Information & Networking Department
KENYAN ECONOMY.
Importing to Kenya
In May 1993 the Government simplified procedures for Kenyan importers and abolished import-licensing
requirements with the exception of a special category of items. However, importers are required to complete an
Import Declaration Form, which is issued by commercial banks. Importers must obtain foreign exchange from
commercial banks through the interbank market. All payment for imports must be authorised by commercial banks and importers must be in possession of valid import documents.
Items whose importation is restricted or which require prior approval fall into three basic categories.
Schedule A - Items whose importation is prohibited for purposes of environmental and wildlife protection e.g.
toxic chemical waste, bones and ivory.
Schedule B - Items which require prior approval and whose importation is restricted for state security and safety reason e.g. explosives, firearms and nuclear reactors.
Schedule C - Items whose importation does not require prior approval but which require special clearance on
entering the country to ensure compliance with health and environmental standards e.g. livestock, live fish,
seedlings and insecticides.
Most goods imported into Kenya, are subject to pre-shipment quantity and quality inspection and price
comparison by inspection bodies such as the SGS Company from Geneva (Switzerland), which issue a "clean
report of findings".
There are examples of exceptions to this procedure: Personal effects, including used motor vehicles, supplies for
diplomatic missions and UN organizations, bulk imports of crude oil for the Mombasa Oil Refinery and other bulk supplies imported by oil companies operating in Kenya, goods with a pro-forma invoice value of less than Kshs. 50,000. Part shipment of smaller lots to take advantage of this provision is not allowed.
Taxation
This is an outline of the most important features of the Kenya taxation system. We cannot give here full details of the complexities of Kenya's tax regulations. We therefore recommend that potential investors, particularly from overseas, obtain appropriate professional advice.
Government Fiscal Policy
In recent years, the government, in directing the economy, has used fiscal measures more actively. The main
features of the policies are: tariff rationalization and reduction, introduction and expansion of the scope of indirect taxation in the form of a Value Added Tax reductions in company and personal taxation, and the greater used of tax incentives.
Business Taxation
Companies resident in Kenya are taxable on their worldwide trading profits, currently at the rate of 35%. Income
earned by a branch of a resident company carrying on business outside Kenya is subject to tax in Kenya,
regardless of whether or not it is taxed overseas.
Dividends
Dividends received by a Kenyan company from another Kenyan company are taxable. Tax is levied at flat rate of
10%. But if the receiving company owns more than 12.5% of the voting power of the subsidiary concerned, and
dividends received from the subsidiary are tax-free.
Allowable Deductions
The basic rule for deduction of expenses is that they must have been incurred wholly and exclusively in the
production if income. In addition, certain specific rules are laid down in the Income Tax Act governing the
deductibility of certain expenses.
Interest
Interest is deductible when money is borrowed wholly and exclusively for the production of income. Payments to
non-resident banks require tax to be withheld at 12.5%.
Pension Contributions
Limited tax relief is available from contributions to registered retirement schemes.
Leases
No deduction will be given in respect of lease payments unless it can be substantiated that: the whole of the
payments are being recognized as income in the hands of the lessor, the whole consideration for the payments is
the use or right to use the asset.
Bad Debts
Bad debts are deductible only to he extent that the Commissioner of Income Tax is satisfied that they have
become bad. The Income Tax Department normally requires evidence either of an inability by the debtor to pay,
e.g. bankruptcy, or insolvency, or evidence that the company has taken significant legal steps to recover the debt.
Capital 'Wear and Tear' Allowances
Tax depreciation is granted only on assets that qualify either as industrial buildings, plant and machinery,
expenditure on mining operations or farm works. The rates of allowance range from 2.5% on the straight-line
basis for industrial buildings to 37.5% on the reducing balance basis for plant and machinery and heavy vehicles.
Investment Allowances
Investment allowances are given to companies who invest in: new industrial buildings used for manufacturing,
machinery, new or second-hand used for manufacturing, hotels certified as industrial buildings.
Capital Gains
The 1985 Finance Act suspended capital gains tax with effect from 14 June 1985. Thus capital gains realised
after that date are exempt from tax.
Unit Trusts - Legislation was introduced in 1990 to revive the use of unit trusts. A unit trust ill suffer tax at the
following rates on its income: 10% on interest and dividend income, zero on capital gains. There will be no further
tax liability on the unit holder, either on distributions of income or on redemption of units.
Export Processing Zone ('EPZ') Enterprises
Generous tax and other incentives are to be given to companies carrying on business in an EPZ. These include: a
corporation tax holiday for 10 years, a reduced rate of corporation tax of 25% for the next ten years, zero rating
for VAT purposes, and exemption from withholding tax on certain payment to non-residents, certain relief from
exchange control.
Withholding Tax
Withholding tax is imposed on a number of payments to residents and non-residents. The main withholding tax
rates for residents are: 15% on commissions paid by insurance companies to agents, 10% on interest, except
when this is paid to banks and financial institutions, 10% on dividends, 5% on sale of certain farm produce. The
rates of withholding tax for non-residents are: management fees 20%, royalties 20%, serves of entertainers 20%,
interest 12.5% dividends 10%. In certain circumstances, these rates might be reduced if a double tax treaty exists
between Kenya and the country in which the recipient is resident.
Foreign Tax Credit
There is no general provision under Kenyan income tax law for credits to be given against Kenyan tax payable on
income from foreign operations. Tax credits are only given for taxes paid in a foreign country with whom Kenya
has a double tax agreement.
Value Added Tax (VAT)
VAT was introduced in 1990. It is charged on: the manufacture and supply of taxable goods, the import of taxable
goods or services, the supply of taxable services, and dealings in certain designated goods.
Stamp Duty
Stamp duty applies to instruments that have to be stamped for them to be registerable and admissible in a court
of law. Stamp duty is payable on authorised but not issued share capital at the rate of 1%. The same rate of 1%
also applies to transfer of securities although not to quoted securities. The highest rate is 6% which is payable on
transfer of immovable property in urban areas.
Miscellaneous Taxes and Levies
Other miscellaneous taxes and levies include taxes on petrol, fuel, oil, alcoholic beverages, and betting winnings.
There is also a throughput tax levied on products refined a the Mombasa refinery. All these taxes are computed at
the point of sale and are incorporated in the price paid by the consumer
CENTRAL BANK OF KENYA
Independent monetary and financial policies. required to advise the Government on monetary and fiscal policy
issues and other economic issues that may have important ramifications on the Bank's monetary policy.
maintaining price stability and fostering liquidity, solvency
For more information please visit www.centralbank.go.ke
KENYA REVENUE AUTHORITY
The authority is charged with the responsibility of collecting revenue on behalf of the government.
1. Assessment
2. Collection and
3.Administration and enforcement of laws relating to revenue
THE CAPITAL MARKETS AUTHORITY
In late 1989 and in 1990 Kenya took some important policy steps to establish and develop its capital markets,
including a secondary securities market.
The Capital Market Authority Act was passed into law early in 1990. Under this Act, the Capital Markets Authority
was established with the following objectives: to develop all aspects of the capital markets, create, maintain and
regulate a system in which the market participants are self-regulatory to the maximum practicable extent, protect
investors interests, operate a fund to compensate investors if a licensed broker or dealer fails to meet his
contractual obligations.
The Nairobi Stock Exchange (NSE) was established in 1954. It operated as an association of stockbrokers with
no trading floor until October 1991. The introduction of the trading floor has led to a substantial increase in trading
volumes and dramatic upward movement in the various indexes.
The Nairobi Stock Exchange (NSE) has been instrumental in enabling the public and private sectors in Kenya to
raise large amounts of capital for expansion projects and for the financing of new businesses. In 1995 the number
of listed companies on the Nairobi Stock Exchange (NSE) increased from 54 to 56. The number of brokerage
firms, meanwhile, increased from 13 in 1994 to 20 in 1995.
To strengthen the stability of the capital markets, an investment compensation fund was established in July 1995.
The aim of this fund, which is managed jointly by the Capital Markets Authority and the Nairobi Stock Exchange,
is to safeguard investors against losses arising from equity trading.
The number of shares traded at the Nairobi Stock Exchange increased from 42 million in 1994 to 62 million in
1995. In line with efforts to attract foreign capital, regulations were revised so as to enable foreigners to own up to
40% of any local company listed on the NSE. This equity participation by a single investor was increased from
2.5% to 5%. As a result of these developments, aggregate portfolio investments by foreign investors in the NSE in
1995 stood at 3.3 million shares valued at Kshs. 220 million.
Continuing co-operation between the NSE and the Capital Markets Authority (CMA) which represents the
Governments' interests on the Exchange, have been a major factor in this development. The CMA, besides
playing an active role in investor education, has an important regulatory function in securing the long-term
prospects of the Exchange.
In particular, the Authority has been involved in ensuring maximum disclosure by listed companies and all those
seeking a listing on the exchange. It has also established a mechanism for monitoring the affairs of stock broking
houses and other players in the market.
Co-operation between the government and the NSE has been such that the public sector has over the past ten
years, been able to raise KSH .4,600 million from the market, or 60% of the total capital raised. The remaining
KSh. 3,100 million, has been raised by the private sector.
Since foreign investors were allowed into the markets, and since exchange controls were lifted, the interest of
foreign portfolio investors has grown steadily, attracting international capital and personnel, and enhancing
corporate governance.
Privatization, though, has become one of the Exchange's leading functions. Kenya's ongoing privatization
program has received in excess of Kshs. 5,000 million through the Exchange. This trend looks set to continue,
given that the stock market remains one of the most efficient and transparent ways of privatizing both public and
private-sector entities.
In Kenya the NSE has encouraged listed companies, and most especially, those companies which are planning to
go public, to strive for higher standards of accounting, resource management and public disclosure, in the belief
that by meeting such criteria, companies will lend considerable impetus to the process of achieving such capital
growth.
The capital market is part of the financial system that provides funds for long-term development. This is a market
that brings together lenders (investors) of capital and borrowers (companies that sell securities to the public) of
capital. In particular, it set out to enhance the role of the private sector in the economy, reduce the demands of
public enterprises on the exchequer, rationalize the operations of the public enterprise sector to broaden the base
of ownership and enhance capital market development. It had become evident that the commercial banks could
not support and sustain a desirable economic development because they could not offer the necessary long-term
credit.
The mission of the Authority is to promote the development of orderly, fair, efficient, secure, transparent and
dynamic capital markets in Kenya within a framework which facilitates innovation through an effective but flexible
system of regulation for the maintenance of investor confidence and safeguards the interest of all market
participants.
LICENSEES
The Authority licenses the following categories of market players:
a. Securities Exchange (Nairobi Stock Exchange)
b. Central Depository (the Central Depository and Settlement Corporation)
c. Investment Banks
d. Stockbrokers
e. Dealers
f. Investment Advisers
g. Fund Managers
h. Authorised Securities Dealers
i. Authorized Depositories
j. Credit Rating Agencies
k. Venture Capital Fund
Importing to Kenya
In May 1993 the Government simplified procedures for Kenyan importers and abolished import-licensing
requirements with the exception of a special category of items. However, importers are required to complete an
Import Declaration Form, which is issued by commercial banks. Importers must obtain foreign exchange from
commercial banks through the interbank market. All payment for imports must be authorised by commercial banks and importers must be in possession of valid import documents.
Items whose importation is restricted or which require prior approval fall into three basic categories.
Schedule A - Items whose importation is prohibited for purposes of environmental and wildlife protection e.g.
toxic chemical waste, bones and ivory.
Schedule B - Items which require prior approval and whose importation is restricted for state security and safety reason e.g. explosives, firearms and nuclear reactors.
Schedule C - Items whose importation does not require prior approval but which require special clearance on
entering the country to ensure compliance with health and environmental standards e.g. livestock, live fish,
seedlings and insecticides.
Most goods imported into Kenya, are subject to pre-shipment quantity and quality inspection and price
comparison by inspection bodies such as the SGS Company from Geneva (Switzerland), which issue a "clean
report of findings".
There are examples of exceptions to this procedure: Personal effects, including used motor vehicles, supplies for
diplomatic missions and UN organizations, bulk imports of crude oil for the Mombasa Oil Refinery and other bulk supplies imported by oil companies operating in Kenya, goods with a pro-forma invoice value of less than Kshs. 50,000. Part shipment of smaller lots to take advantage of this provision is not allowed.
Taxation
This is an outline of the most important features of the Kenya taxation system. We cannot give here full details of the complexities of Kenya's tax regulations. We therefore recommend that potential investors, particularly from overseas, obtain appropriate professional advice.
Government Fiscal Policy
In recent years, the government, in directing the economy, has used fiscal measures more actively. The main
features of the policies are: tariff rationalization and reduction, introduction and expansion of the scope of indirect taxation in the form of a Value Added Tax reductions in company and personal taxation, and the greater used of tax incentives.
Business Taxation
Companies resident in Kenya are taxable on their worldwide trading profits, currently at the rate of 35%. Income
earned by a branch of a resident company carrying on business outside Kenya is subject to tax in Kenya,
regardless of whether or not it is taxed overseas.
Dividends
Dividends received by a Kenyan company from another Kenyan company are taxable. Tax is levied at flat rate of
10%. But if the receiving company owns more than 12.5% of the voting power of the subsidiary concerned, and
dividends received from the subsidiary are tax-free.
Allowable Deductions
The basic rule for deduction of expenses is that they must have been incurred wholly and exclusively in the
production if income. In addition, certain specific rules are laid down in the Income Tax Act governing the
deductibility of certain expenses.
Interest
Interest is deductible when money is borrowed wholly and exclusively for the production of income. Payments to
non-resident banks require tax to be withheld at 12.5%.
Pension Contributions
Limited tax relief is available from contributions to registered retirement schemes.
Leases
No deduction will be given in respect of lease payments unless it can be substantiated that: the whole of the
payments are being recognized as income in the hands of the lessor, the whole consideration for the payments is
the use or right to use the asset.
Bad Debts
Bad debts are deductible only to he extent that the Commissioner of Income Tax is satisfied that they have
become bad. The Income Tax Department normally requires evidence either of an inability by the debtor to pay,
e.g. bankruptcy, or insolvency, or evidence that the company has taken significant legal steps to recover the debt.
Capital 'Wear and Tear' Allowances
Tax depreciation is granted only on assets that qualify either as industrial buildings, plant and machinery,
expenditure on mining operations or farm works. The rates of allowance range from 2.5% on the straight-line
basis for industrial buildings to 37.5% on the reducing balance basis for plant and machinery and heavy vehicles.
Investment Allowances
Investment allowances are given to companies who invest in: new industrial buildings used for manufacturing,
machinery, new or second-hand used for manufacturing, hotels certified as industrial buildings.
Capital Gains
The 1985 Finance Act suspended capital gains tax with effect from 14 June 1985. Thus capital gains realised
after that date are exempt from tax.
Unit Trusts - Legislation was introduced in 1990 to revive the use of unit trusts. A unit trust ill suffer tax at the
following rates on its income: 10% on interest and dividend income, zero on capital gains. There will be no further
tax liability on the unit holder, either on distributions of income or on redemption of units.
Export Processing Zone ('EPZ') Enterprises
Generous tax and other incentives are to be given to companies carrying on business in an EPZ. These include: a
corporation tax holiday for 10 years, a reduced rate of corporation tax of 25% for the next ten years, zero rating
for VAT purposes, and exemption from withholding tax on certain payment to non-residents, certain relief from
exchange control.
Withholding Tax
Withholding tax is imposed on a number of payments to residents and non-residents. The main withholding tax
rates for residents are: 15% on commissions paid by insurance companies to agents, 10% on interest, except
when this is paid to banks and financial institutions, 10% on dividends, 5% on sale of certain farm produce. The
rates of withholding tax for non-residents are: management fees 20%, royalties 20%, serves of entertainers 20%,
interest 12.5% dividends 10%. In certain circumstances, these rates might be reduced if a double tax treaty exists
between Kenya and the country in which the recipient is resident.
Foreign Tax Credit
There is no general provision under Kenyan income tax law for credits to be given against Kenyan tax payable on
income from foreign operations. Tax credits are only given for taxes paid in a foreign country with whom Kenya
has a double tax agreement.
Value Added Tax (VAT)
VAT was introduced in 1990. It is charged on: the manufacture and supply of taxable goods, the import of taxable
goods or services, the supply of taxable services, and dealings in certain designated goods.
Stamp Duty
Stamp duty applies to instruments that have to be stamped for them to be registerable and admissible in a court
of law. Stamp duty is payable on authorised but not issued share capital at the rate of 1%. The same rate of 1%
also applies to transfer of securities although not to quoted securities. The highest rate is 6% which is payable on
transfer of immovable property in urban areas.
Miscellaneous Taxes and Levies
Other miscellaneous taxes and levies include taxes on petrol, fuel, oil, alcoholic beverages, and betting winnings.
There is also a throughput tax levied on products refined a the Mombasa refinery. All these taxes are computed at
the point of sale and are incorporated in the price paid by the consumer
CENTRAL BANK OF KENYA
Independent monetary and financial policies. required to advise the Government on monetary and fiscal policy
issues and other economic issues that may have important ramifications on the Bank's monetary policy.
maintaining price stability and fostering liquidity, solvency
For more information please visit www.centralbank.go.ke
KENYA REVENUE AUTHORITY
The authority is charged with the responsibility of collecting revenue on behalf of the government.
1. Assessment
2. Collection and
3.Administration and enforcement of laws relating to revenue
THE CAPITAL MARKETS AUTHORITY
In late 1989 and in 1990 Kenya took some important policy steps to establish and develop its capital markets,
including a secondary securities market.
The Capital Market Authority Act was passed into law early in 1990. Under this Act, the Capital Markets Authority
was established with the following objectives: to develop all aspects of the capital markets, create, maintain and
regulate a system in which the market participants are self-regulatory to the maximum practicable extent, protect
investors interests, operate a fund to compensate investors if a licensed broker or dealer fails to meet his
contractual obligations.
The Nairobi Stock Exchange (NSE) was established in 1954. It operated as an association of stockbrokers with
no trading floor until October 1991. The introduction of the trading floor has led to a substantial increase in trading
volumes and dramatic upward movement in the various indexes.
The Nairobi Stock Exchange (NSE) has been instrumental in enabling the public and private sectors in Kenya to
raise large amounts of capital for expansion projects and for the financing of new businesses. In 1995 the number
of listed companies on the Nairobi Stock Exchange (NSE) increased from 54 to 56. The number of brokerage
firms, meanwhile, increased from 13 in 1994 to 20 in 1995.
To strengthen the stability of the capital markets, an investment compensation fund was established in July 1995.
The aim of this fund, which is managed jointly by the Capital Markets Authority and the Nairobi Stock Exchange,
is to safeguard investors against losses arising from equity trading.
The number of shares traded at the Nairobi Stock Exchange increased from 42 million in 1994 to 62 million in
1995. In line with efforts to attract foreign capital, regulations were revised so as to enable foreigners to own up to
40% of any local company listed on the NSE. This equity participation by a single investor was increased from
2.5% to 5%. As a result of these developments, aggregate portfolio investments by foreign investors in the NSE in
1995 stood at 3.3 million shares valued at Kshs. 220 million.
Continuing co-operation between the NSE and the Capital Markets Authority (CMA) which represents the
Governments' interests on the Exchange, have been a major factor in this development. The CMA, besides
playing an active role in investor education, has an important regulatory function in securing the long-term
prospects of the Exchange.
In particular, the Authority has been involved in ensuring maximum disclosure by listed companies and all those
seeking a listing on the exchange. It has also established a mechanism for monitoring the affairs of stock broking
houses and other players in the market.
Co-operation between the government and the NSE has been such that the public sector has over the past ten
years, been able to raise KSH .4,600 million from the market, or 60% of the total capital raised. The remaining
KSh. 3,100 million, has been raised by the private sector.
Since foreign investors were allowed into the markets, and since exchange controls were lifted, the interest of
foreign portfolio investors has grown steadily, attracting international capital and personnel, and enhancing
corporate governance.
Privatization, though, has become one of the Exchange's leading functions. Kenya's ongoing privatization
program has received in excess of Kshs. 5,000 million through the Exchange. This trend looks set to continue,
given that the stock market remains one of the most efficient and transparent ways of privatizing both public and
private-sector entities.
In Kenya the NSE has encouraged listed companies, and most especially, those companies which are planning to
go public, to strive for higher standards of accounting, resource management and public disclosure, in the belief
that by meeting such criteria, companies will lend considerable impetus to the process of achieving such capital
growth.
The capital market is part of the financial system that provides funds for long-term development. This is a market
that brings together lenders (investors) of capital and borrowers (companies that sell securities to the public) of
capital. In particular, it set out to enhance the role of the private sector in the economy, reduce the demands of
public enterprises on the exchequer, rationalize the operations of the public enterprise sector to broaden the base
of ownership and enhance capital market development. It had become evident that the commercial banks could
not support and sustain a desirable economic development because they could not offer the necessary long-term
credit.
The mission of the Authority is to promote the development of orderly, fair, efficient, secure, transparent and
dynamic capital markets in Kenya within a framework which facilitates innovation through an effective but flexible
system of regulation for the maintenance of investor confidence and safeguards the interest of all market
participants.
LICENSEES
The Authority licenses the following categories of market players:
a. Securities Exchange (Nairobi Stock Exchange)
b. Central Depository (the Central Depository and Settlement Corporation)
c. Investment Banks
d. Stockbrokers
e. Dealers
f. Investment Advisers
g. Fund Managers
h. Authorised Securities Dealers
i. Authorized Depositories
j. Credit Rating Agencies
k. Venture Capital Fund
BUSINESS IN KENYA