed on the

taxpayer.

Capital Gains TaxCapital Gains Tax (CGT) is charged at the rate of five

percent (5%) on gains arising from transfer of property

situated in Kenya. The term ‘property’ is broad and includes

shares in private companies, land and buildings among

other assets. Various exemptions from CGT are available,

including on the transfer of a private residence where

certain thresholds have been met, the gain arising on the

transfer of land valued at less than USD 30,000; and on the

transfer of agricultural property of less than 100 acres.

A transfer of property is deemed to occur when property

is sold, exchanged or disposed of in any manner. Gifts,

destruction or loss of property are also deemed to be


1Rate applicable for dividends paid to Kenyan residents, citizens of the EAC and on listed shares. WHT on dividends is a first and final tax.2No WHT is imposed if the recipient is a resident company which controls 12.5 percent or more of the capital in the paying resident company3No WHT is imposed if the recipient is a qualifying Kenyan financial institution.

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transfers and CGT will be applicable. There is, however,

no transfer and hence no CGT under the following

circumstances, among others:

‣ where the transfer of property is to secure a loan;

‣ a debt or the issuance of shares by a company;

‣ the transfer of property upon the beneficiary of a trust

becoming entitled to the property;

‣ where there is a transfer of assets between spouses,

former spouses as part of a divorce settlement or a

bona fide separation agreement, or to their immediate

family as defined under the ITA.

The Guidelines have also confirmed that CGT will be

payable by a non-resident transferor provided that the

property is situated in Kenya. At the moment, there is

no allowance for inflation and therefore taxpayers are

assessed on paper gains. It is hoped that the amended ITA

will address this issue.

For a transfer of shares, CGT would be due simultaneously

with the payment of stamp duty i.e. at stamping of transfer

deed. In relation to land, payment should be by the 20th

day of the subsequent month after completion of the

transfer, pursuant to past guidance which had been issued

by the KRA. The due date for CGT on land is however

a matter of controversy as the Law Society of Kenya

has challenged the provision on the grounds that it is

unconstitutional. The matter is yet to be concluded.

Withholding TaxWithholding tax (WHT) is levied at varying rates on a

range of payments. Resident WHT is either a final tax

or creditable against corporate income tax. The rate of

WHT may be reduced where the recipient of the income

subject to withholding tax is resident in a country which

has a double tax treaty with Kenya. The following table

summarises the applicable WHT rates in Kenya:

Nature of passive income Resident rate Non-resident rate

Dividends 5%1; 0%2 10%

Royalties 5% 20%

Management or professional fees 5% 20%

Contractual fees 3% 20%

Interest 15%; 0%3 15%

With respect to specific economic sectors, interest paid

on a loan from foreign sources for investing in the energy

sector, water sector, roads, ports, railways and aerodromes

is exempt from withholding tax. In addition, payments

made to a non-resident person (without a permanent

establishment in Kenya) for services rendered under a

Power Purchase Agreement are exempt from withholding

tax.


Value Added TaxValue Added Tax (VAT) regime is governed under the

provisions of the VAT Act, 2013 (the VATA). It is chargeable

on the supply of goods and services in Kenya and on the

importation of goods and services into Kenya. The VATA

provides for different rates for different types of supplies:

exempt supplies, zero percent in the case of zero-rated

supply specified in the Second Schedule to the Act and

16% in all other cases. Exemptions apply to the supply

or importation of goods specified in Part A of the First

Schedule of the VATA. These include goods used in clean

energy, tourism, asset transfers, agriculture, health and

education.

VAT registration is required for persons making taxable

supplies over KES 5 million in a 12 month period. A person

making taxable supplies below the registration threshold

may voluntarily apply to the Commissioner and register for

VAT.

Once an entity is registered for VAT, it is required to charge,

collect and account for VAT on its taxable supplies and

remit the tax to the Kenya Revenue Authority (the KRA), by

way of a monthly VAT return, filed on or before the 20th

day of the following month. In terms of administration, the

output VAT charged on taxable sales is set off against the

input VAT on purchases, and any excess output VAT paid

to the KRA. Where the input VAT is greater that the output

VAT, the credit is carried forward to the next VAT return.

In order to increase VAT compliance, section 42A of the

VATA empowers the Commissioner to appoint a person

to withhold 6% of the taxable value on purchasing taxable

supplies at the time of paying for such supplies and remit

the same directly to the Commissioner by the 20th day of

the subsequent month. Section 42A (4) provides that the

withholding of VAT by the appointed Withholding VAT

agent does not relieve the supplier from his obligation to

account for VAT.

Import DutyKenya is a member of the East Africa Community (EAC)

Customs Union. Accordingly, import duty is charged under

the East African Community Customs Management Act,

2004 (the EACCMA). The value for purposes of the import

duty assessment is based on the cost, insurance and

freight value of the goods imported. Import duty is payable

by the importer; the rate is dependent on the nature

and description of the goods in the East African Custom

External Tariff Code.

The EAC’s Customs Union Member States have agreed on a

three band Common External Tariff at the following rates:

Import Duty Rate Description

0% raw materials, capital goods, agricultural inputs, certain medicines and medical

equipment

10% half-finished and semi-processed goods which are to be used for further production

(intermediate goods)

25% finished products


Other additional taxes on importation include Import

Declaration Fee (IDF) which is charged at a rate of 2% of

the customs value of the goods imported, subject to a

minimum of USD 50 (KES 5,000) as a matter of practice.

Examples of goods that enjoy an exemption from IDF

include goods destined for approved duty free shops,

goods destined for approved Export Processing Zone and

Special Economic Zone enterprises, aircraft, as well as

household and personal effects including motor vehicles

specifically exempted under the EACCMA.

In order to fund the construction of a standard gauge

railway network between Kenya and Uganda, all goods

imported into the country and intended for home use

are subject to a levy of 1,5% of the customs value of the

goods. The Railway Development Levy (RDL) is payable by

the importer at the port of entry.

Examples of goods exempt from RDL include goods

imported by the United Nations or its agencies, goods

imported from East African Community Partner States (as

long as they conform to the East African Community Rules

of Origin) and goods for the implementation of an official

aid funded project, among others.

Excise DutyThe Excise Duty Act, 2015 (the EDA) provides for the

imposition of excise duty on the local manufacture or the

importation of certain commodities and services. Excisable

commodities includes, among others, items such as bottled

water, soft drinks, cosmetics, cigarettes, alcohol, fuels, and

motor vehicles. Excisable services include mobile cellular

phone services, fees charged for money transfer services,

and other fees charged by financial institutions.

Excise duty on importation is payable by the importer

at the time of importation. The excisable value of goods

manufactured in Kenya is the ex-factory selling price but

excluding VAT, cost of excise stamps and cost of returnable

containers. The excisable value of goods imported into

Kenya is the sum of the customs value of the goods (Cost-

Insurance-Freight value) as provided for under EACCMA)

and the amount of customs duty payable on such imports,

calculated in accordance with the EACCMA.

Stamp & Transfer DutyStamp duty is charged at nominal or ad valorem (according

to value) rates on certain financial instruments and

transactions. Stamp duty of 1% is payable upon the transfer

of shares and where there is an increase of share capital.

A stamp duty of 4% of the value of land is payable on

the transfer of land in municipal areas. In rural areas, the

stamp duty is % of the value of land. Other agreements and

documents attract stamp duty at varying rates specified in

the Stamp Duty Act (the SDA).

The SDA provides for various exemptions from stamp duty

such as on instruments executed in respect of transactions

relating to loans from foreign sources received by investors

in infrastructure development sector (energy sector, roads,

port, water sector, railways and aerodromes), the transfer

of shares in a listed company, transfer of property to a

Real Estate Investment Trust (REIT), and on the transfer of

real property between associated companies provided the

certain conditions are fulfilled.

Transfer Pricing & Thin CapitalisationTransfer pricing regulations require pricing arrangements

in cross border transactions concerning the sale of goods,

provision of services, and transfer of intangible assets and

lending or borrowing of money between related entities

to be considered at arm’s length. Transactions between a

branch and its head office are also subject to the transfer

pricing regulations.

The Income Tax (Transfer Pricing) Rules, 2006 (the

TP Rules) provide the guidelines to be applied in

determining the arm’s length prices of goods and services

in transactions involving related entities and provides


administrative regulations, including the types of records

and documentation to be submitted to the Commissioner

of Domestic Taxes by a person involved in transfer pricing

arrangements. The TP Rules are broadly modeled along the

principles set out in the OECD Transfer Pricing Guidelines

for Multinational Enterprises (the OECD Guidelines).

Thin capitalisation rules also apply in Kenya, these rules

limit the deductibility of loan interest payments to the

extent that the highest amount of all loans held by the

company at any time during the year of income exceeds the

greater of three times the sum of the revenue reserves and

the issued and paid up capital of all classes of shares of the

company. The thin capitalisation rules only apply where the

company is in control (25%) of a non-resident entity alone

or together with four or fewer other persons and where

the company is not a bank or a financial institution licensed

under the Banking Act

Kenya also applies “deemed interest” provisions with

respect to interest-free loans from non-resident

shareholders advanced to resident companies. Where a

non-resident shareholder has extended a loan to a resident

company on an interest-free basis, the resident company

is required to compute a deemed-interest charge based

on the prescribed rates determined on a quarterly basis by

the Commissioner, and for the resident company to remit

it to the KRA along with a withholding tax on the notional

(deemed) interest.


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Accounting PrinciplesKenya has adopted and applies International Financial Reporting Standards.

Industrial RelationsKenya in general is an employee friendly jurisdiction. It is

also a party to various International Labour Organisation

(ILO) conventions which form part of its labour legislation

through the operation of Articles 2(5) and (6) of the Kenyan

Constitution. Article 2(5) of the Constitution provides that

the general rules of International Law shall form part of

the law of Kenya. Article 2 (6) provides that any treaty or

convention ratified by Kenya shall form part of the laws of

Kenya under the Constitution. In this regard the primary

statutes that govern employment and labour matters in

Kenya are:

1. The Constitution of Kenya (2010) – provides for a

number of employment rights, including the right to

fair labour practices, the right to fair remuneration, the

right to reasonable working conditions and the right to

join a union, amongst others;

2. The Employment Act (Act No. 11 of 2007) (the

Employment Act) - declares and defines the minimum

rights of employees, provides for basic conditions

of employment of children and matters connected

thereto;

3. The Labour Institutions Act (Act No. 12 of 2007) (the

Labour Institutions Act) - establishes labour institution

and wage councils and provides for their functions,

powers and duties and for other matters connected

thereto;

4. Employment and Labour Relations Act, 2011 (the

Employment and Labour Relations Act) - establishes

the Employment and Labour Relations Court (the

ELRC) as a superior court of record and confers

jurisdiction with respect to employment and labour

relations;

5. The Labour Relations Act (Act No. 14 of 2007)

(the Labour Relations Act) - consolidates the law

relating to trade unions and trade disputes, provides

for the registration, regulation, management and

democratisation of trade unions and employers’

organisations or federations, promotes sound labour

relations through the protection and promotion

of freedom of association, the encouragement of

effective collective bargaining and promotion of

orderly and expeditious dispute settlement, conducive

to social justice and economic development;

6. The Occupational Safety and Health Act, 2007

(Act No. 15 of 2007) (the OSHA) - provides for

the safety, health and welfare of workers and all

persons lawfully present at workplaces and provides

for the establishment of the National Council for

Occupational Safety and Health;

7. The Work Injury Benefits Act (Act No. 12 of 2007)

(the WIBA) - provides for compensation to employees

for work related injuries and diseases contracted in

the course of their employment or due to connected

purposes;

8. The National Social Security Fund Act, 2013 (the

NSSF Act) - requires every employer to register with

the state pension fund known as the National Social

Security Fund (NSSF) and to register its employees

as members of the pension fund. In addition, each

employer is required to contribute and to deduct a

prescribed contribution from each employee and to

submit it to NSSF;

9. The National Hospital Insurance Fund Act (Chapter

9, Laws of Kenya) (the NHIF Act)- establishes the

state hospital insurance fund known as the National

Hospital Insurance Fund (NHIF) and provides for rules

relating to payments to the NHIF by employers and

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employees and benefits to contributors. The funds are

used to assist the employee settle prescribed medical

bills;

10. The Industrial Training Act (Chapter 237, Laws of

Kenya) (the Industrial Training Act) - regulates the

training of apprentices and indentured learners. It

requires an employer to pay a training levy of KES 50

approximately US$0.5 to the Industrial Training Levy

Fund for each of its employees every month.

The Employment Act requires an employer to provide an

employee with a written contract of employment where

employment is for an aggregate period equivalent to 3

months or more. The employer is responsible for preparing

the employment contract. An employer is required to keep

records relating to the contract of service for a minimum

period of 3 years. Furthermore, the Employment Act sets

out various particulars which must be set out in a contract

of employment.

Wage councils are responsible for formulating wage

orders. The wage orders constitute the minimum rates

of remuneration and terms of conditions of employment

which may not be reduced even by agreement. The

quantum of the minimum wage depends on the industry in

which the employee is engaged.

Normal working hours depend on the industry and in

general consist of not more than 52 hours of work per

week for day work and not more than 60 per week for

night work. If an employee works more than the maximum

hours in one week, he or she is entitled to overtime

payment. An employee is entitled to at least 1 rest day in

7 days. Employees are also entitled to annual leave with

full pay of not less than 21 working days after every year of

continuous service and not less than 1.75 days per month

when employment is terminated after 2 or more months

of continuous service. The annual leave is in addition to all

public holidays, weekly rest days and sick leave as fixed by

law or by written agreement.

The Employment Act provides that, after two consecutive

months of service, an employee is entitled to 7 days of sick

leave with full pay and thereafter 7 days with half pay in

each period of 12 consecutive months of service, subject

to production of a certificate of incapacity to work signed

by a qualified medical practitioner. Female employees are

entitled to maternity leave of 3 months with full pay while

male employees are entitled to paternity leave of 2 weeks

with full pay.

Every employee in Kenya is required to pay income tax

under a system known as Pay As You Earn (PAYE). It is the

employer’s obligation to deduct and remit the employee’s

PAYE to the Kenya Revenue Authority by the 9th of the

next month after the income earning month.

Pursuant to the Industrial Training Act, employers with

more than 20 employees are required to register with the

National Industrial Training Authority (the Authority) and

pay KES 50 (approximately USD 0.5) per employee per

month to the Authority as Industrial Training Levy. Only

employers in the hotel and restaurant industry are exempt

since they pay Hotel and Catering Levy. Failure to pay the

training levy attracts a penalty of 5% on the amount of levy

due to the Authority by the employer.

Under Kenyan law employees are entitled to certain

benefits including medical benefits and a pension. In

January 2014, the NSSF Act came into force repealing the

previous National Social Security Fund Act.. Every employer

is now required to register with the NSSF and to register its

employees as members of the fund. Under the NSSF Act

the social security contributions payable by both employer

and employee were set to increase to up to KES 2160 per

employee (approximately USD 22), 50% payable by the

employer and 50% by the employee. Contributions payable

by both employee and employer were set to progressively

increase over the course of the next five years. The

implementation of the new rates is on hold pending the

determination of a case filed in the High Court disputing

the rates.

With respect to medical benefits, the NHIF Act establishes

the state hospital insurance fund known as the National

Hospital Insurance Fund (NHIF) and provides for rules

relating to payments to the NHIF and benefits to

contributors. The funds are used to assist the employee

settle in-patient medical bills. The NHIF Act provides for

standard contributions to the NHIF for persons whose

income exceeds the prescribed minimum. At present

the graduated scale effective as of 1 April 2015 starts

from a gross income of KES 5,999 (Approximately USD

59.99). It is the responsibility of the employer to remit

the contributions to the NHIF Fund. Employees earning

a monthly gross salary of KES 5,999 will pay a monthly

contribution of KES 150 (USD 1.5) while those earning

KES 100,000 (USD 1,000) and above will pay a monthly

contribution of KES 1,700 (USD 17). Self-employed

persons are required to pay a monthly contribution of KES

500 (USD 5).

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Employers with more than 50 employees are required to

have a statement on the disciplinary rules applicable to

employees, and such rules must specify the person whom

the employee may apply to in case of dissatisfaction in the

decision of the disciplinary body or any grievance.

Employers with 20 or more employees are required to have

in place a policy statement on sexual harassment.

Employment of Foreign NationalsIn principle, employment of foreigners is pegged on

unavailability of skills in the local market. Thus, if there is

limited supply of human resources in a particular area, a

foreigner may be employed subject to obtaining a work

permit from the Kenya Immigration Department. Non-

Kenyan citizens require a special pass or a work permit to

enable them work in Kenya. A Special Pass provided for

under the Kenya Citizenship and Immigration Act, 2011

(the KCIA) may be obtained if the person intends to work

in Kenya for a period not exceeding six (6) months. For

periods exceeding six (6) months, a work permit should be

obtained.

Disputes and Enforcement In situations where:

1. an employer or employee neglects or refuses to fulfill

a contract of service; or

2. any question, difference or dispute arises as to the

rights or liabilities of either party; or

3. any misconduct, neglect, ill treatment or an injury to

the person or property of either party under a contract

of service occurs; the aggrieved party can complain

to the labour officer or lodge a complaint or suit in

the Employment and Labour Relations Court (ELRC),

which has the status of the High Court and exclusive

original jurisdiction over labour disputes.

The primary mechanisms for enforcement of the various

provisions of the employment laws in Kenya are fines and

penalties imposed by the ELRC. Under the Employment

Act, where the labour officer is of the opinion that dismissal

was unjustified, he/she may recommend the employer to

pay the employee any or all of the following:

i. wages for the notice period required to be given;

ii. the proportion of wages due for the period the

employee has worked and any other loss consequent

upon dismissal arising between the date of dismissal

and the date of expiry of the notice period required; or

iii. the equivalent of a number of months wages or salary

for a period not exceeding twelve (12) months based

on gross monthly wage or salary of employee at the

time of dismissal. This is however at the discretion of

the court.

We have in the recent past seen an increase in claims of

discrimination in employment matters. If a discrimination

suit against an employer is successful, the amount payable

to the employee by way of damages is, unlike a claim of

unfair termination, not capped.

CompetitionCompetition law is increasingly playing a significant role in

respect of the timing and the cost of investments in Kenya

or investments which have a Kenyan element. Currently,

there are two competition regimes which apply in Kenya:

Kenya’s domestic competition regime and the Common

Market for Eastern and Southern Africa (COMESA)

competition regime. There is also an East African

Community (EAC) competition regime, which it is widely

anticipated to be operationalised soon and will therefore

also apply in Kenya.

Parties to a merger resulting in a change of control over a

Kenyan business (whether the transaction occurs within

or outside Kenya) are currently required to make a merger

notification to the Competition Authority of Kenya (CAK),

if applicable, the COMESA Competition Commission

(CCC) and potentially to the EAC Competition Authority

in the near future. The Kenyan regime is suspensory

and completing a notifiable merger without approval is

prohibited.

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The COMESA competition regime and the EAC

competition regime were intended to be a “one-stop-shop”

for regional competition law, but in the case of COMESA

this has not yet been achieved and it is not clear what the

situation will be in respect of the EAC competition regime.

The overlapping competition regimes increase the burden

on investors who may soon be required to make three

notifications to three different competition regulators in

respect of a single merger. There are filing fees of up to

USD 20,000 for the CAK and USD 200,000 for the CCC.

Merger ControlThe CAK has recently begun cracking down on mergers

implemented without its approval and has imposed

financial penalties on the parties involved. It has the

power to impose a financial penalty of up to 10% of an

undertaking’s gross annual turnover in Kenya for the

preceding year and there are also potential criminal

sanctions.

In addition, following the issuance of conditional approvals

over the last few years (aimed primarily at curbing loss of

employment, reducing impact of mergers on suppliers and

distributors and other public interest considerations, the

CAK has stepped up its post-merger compliance monitoring

to ensure that mergers are implemented as disclosed to it

and in accordance with its approval conditions. It is also

placing a post-merger compliance reporting condition when

approving mergers.

Restrictive Trade Practices and Abuse of DominanceThe CAK and the CCC have in the past focused mainly on

merger control, but are now shifting focus to restrictive

trade practices and cartel enforcement. The Kenyan

Competition Act and the COMESA competition regime

prohibit agreements or arrangements which contain

restrictive trade practices unless exempted under the

regimes.

In early 2016, the CAK conducted its first dawn raid on

the premises of two fertiliser firms alleged to have been

colluding in fixing the prices of fertiliser.

The CAK has conducted investigations and sector studies

in the alcoholic beverage sector, advertising sector,

fertiliser sector and cement sector seeking to unearth

restrictive trade practices in the sectors. In 2016, the CAK

imposed the highest gazetted financial penalty of KES

5 million (approximately USD 50,000) on an advertising

company which was found to have engaged in price fixing.

This financial penalty arose from a sectoral investigation in

which several advertising companies were fined for similar

practices.

In mid-2017, the CAK gazetted the Leniency Guidelines

aimed at enhancing cartel enforcement in the country.

The guidelines provide for a leniency program in which a

partial or full immunity from financial penalties is given to

entities that report cartels to the CAK. The immunity does

not absolve one from criminal sanctions under the Kenyan

Competition Act implying that one may still be prosecuted

by the Director of Public Prosecutions.

In 2016, the CCC published draft guidelines on restrictive

business practices and abuse of dominance and received

comments from stakeholders, but is yet to publish the final

guidelines. This indicates that the CCC may soon start

enforcing provisions on restrictive business practices in the

COMESA market.

Consumer ProtectionConsumer rights are primarily protected under Article 46

of the Constitution together with the Consumer Protection

Act and the Competition Act each of which broadens the

protection offered by the Constitution. The protections

offered to consumers applies to goods and services offered

by private and public entities. The Consumer Protection

Act and Competition Act govern consumer relations in

individual economic sectors and generally across all other

sectors. Notable rights include the right to pre-contractual

disclosure of the terms of a consumer agreement and

the ability to cancel consumer agreements. The CAK has

enforcement powers in relation to consumer protection

matters that they have recently started exercising more

regularly.

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Real PropertyLand in Kenya remains a very emotive and sensitive issue.

Due to complex historical, political, economic and social

reasons that have led to an inequitable distribution of land,

conflicts over land issues continue and debates about the

redistribution of land draw strong opinions.

In 2010, the then newly promulgated constitution paved

the way for an overhaul of the land law systems in Kenya.

In 2012 the Kenyan Legislature enacted new land laws -

the Land Act, 2012, the Land Registration Act, 2012 and

the National Land Commission Act, 2012. These new

statutes repealed some of the old land laws such as The

Indian Transfer of Property Act of 1882, the Registered

Land Act, 1963, the Government Land Act, and The

Registration of Titles Act, 1920. In 2016, the Community

Land Act was also enacted to provide for the recognition,

protection and registration of community land rights as

well as management and administration of community

land. In order to give effect to the various provisions of

the above pieces of legislation, the Cabinet Secretary in

charge of the Ministry of Lands and Physical Planning

subsequently prescribed The Land (Conversion of Land)

Rules, 2017, The Land (Assessment of Just Compensation)

Rules, 2017, The Land Registration (General) Regulations,

2017, The Land (Allocation of Public Land) Regulations,

2017, The Land Registration (Registration Units) Order,

2017, The Land Regulations, 2017, The Land (Extension

and Renewal of Leases) Rules, 2017 and The Community

Land Act Regulations, 2017. The National Assembly in April

2018 approved all these rules, regulations and orders as

prescribed by the Cabinet Secretary except the Community

Land Regulation which is still pending approval of the

National Assembly.

The consolidation of these was a welcome move. However,

ambiguities in the new land laws including the powers of

the Ministry of Lands, Housing and Urban Development

(now Ministry of Lands and Physical Planning) and the

newly established National Land Commission (NLC) led to

turf wars between the two entities. In 2015, the Supreme

Court issued an advisory opinion in respect of the functions

and responsibilities of the NLC vis-a-vis the functions and

responsibilities of the Ministry of Lands bringing an end

to the conflict between the two bodies. A clear separation

of roles and mandate of the two bodies was required

to ensure clarity on their functions and improvement of

service delivery in the various land institutions.

The new regulations required to enforce the new land laws

were gazetted in December 2017 and were approved by

the National Assembly in April 2018.

In December 2016 the High Court declared the forms of

title and leases being issued by the land registries from

the time the Land Act, 2012 and the Land Registration

Act, 2012 to be unconstitutional, null and void. The forms

of titles and leases had been gazetted by the Cabinet

Secretary under the Land Registration Act, 2012 (LRA)

but the National Land Commission was not consulted and

public participation in the drafting and creation of those

forms was not sought as provided in the LRA. As a matter

of public interest the High Court suspended the declaration

for a period of 366 days from 19th December 2016 to

give the Cabinet Secretary an opportunity to follow the

legal process under the LRA and to bring the forms into

conformity with the relevant statutory provisions. The

High Court also ruled that the declaration of invalidity of

the forms does not apply “retroactively”. As such, forms of

titles and leases issued between 1st August, 2014 (being

the date the forms were gazetted) and 19th December,

2016 when the ruling was delivered would remain valid

and unaffected by the High Court’s decision of invalidity.

The Ministry of Lands in a bid to comply with the High

Court’s declaration tabled the Land Registration (General)

Regulations, 2017 and The Land Regulations, 2017 which

contained the various forms of leases and titles among

the other subsidiary legislation mentioned above before

National Assembly. The National Assembly approved the

same in April 2018 after the Ministry had obtained an

extension of the time from the High Court for it to comply

with the directions in the above declaration.

Under the current laws, land in Kenya may be held

under freehold title or leasehold title. Article 65 of the

Constitution regulates land holding by non-citizens. Non-

citizens cannot own land under a freehold title but can

have leasehold interests of up to 99 years. The Constitution

protects the sanctity of private property and the state

cannot compulsorily acquire one’s property without prompt

payment in full, of just compensation to the person.

In 2013, the Capital Markets Authority introduced the

Capital Markets REIT Regulations. The REIT Regulations

provide for the legal framework for REITS and establishes 2

classes of REITS, being the development and construction

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real estate investment trust schemes (which provides for

investment in development and construction projects)

and income real estate investment trust schemes (which

provide for investment in existing income generating real

estate projects).

The REIT Regulations regulate the offers and listing of

REITS, management of REITs, specific requirements of each

type of REITS and also provide for the establishment of

Islamic REITS. The REIT Regulations entrench the growing

interest in REITS as a flexible and tax-beneficial method

of financing urban and commercial real estate projects in

Kenya.

Legal Forms Of IncorporationIn Kenya, there are a number of types of corporate entities

including sole proprietorships, partnerships, cooperative

societies and companies. The main vehicles utilised by

investors are limited liability companies which can be

incorporated either as private companies or as public

companies. The law also allows for branches of foreign

companies to be set up in Kenya maintaining the same legal

personality as the foreign company.

Kenya recently overhauled its company law legislation

through the enactment of the Companies Act. The

Companies Act is based substantively on the United

Kingdom’s Companies Act, 1985 and the United Kingdom’s

Companies Act, 2006 and it seeks to update and reform

the law relating to incorporation, registration, management

and regulation of companies. The signing into law of this

legislation was a significant step in Kenya’s corporate

history as it has moved companies’ law legislation with one

giant leap from 1948 to 2015.

The Companies Act is also by far the most extensive piece

of legislation among the statutes of Kenya with 1,026

sections in comparison to the previous Companies Act

which had 406 sections. In this regard, the Companies Act

was operationalised in stages by the Cabinet Secretary and

is now fully in force.

Notably, the Companies Act now allows for flexible

arrangements in relation to capital structures such as share

buy backs. It also provides for enhanced redeemability

of shares and the permissibility of financial assistance

in certain instances, shareholder rights and simpler

incorporation procedures, for instance, the Companies Act

now permits for the incorporation of private companies

with 1 shareholder and 1 director as opposed to the

position previously where at least 2 shareholders were

required.

Online Registration of Companies and Partnerships

The Business Registration Services Act is another piece of

legislation among Kenya’s business laws that is aimed at

easing the operation of businesses in Kenya. This Act seeks

to establish the Business Registration Service (BRS) to

ensure effective administration of the laws relating to the

incorporation, registration, operation and management of

companies, partnerships and sole proprietorships. The BRS

is largely hosted on an online portal called E-citizen that

was rolled out in 2016.

A majority of the forms of legal entities are no longer

formed through the manual lodging of documents at

the Companies Registry and are now formed via the

E-citizen platform. The incorporation process entails the

online submission of prescribed details to the Companies

Registry. Once the these details are submitted, the

Companies Registry takes approximately one week to

review documents and issue a certificate of incorporation

for private limited companies. The registration of public

companies and companies limited by guarantee may take

a longer period where prospective officials are required to

undergo a vetting process before the entity may be set up.

The table below provides a summary of the procedures

and the estimated completion time and estimated costs for

setting up a private limited liability company:

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No. Procedure Estimated time to complete (in

business days)

Official costs (excluding

professional fees, ancillary

expenses and VAT)

1 Company name search and

reservation.

1 day KES 150 per name

reservation (approximately

USD 150)

2 Completing incorporation application

and generation of system generated

forms.

1 day

3 Execution of incorporation

documents by shareholders,

directors and company secretary and

resubmission of execution documents

to the companies registry.

Depends on coordination

amongst shareholders, directors

and company secretary

Standard fee of KES 10,650

(approximately USD 103)

4 Processing of incorporation

application and issuance of Certificate

of Incorporation.

Approximately 1 week if

Companies Registry does not

request further details

5 Application for Kenya Revenue

Authority (KRA) PIN for the company

Approximately 1 week if the

company has local directors.

Where company has no local

directors it may take 2-3

weeks to get a PIN through the

Kenya Investment Authority

(KenInvest)

Charges will only apply where

a company has no local

directors and a company PIN

has to be applied for through

KenInvest

6 Register for VAT online 1 day No charge

7 Register for PAYE online 1 day No charge

8 Register under the National Social

Security Fund (NSSF) and obtain a

NSSF certificate

1 week No charge

9 Register under the National Hospital

Insurance Fund (NHIF) and obtain a

NHIF certificate

1 week No charge

10 Apply for a business permit online 1 day Permit fees depend on certain

factors e.g. type of business,

size of premises, number of

employees etc.

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No. Procedure Estimated time to complete (in

business days)

Official costs (excluding

professional fees, ancillary

expenses and VAT)

11 Make a company seal after a

certificate of incorporation has been

issued (optional)

2 days Between KES 2,500 and KES

3,500 (approximately USD 25

and USD 35 respectively)

Linking of businesses to the E-citizen portalCompanies and partnerships that were registered under the

manual system before the E-citizen portal was introduced

in 2016 are now required to link their registrations to

the E-citizen portal. The directors, company secretary or

proprietors of an entity are the only users permitted to

link a business to the online portal. Once a registration

has been linked, the Companies Registry (or BRS) will

verify the details of the entity as matching their records

and the status of the business will show as verified on

the portal. The directors or secretary of the company may

then proceed to add users who will be issued with access

rights to control or make changes to the e-citizen business

account of the company.

Importance of Linking your business to E-citizen

A company’s business must first be linked to the E-citizen

portal in order to:

a. carry out a company search over a company;

b. make changes to the company, including changes to

shareholding, directorship, registered office and

share capital; and

c. file annual or interim returns in respect of the

company.

The Companies Registry has stopped processing manual

requests for company searches and changes to the details

a company. The processes that may still be carried out

manually include:

a. Conversion of companies;

b. Increase of nominal capital;

c. Splitting of shares;

d. Making changes to the details of foreign companies;

e. Certification of original documents;

f. Amendment of Memorandum and Articles of

association; and

g. Registration of debentures and discharges.

This notwithstanding, the Companies registry has notified

the public that manual processing for the above services

will be closed as soon as it configures the E-citizen portal

to support these specified services.

Intellectual PropertyArticle 40(5) of the Constitution of Kenya, 2010 (the

Constitution) requires the state to support, promote and

protect the intellectual property rights of the people of

Kenya. Kenya’s legislation protecting intellectual property

includes the Trade Marks Act (Chapter 506), the Copyright

Act (Chapter 130) and the Industrial Property Act, 2001,

which relates to patents, industrial designs, utility models

and technovations.

Regionally, Kenya is a member of the African Regional

Intellectual Property Organisation. At the international

level, Kenya is a member of the World Intellectual Property

Organisation and is a contracting party to various treaties

recognising intellectual property rights including:

1. the WTO Marrakech Marrakesh Agreement, 1994

establishing the World Trade Organisation, and the

Agreement on Trade Related Aspects of Intellectual

Property Rights (TRIPs);

2. the Madrid Agreement Concerning the International

Registration of Marks and the Protocol Relating

thereto; and

3. the Patent Cooperation Treaty which provides the

framework for the international filing of patent

applications which designate various jurisdictions

across the globe.

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Steps have been taken towards controlling the importation

and trade of counterfeit goods. In 2008, Parliament passed

the Anti-Counterfeit Act, 2008, which established the Anti-

Counterfeit Agency and the legal framework for combating

counterfeit goods in Kenya.

In relation to the standardization of goods, the law

provides for the following standards in relation to specified

commodities that are manufactured or sold in Kenya:

i. specifications or codes of practice that certain

specified commodities must comply with (Kenya

Standards) in order to be sold or manufactured in

Kenya; and

ii. optional specifications for prescribed commodities

that are sold or manufactured in Kenya.

The law provides for the establishment of a standardisation

mark that manufacturers and sellers can only apply on their

commodities once a permit for such application has been

obtained. The standardisation mark can only be lawfully

applied on commodities that have been certified by the

Kenya Bureau of Standards as being compliant with the

applicable mandatory Kenya Standards or the optional

specifications. .

There have been a number of regulatory developments

for reform of Kenya’s trade mark laws. Kenya’s national

intellectual property office, the Kenya Industrial Property

Institute (KIPI), circulated a draft Trade Marks Bill in March

2015, which was further updated and recirculated in March

2016 (together with proposed rules). The most significant

proposed change under this draft Bill is the hypothecation

of trademarks. The possible enactment of such provisions

could herald the dawning of a new phase for intellectual

property rights and valuation in Kenya. This Trade Marks

Bill is however yet to be gazetted and passed into law.

Further, the Protection of Traditional Knowledge and

Cultural Expressions Act (the TK Act), came into force in

2016 and established the framework for the protection

of traditional knowledge and cultural expressions in

Kenya. The TK Act gives effect to the provisions of the

Constitution that promote culture and protect ownership

of property (including the intellectual property) of

indigenous communities. In addition, a Miscellaneous

Amendment Act was passed in April 2017. The most

notable amendments under this Act are as follows:

a. the extension of the time for requesting for

substantive examination of a patent application

from three to five years from the filing date of the

application; and

b. the introduction of the possible publication of a patent

application within 18 months of the filing date or, if

priority is claimed, the date of priority.

Dispute SettlementKenya follows a common law system by virtue of being a

former British colony. English decisions of superior courts

are binding up to 12th August 1897 and are persuasive

after that date. There is a hierarchy of laws:

1. The Constitution of Kenya, 2010;

2. Acts of parliament;

3. Common law;

4. Doctrines of equity;

5. Statutes of general application in force in England on

the 12th August,1897; and

6. Case law.

Below is a list of the principal laws governing and regulating

the court system in Kenya:

1. The Constitution; - establishes the Kenyan Court

system and the hierarchy of courts, granting

parliament powers to legislate on matters such as

jurisdiction and other administrative aspects.

2. The Judicature Act, Chapter 8 – sets out provisions

concerning the jurisdiction of the High Court, the

Court of Appeal, subordinate courts or regarding

judges and officers of courts;

3. The Appellate Jurisdiction Act, Chapter 9, (the

Appellate Jurisdiction Act) – confers on the Court

of Appeal jurisdiction to hear appeals from the High

Court and for any incidental purposes;

4. The Magistrates’ Court Act, Chapter 10 – establishes

magistrates’ courts, states the jurisdiction and

provides for the procedure of such courts. In addition,

it also provides for appeals in certain cases and for any

incidental and connected purposes;

5. The Kadhis’ Court Act, Chapter 11 - establishes the

Kadhis’ court, having and exercising jurisdiction over

the determination of questions of Muslim law relating

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to personal status, marriage, divorce or inheritance

in proceedings in which all the parties profess

the Muslim religion. Nevertheless, nothing in this

legislation limits the jurisdiction of the High Court or

any subordinate court in any proceeding which comes

before it.;

6. The Environmental and Land Court Act, Chapter 12A

- gives effect to Article 162(2)(b) of the Constitution

establishing a superior court to hear and determine

disputes relating to the environment, the use and

occupation of and title to land and also makes

provision for its jurisdiction, functions and powers;

and

7. The Employment and Labour Relations Court Act,

Chapter 234B, amended to the Employment and

Labour Relations Act, (the Employment and Labour

Relations Act) – establishes the Employment and

Labour Relations Court as a superior court of

record, confers jurisdiction on the Court to hear and

determine disputes relating to employment and labour

relations and for connected purposes.

8. The Supreme Court Act, 2015 - gives effect to

Article 163(9) of the Constitution and regulates the

procedure of the Supreme Court of Kenya, including

but not limited to matters such as quorum, limits of

the Supreme Court’s appellate jurisdiction as well as

its advisory role.

9. The High Court (Organisation and Administration)

Act, 2015 - provides for administrative matters

related to judges and officers of the High Court

such as transfer and deployment of judges and

qualifications, powers and functions of the High

Court’s registrars.

10. The Contempt of Court Act - repealed a provision in

the Judicature Act importing English law on contempt

and now empowers all courts to punish for contempt

which includes disobedience of court orders and

interference with the administration of justice.

Under the Limitation of Actions Act, Chapter 22, Laws

of Kenya, (the Limitation of Action Act), time limits for

bringing claims for court action or arbitration are set out as

follows:

1. actions concerning land must be brought within

twelve years from the date of the cause of action;

2. actions concerning contracts must be brought within

six years from the date of the cause of action; and

3. actions concerning any tort must be brought within

three years from the date of the cause of action.

In limited instances, the Court has powers to issue an order

extending the limitation periods and/or to determine at

what point the limitation period started running.

Kenyan law recognises alternative dispute resolution

mechanisms. In particular, Article 159 of the Constitution

provides that alternative forms of dispute resolution

including reconciliation, mediation, arbitration and

traditional dispute resolution mechanisms shall be

promoted. Indeed, the Government’s enthusiasm for

arbitration is demonstrated inter alia by the passing of

the Nairobi Centre for Arbitration Act, 2012 which came

into force in January 2013 and establishes the Nairobi

Centre for International Arbitration (NCIA). Together with

Rwanda’s Kigali International Arbitration Centre (KIAC),

Uganda’s Centre for Alternative Dispute Resolution (CADR)

and Burundi’s Centre for Mediation and Arbitration, there

are now four international arbitration centres in East

Africa. It is hoped that the NCIA will provide a cheaper

alternative for foreign investors who opt to resolve their

disputes in the London or Mauritius arbitration centres and

also provide an alternative to the lengthy court processes

in Kenya. Notwithstanding these aims, the NCIA has a

long way to go before becoming fully operational. It is

to be noted that the Board of Trustees charged with the

administration of NCIA was inaugurated in November,

2013.

Arbitration is widely embraced in commercial dispute

resolution settlement. Kenya is a party to the New York

Convention on the Recognition and Enforcement of

Foreign Arbitral Awards and New York Convention awards

would be recognised in Kenya under the Arbitration Act.

Kenya is also a signatory to the International Convention

for the Settlement of Investment Disputes. There is a

well-established policy of the courts upholding arbitration

clauses and a general judicial attitude against interfering

with the powers of arbitral tribunals.

Foreign judgments from superior courts in certain

reciprocating countries can be enforced in Kenya under the

Foreign Judgments (Reciprocal Enforcement) Act (Chapter

43) (FJEA). The countries specified to be reciprocating

countries under the FJEA are Australia, Malawi, Seychelles,

Tanzania, Uganda, Zambia, the United Kingdom and the

Republic of Rwanda.

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Following promulgation of the new Constitution in August

2010, Kenya began to implement significant structural

changes to its judicial system. The Supreme Court was

established as the highest court in the land and has

recently demonstrated judicial independence from political

pressure when it annulled the election of an incumbent

Kenyan president citing irregularities by the Independent

Electoral and Boundaries Commission (IEBC) and directed

the IEBC to conduct a fresh presidential election. In a

subsequent challenge to the president’s re-election, the

Supreme Court dismissed the challenge and upheld the

re-election as having been carried out in accordance with

the law. In addition, many new judges have been appointed

and the monetary jurisdictional limits of magistrate’s courts

enhanced to KShs.20 Million to ease the workload of the

superior courts. Further, judges and magistrates who were

serving prior to the promulgation of the 2010 constitution

had to undergo vetting to determine whether they ought

to continue serving as judicial officers which resulted in

some judges and magistrates being found unfit to serve.

The process restored integrity to a judiciary that had

been previously perceived to be slow in delivering justice,

corrupt and insufficiently independent.

It is also worth noting that the Tax Appeals Tribunal Act

(TATA) was signed into law on 27th November, 2013 and

became effective on 1st April 2015. The TATA establishes

a single tax appeals body which has the power to hear

appeals against any decision made by the Kenya Revenue

Authority (KRA) Commissioner on any tax matter. In a

number of recent decisions after the operationalisation of

the Tax Appeals Tribunal, Kenyan Courts have declined to

intervene in cases falling under the jurisdiction of the TAT.

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Industry Sectors

AgricultureAgriculture is currently ranked by various indicators,

including by the Kenya Investment Authority and the

Kenya Agriculture Research Institute, as the driver of the

Kenyan economy, contributing between 25% and 30% of

Kenya’s GDP and responsible for approximately 60% of

national employment. Crop production, livestock, fisheries

and horticulture have been the greatest contributors

in recent years. There are many existing investment

opportunities as well as considerable diversification and

expansion possibilities in the agricultural sector including

accelerated food crop production and increasing non-

traditional agricultural exports. There are also opportunities

for improvement in technology infrastructure such as

packaging, storage and transportation. Intensified irrigation

and additional value added processing are also significant

areas for investments.

The Government has been making a number of efforts to

optimise on the benefits of this sector. Food self-sufficiency

is one of the new Government’s ‘Big Four’ development

agendas. One of the strategies for this is the allocation

of a significant amount of money to the sector from the

Government budget. The Government is also in the process

of earmarking a number of processing factories, including

in the cotton and sugar sectors, for privatisation presenting

potential investment opportunities for investors.

Furthermore, the Government is taking active steps

through new legislation to revamp the sector at both the

national and county level. In particular, key areas have

been carved out of wide umbrella laws and regulatory

bodies and are now specifically regulated e.g. fertilisers,

animal foodstuffs, veterinary medicines and certain

pharmaceuticals.

In the last few years, Kenya has witnessed the increase in

large-scale agricultural companies setting up operations in

Kenya

We have also seen more interest in the fishing industry

with the entrants of companies setting up fish farms,

especially in Lake Victoria.

The Land Control Act, Cap 302 (the LCA) remains a key

piece of legislation that governs the ownership and use

of agricultural land. The LCA defines agricultural land to

include any land that is located outside of a municipality.

The LCA restricts the sale, transfer, lease, exchange or

partition to persons who are not Kenyan citizens or to

private companies whose shareholding is not wholly

Kenyan. Foreign investors wishing to engage in agricultural

activities in Kenya that requires any dealing in agricultural

land needs to seek accurate legal advice on how to properly

structure the investment vehicle to ensure compliance with

the provisions of the LCA.

Banking & Financial ServicesKenya’s banking sector is fairly well developed and

sophisticated in comparison to its neighbouring countries.

There are over forty commercial banks and several financial

institutions including a mortgage finance company and

representative offices of international finance and banking

organisations. Credit reference information is shared in the

financial sector through credit reference bureaus.

The majority of Kenyans also engage in “mobile banking”

which is basically the use of a mobile device to perform

online banking tasks such as depositing funds, checking

account balances, paying bills and monitoring accounts.

This is done through the use of mobile payment systems

operated by mobile communication companies such as

M-Pesa (Safaricom) and Airtel Money (Bharti Airtel). Mobile

INDUSTRY SECTORS


phone payment services are popular due to their simplicity,

convenience and accessibility. The joint partnership

between Safaricom and Commercial Bank of Africa Limited,

has developed an innovative mobile platform (M-Shwari)

for Safaricom’s M-Pesa customers which enables

individuals to access banking services from their phone.

Subscribers can save and borrow money as well as earn

interest on the money saved using their mobile phones.

In addition, Kenya has a vibrant micro-finance sector

which is expected to play a major role in developing the

financial markets thus making it easy for the mainstream

population to access financial products and services simply.

Micro-finance services individuals who cannot access

financial resources from banks and other traditional lending

institutions because of a lack of collateral and enables them

to access funds that will expand their businesses.

The country is also enjoying a vibrant Islamic banking

market, which is growing steadily. In August 2017 the

Central Bank of Kenya (CBK) licensed DIB Kenya (which is

owned by the United Arab Emirates’ largest Shariah lender

Dubai Islamic Bank) to carry out business in the country

on the basis that DIB intends to exclusively offer Shariah

compliant banking services in Kenya. DIB Kenya became

the third fully Shariah compliant bank to be licensed in

Kenya, after Gulf African Bank Limited in 2007 and First

Community Bank Limited in 2008.

The banking industry is governed by the Banking Act and

the Central Bank of Kenya Act and regulated, licenced and

supervised by CBK which conducts on-site investigations

through designated CBK officers who conduct routine

inspections on the institutions’ business records to

ensure compliance with the CBK rules and off-site

investigations by reviewing reports that are required to

be submitted by the institutions to the CBK. The CBK has

taken steps to regulate previously unregulated areas of

the banking sectors, including micro-finance and mobile

payment services. Kenya has a small but growing number

of investment banks and venture capital funds. These

businesses are licensed and regulated by the CMA.

The CBK is keen on reducing the number of banks

and aiming to ensure a consolidation of the market by

announcing a freeze on issuance of new banking licences.

Recent years have been turbulent for the Kenyan banking

industry. 2015 and 2016 saw the collapse of three banks

(Dubai, Imperial and Chase) - each for a different underlying

reason. However, taken together these collapses saw

confidence in the overall industry weaken and resulted in

a flight to safety by depositors putting their funds in the

larger market players. The fallout of these insolvencies

is still being felt through the courts and many depositors

are still waiting to access their funds from the fallen

institutions.

On top of the instability caused by the three bank collapses

and the ensuing regulatory uncertainty, one of the major

issues impacting Kenyan banks is the September 2016

interest rate capping law which capped the interest rate

a bank can charge for a loan at 4% above the central

bank rate. This law also requires banks to pay a minimum

interest rate on deposits which is currently at 7%. This

forced tightening of margins had a significant impact on

banking profits in 2016/17 and looks set to continue to

negatively impact the banking sector.

ManufacturingAlthough Kenya is the most industrially developed

country in East Africa, the World Bank estimates that

manufacturing only accounts for approximately 19%of its

GDP.

There are significant opportunities in Kenya’s

manufacturing industries, ranging from vehicle assembly

and spare-parts manufacturing in the automotive sector, to

pharmaceuticals, paper products and edible oils.

Kenya is a net importer of oil and as such the drastic

decline in oil prices has, in certain manufacturing industries,

led to a drop in input prices resulting in an overall reduction

in the total average costs of production and increased

profit margins.

Notwithstanding the above, challenges remain. Imports

from countries that are able to manufacture products at

a comparatively lower average cost (such as China) pose

a challenge to the domestic manufacturing sector. An

additional challenge is the forex volatility of the Kenya

Shilling which primarily affects manufacturers that import a

significant proportion of their raw material and equipment.

INDUSTRY SECTORS


Mining, Oil & GasKenya’s mining and extractive industry is undergoing a

paradigm shift from a minor to a major area of investment

and growth. Kenya’s mining map is comprised of four belts:

‣ the under-exploited, gold-rich Greenstone belt in

Western Kenya (linked to the lucrative mining belts

currently under heavy exploitation in Tanzania).

‣ the Mozambique belt, which passes through Central

Kenya, and is a source of gemstones.

‣ the Rift belt, best known for its soda ash, flourspar,

diatomite and Kenya’s considerable geothermal

resources.

‣ the Coastal belt which encompasses existing titanium

investments, extensive deposits of rare earth

minerals and nobium, as well as on-going offshore oil

exploration. The country also boasts one of Africa’s

richest coal deposits and plans to commercially exploit

coal are currently underway.

The significant enthusiasm for the economic potential in

Kenya’s mining sector is demonstrated by its inclusion in

Kenya’s Vision 2030 programme as a strategic sector and

the creation of the Ministry of Mining (formerly under the

Ministry of Environment and Natural Resources) dedicated

to the formulation of mining legislation and policies to

expand the mining industry.

There were substantial new mining regulations passed in

2017 covering local content, reporting obligations at the

end of a mine, amongst other things. These new rules mark

a significant departure from the legal and regulatory regime

that existed before. New and existing investors should

consider these changes very carefully.

Despite the recent down turn in the global oil and

gas industry, Kenya still hopes to benefit from recent

discoveries of oil (the commercial viability of which was

confirmed by Tullow Plc in Northern Kenya in July 2013).

The discoveries have resulted in increased interest in

many on-shore and off-shore blocks. There has also been

an increase in secondary sales of interests in exploration

blocks between investors.

The long-term plan by the Government is to build a pipeline

from the oil-rich Turkana region to the port of Lamu. In the

interim, however, companies will need to and transport

crude oil to the coast for export through the existing rail

and road infrastructure.

With the changing fortunes in the oil sector, the laws

governing the sector have come under scrutiny. Petroleum

exploration activities in Kenya are primarily governed by

a 1968 statute, which is outdated and in need of review.

To this end, Parliament is set to debate The Petroleum

(Exploration, Development and Production) Bill, 2017 (the

Petroleum Bill). The Petroleum Bill, which, once enacted,

will repeal the Petroleum (Exploration and Production) Act

(Cap 308) as the new substantive law relating to the oil and

gas sector.

The Petroleum Bill was also published with draft local

content regulations and a new model form of production

sharing contract (2017 PSC). Among the changes proposed

in the 2017 PSC include a new profit sharing model based

on profitability as opposed to the daily rate of production

in the current model form of production sharing contract.

Contractors will also face enhanced obligations as

compared to the obligations under the current model form

of production sharing contract including broader and more

stringent local content requirements, additional licenses,

decommissioning costs and obligations relating to the

protection of the environment.

In addition to the Petroleum Bill, a new Energy Bill which

will create a new regime for the energy sector was gazetted

on 26th January 2018.

At the time of writing neither of these bills has been

introduced into parliament.

Real Estate & ConstructionIn the past decade the real estate sector has seen

an increase in the number of large scale multi- use

developments comprising of retail malls, residential units,

hotels, commercial and office space. Examples of such

developments include the Two Rivers development which

is being undertaken on 102 acres with an estimated

cost of USD 256 million and Garden City which is being

undertaken on 36 acres at an approximated cost of USD

227 million.

There is an emerging trend in such large scale multi-use

INDUSTRY SECTORS


developments where the developers are also providing

infrastructure such as power generation and water as

well as sewage treatment plants to sustain the entire

development. In addition to the infrastructure, value added

services such as direct supply of internet and piped gas as

well as automated security systems are being offered with

a view to enhance the lifestyle of the occupants of such

developments.

Developers are also starting to construct large-scale gated

residential developments targeted at low to middle level

income earners. Most of these large scale residential

developments are being undertaken in the outskirts

of the city of Nairobi and are driven by the increased

urbanisation of the population in Kenya. Examples of these

developments are Karibu Homes, comprising of 1,000

apartments and Edenville comprising approximately 700

residential units and a commercial area.

We have also seen significant growth in industrial

developments whether developed on their own or as

part of a larger mixed-use development. These include

developments such as the Northlands development

which is a mixed use development situated on 11,000

acres comprising of an industrial park, low-high income

residential areas, commercial space, a central business

district, schools and an agricultural zone. Another

development situated in Vipingo on 10,254 acres is set

to be an economic hub and will comprise of an industrial

area, residential, commercial, institutional, recreational,

and public zones. The first phase of the project will see the

setting up of infrastructure on 900 acres of land at a cost of

K.Shs.794.3 million.

The skyline in Nairobi is also changing with the

development of high rise mixed-use developments. AVIC

International Real Estate Kenya, a subsidiary of Aviation

Industry Corporation of China, a Chinese state-owned

aerospace and defence company, is undertaking a mixed-

use state-of-the-art development comprising 6 towers

ranging from 28 to 45 floors of office block, hotel and

residential apartments and a retail centre apartments,.

There has also been an increase in the establishment of

retail malls outside of Nairobi in various cities across the

country such as the Buffalo Mall Naivasha in Naivasha,

Cedar Mall in Nanyuki, City Mall in Mombasa and Juja City

Mall in Kiambu.

Other non-traditional real estate developments such as

hospitals, educational institutions and entertainment

domes are being undertaken by developers to compliment

the residential and commercial developments in mixed-use

developments.

Due to the size and complexity of some of the

developments being undertaken in Kenya, many developers

are now engaging foreign contractors and consultants to

construct and manage their development projects. Most of

the foreign contractors originate from China and examples

of such contractors include Katic, who are the contractors

in the Two Rivers development and Sinohydro Corporation,

who were the contractors in the Garden City development.

We have also seen the entrance of international project

management companies into the region to take advantage

of the growing real estate market.

There has been recent influx of large foreign investors

seeking to invest in large scale developments in Kenya

such as the Actis Fund, International Finance Corporation

and CDC Group (a subsidiary of the UK Department for

International Development) all of whom have funded

the Garden City development through equity. Avic

International has invested in several real estate and

commercial development projects across Nairobi including

investing K.Shs.6.4 billion in the Two Rivers development

for a 38.9%stake. Old Mutual from South Africa also

partly financed the Two Rivers Mall. This, however, has

been matched by local funding through entities such as

development and financial institutions like Industrial and

Commercial Development Corporation, large real estate

investment companies like Centum Investment Limited that

have partly financed the Two Rivers development.

We have also seen the participation of international

commercial banks willing to extend debt for the

development of large scale real estate developments.

A good example is Standard Bank of South Africa that

has lent USD 46 million towards the development of the

Garden City retail mall. Local banks are also participating in

debt financing of large scale real estate developments such

as Kenya Commercial Bank’s lending to finance the Garden

City residential development and Co- operative Bank

lending to finance the Two Rivers development. In 2015,

Kenya saw the listing of its first REIT, which was promoted

by Stanlib Investments Limited. The REIT is currently

trading on the Nairobi Securities Exchange.

INDUSTRY SECTORS


In a bid to increase the supply of affordable housing, the

national government has entered into various private public

partnerships (PPP) arrangements with developers and

financiers. One notable one is the development of 20,000

houses for police housing through an arrangement with

four financiers- Shelter Afrique, the African Development

Bank (AfDB), KCB Group and HF Group.

President Kenyatta in his inauguration speech for his

second term in office committed to facilitate a home

ownership programme through affordable housing

initiatives that will create 500,000 new homeowners. The

government will focus on attracting from both public and

private sources, the injection of patient, low-cost capital

into the housing sector. At the county level, the Nairobi

County government has partnered with various developers

to undertake a slum upgrading project which will see the

demolition and re-development of 7 estates comprising of

14,000 housing units

TelecommunicationsThe telecommunications sector in Kenya is primarily

governed by the Kenya Information and Communications

Act, 1998 (KICA) and the various regulations promulgated

thereunder. The regulator is the Communications Authority

of Kenya (CAK).

Kenya’s telecommunications sector continues to grow

rapidly and remains one of the key contributors to the

country’s GDP. Mobile phone penetration is very high,

in an African context, with over 44 million mobile phone

subscriptions reaching over 95% penetration level.

An example of the rapid development of the sector is the

continued rise of the world’s most successful and widely

discussed mobile money payment service: M-Pesa, which

was launched in 2007 by Safaricom Limited and which

has grown continuously and opened up to other mobile

operators, now serving a large number of Kenyans, and

increasingly, people in other jurisdictions. Cash transacted

via mobile phones in Kenya hit USD 37 Billion (approx.) in

the 12 months ending March 2018.

In addition, mobile data and innovations by technology

media and telecoms (TMT) firms continue to be a driving

factor of the sector’s growth. These include start-

up innovations such as innovations in food security,

healthcare, apps and mobile services aimed at making

traveling easier by providing traffic updates (crucial in a

Nairobi context) and M-Kopa which aims at providing solar

energy to the country’s poor by using mobile technology to

support the system.

Safaricom’s strong investment in mobile capacity and the

success of M-Pesa has resulted in a very concentrated

mobile market. In mid-2018, Safaricom PLC had

69.1%market share in mobile subscriptions. The second

player is Airtel Networks Limited which has 17.2%, Telkom

Kenya Limited had 9.0 per cent and Finserve Africa Limited

(t/a Equitel) had 4.5 per cent.

There is an ongoing discussion in relation to Safaricom’s

domination of the mobile phone and mobile money

transfer markets. The CAK has been investigating this

issue and engaged an expert report. A draft of this report

was released in February 2018 and the findings were

that Safaricom was indeed dominant in many aspects of

the industry. The report suggested specific solutions to

increase competition in these areas. Some of these have

already been implemented – such as the interoperability of

payments between differing mobile money operators. But

more changes are expected and greater competition within

the industry should be expected in the future.

Key transaction in the sector include the announced deal

for Telkom Kenya to sell and lease back its communications

towers to American Towers.

The Kenyan telecommunications industry will be an area of

significant activity and interest over the next few years.

INDUSTRY SECTORS


TourismIn the mid 2010’s, the Kenyan tourism industry was hard

hit by the 2013 Westgate Mall terrorist attack. However,

in recent years greater security and focus has resulted in

improved numbers of international visitors. According to

recent advice from the Tourism Minister, the number of

international visitors increased by nearly 10% between

2016 and 2017 (1.34m to 1.47m). The United States was

the number one tourist source market (114,000) followed

by the UK (107,000) and Uganda (61,500).

There has since been an upscale of investor confidence in

the business tourism sector since 2015, evidenced by the

growth in international conferences being held in Nairobi,

Kenya. Nairobi is now one of the major conference venues

in the region and hosts a wide variety of conferences and

events.

Kenya Airways has recently been approved to fly directly

from Kenya to the US and the first direct flight is scheduled

to fly in October 2018. There is significant optimism that

this link will result in increased tourism from the US.

Local tourism within Kenya is also a growing market as

increasing disposable income allows Kenyans to travel for

their holidays.

Several investment opportunities now also exist in the

tourism flagship projects that are under the Government’s

Vision 2030 blueprint for developing the country. These

include construction of resort cities, hotels, eco-lodges,

conference facilities, and marinas among others. The

tourism sector in Kenya therefore still remains a lucrative

field for consideration by any person wishing to invest in

Kenya.

Kenya has substantial natural assets attracting tourists,

ranging from well-known areas such as the Maasai Mara

and the Kenyan Coast, to relatively unexploited areas

like Lake Victoria. Kenya’s tourism infrastructure is also

well developed in comparison to other tourist areas in

the region and is expanding, especially in the aviation

arena, where there has been an increasing number of

budget airlines and direct flights from many tourist source

countries and frequent internal connections.

With the extensive marketing campaigns overseas by

the Tourism Recovery Task force, the diversification of

the tourism sector, the increased access to the region

through the increased number of direct flights to Kenya

and the recent growth in investor confidence in Kenya, the

tourism sector is seen to be emerging much stronger with

expectations of growing even bigger.

The Tourism Act regulates the industry and The Kenya

Tourism Regulatory Authority, a corporate body established

under the Tourism Act, is tasked with developing the

tourism sectors through policy development and measures

which promote sustainable tourism throughout the

country.

INDUSTRY SECTORS


Key Developments

The Big 4The newly elected government has highlighted four areas in

which it will devote its efforts between the years 2018 to

2022. The areas are:

1. manufacturing,

2. affordable housing,

3. universal healthcare and

4. food security.

Christened the ‘Big Four’, the specific outcomes that are

being aimed at include building 500,000 low cost houses,

universal healthcare, a 10-fold exports increase, irrigation

of 1.2 million acres of land and millions of new jobs.

This is an ambitious plan for the newly elected government.

The new government is yet to take many steps towards

achieving these goals, but it seems likely that programs

and projects that align and assist the achievement of these

goals will be given governmental priority for resources and

greater attention.

Crude Exports2017 was expected to see the first Kenyan crude exports

from the oil fields in the Turkana region of northern Kenya

by Tullow Oil PLC and its partners Africa Oil and Total SA.

Practical difficulties around implementation of the early

oil programme, stakeholder discussions on the proposed

Petroleum bill and other delays have pushed this first

export into late 2018/early 2019. The intention is for

initial exports to be moved by road to Mombasa port for

export, however, doubts remains over the commercial

viability of this proposed route to market especially with

the lack of storage infrastructure currently available at the

port of Mombasa. Initial discussions have been held by

the Government with respect to the expansion of storage

capacity at the Kipevu Oil Terminal.

It is expected that in the coming months the Government

will prioritise the commercialisation of Kenya’s crude

resource in order generate additional revenues that can be

used in the implementation of the Vision 2030 blueprint

as well as in reducing Kenya’s ever growing budget deficit.

It is likely that the Government will focus on developing

the proposed crude export pipeline from Lokichar in the

Turkana region (where the oil is extracted) to Lamu (an

island off the coast of Kenya for seaborne export) to create

a more viable “route to market” however, questions remains

over the preferred ownership structure, affordability of the

overall project costs, and routing of the proposed pipeline.

InfrastructureThe 2013-2017 Kenyan Government has invested heavily

in new infrastructure. The most notable example of this

was the creation of the Standard Gauge Railway (SGR)

between Mombasa and Nairobi. This railway was opened

in June 2017 and has been operating daily passenger

services between the two cities.

The Government’s goal is to also move a significant

proportion of the freight transported between Mombasa

and Nairobi on to the rail - but this is taking more time

than expected. Stage 2A, which extends the railway to

Naivasha, has been initiated and is intended to be finished

in 2019. A further extension to Kisumu is also in the plans.

A number of large-scale infrastructure projects are also

planned or already under development. Many of these

proposed infrastructure projects are being undertaken as

public private partnerships.

KEY DEVELOPMENTS


At the moment, significant attention is being given to

the development of road infrastructure between Nairobi

and other major towns and cities in Kenya, as well as

in the LAPPSET corridor. At the time of publication,

we understand that a multinational intends to develop

and construct a major expressway between Nairobi and

Mombasa and other plans to develop the Nairobi-Nakuru

highway and other roads either on an annuity or toll basis

are at an advanced stage.

In addition to the development of roads infrastructure,

the Government is also considering developing other

infrastructure projects in various sectors of the economy

such as ports, waste management, bridges, hospitals

and public housing, amongst others. Although, PPPs at

the county government level have not materialised at

the envisaged rate as questions remains over County

credit risk and availability of suitable credit enhancement

risk mitigants, it is hoped that the National and County

Governments will come together to create a county

PPP framework that will enable projects to pass private

financiers’ bankability requirements to enable further

development of infrastructure at the county level.

Financial Sector RegulationKenya is the first country in the world to launch a mobile-

money only based treasury bond. The infrastructure bond

is known as M-Akiba. Investors can invest as little as KES.

3,000 (c. USD 30). The bond is traded on the secondary

market at the Nairobi Securities Exchange.

The CBK has lifted the moratorium that has been in effect

from 2015 on the licensing of new banks. Consequently,

two new banks (Mayfair and DID Bank) have been granted

approval to operate in Kenya.

With effect from January 2018, Kenyan banks will be

required to comply with International Finance Reporting

Standard 9 (IFRS 9). IFRS 9 provides guidance on the

classification and reporting standards in relation to loans,

customer deposits, government securities and debtors. It is

expected that the adoption of IFRS 9 will provide greater

visibility on credit risk and thus lead to differentiated

pricing of loan products. It’s impact on the Kenyan banking

industry was expected to be significant and require Kenyan

banks to raise substantial additional capital. However,

on 12 February 2018 the CBK wrote to the Kenyan

banks giving them a five-year waiver from higher capital

requirements IFRS 9 imposed.

The financial services sector in Kenya is regulated by

multiple sub-sector regulators (including the Insurance

Regulatory Authority (IRA), Retirement Benefits Authority

(RBA), Capital Markets Authority (CMA), Sacco Societies

Regulatory Authority (SASRA) and the Central Bank of

Kenya (CBK)).

The establishment of a single regulatory body has been

proposed, with a view to addressing regulatory gaps and

different operational standards within the financial sector.

In this regard, the Cabinet has approved the draft Financial

Services Authority Bill which, if passed into law, will see

a merger of the CMA, the IRA, the RBA and SASRA. The

regulation of financial institutions will remain a remit of the

CBK.

Nairobi International Finance CentreThe Act creating the Nairobi International Finance Centre

was finally passed in 2017. Turning Nairobi into an

investment hub had been talked about for many years

but without concrete outcomes. The Act established the

Nairobi International Finance Centre (the Centre) and the

Nairobi International Finance Authority (the Authority)

(which replaces the body of the same name established by

order in 2014). The governance model used is based on

the way that other similar finance centres have been set up

- such as, Casablanca or Dubai.

The Authority is tasked with creating the framework

for determining priorities, attracting investment and

for aspiring investment entities to become a Nairobi

International Finance Centre Company. The Authority will

be managed by a Board made up of Cabinet Secretaries and

senior international financial services experts.

The Act itself does not contain the specifics of how and

what and who can become a NIFC Company. These

requirements will be fleshed out in the subordinate

regulations - which are yet to be published.

KEY DEVELOPMENTS


Turning the NIFC into a successful finance centre will

also require a significant amount of additional regulatory

harmonisation of a significant amount of law and regulation

- for example, in relation to the tax benefits of being a NIFC

or the specific employment arrangements available to NIFC

companies that are not available to other Kenyan entities.

Consequently, there is still a lot of work to do before the

NIFC can take its place as an effective finance centre.

Investors will need to wait and see.

Bribery ActOn 13 January 2017 the Bribery Act came into force. The

Bribery Act has radically extended the remit of Kenya’s

bribery and corruption laws by criminalising the giving

or receiving of bribes regardless of whether there was a

public body or official involved. Previously, only public

official bribery was a criminal offence. The Bribery Act has a

mandatory reporting requirement and requires businesses

to have policies and procedures in place to prevent bribery

and corruption.

The body that regulates bribery and corruption, the Ethics

and Anti-Corruption Commission, has seen a significant

increase in its budget and is aggressively acting in this area.

KEY DEVELOPMENTS

ALN Head Office5th floor, The Oval, Corner of Ring Rd. Parklands and Jalaram Roads, Westlands

P.O. Box 200 - 00606, Sarit Centre, Nairobi, KenyaT: +254 706 040 000 | +254 774 040 000

E: [email protected]

ANJARWALLA & KHANNANairobi

The Oval, 3rd Floor, Junction of Ring Rd., Parklands & Jalaram Rd.P.O. Box 200-00606, Sarit Centre, Nairobi, Kenya

T: +254 20 364 0000, +254 70 303 2000E: [email protected]

MombasaSKA House, Dedan Kimathi Avenue

P.O. Box 83156-80100, Mombasa, KenyaT: +254 41 231 2848

E: [email protected]

The information contained in this report is of a general nature and is not intended to address the circumstances of any particular individual or entity. While the information is accurate as at date hereof, there can be no guarantee that the information is accurate as of the date it

is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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