Therefore, the future of successful donor funded projects is pegged on the following;
Based on the industry the company operates, some legal obligations and requirements must be adhered to.
It is paramount for foreign investors to seek professional advice when setting-up business in Kenya to avoid risk exposure which can result in the closure of business, penalties or fines, prosecutions, reputational damage et cetera.
a. Compliance with the registrar of companies
b. Compliance with Kenya Revenue Authority (KRA)
c. Compliance with Nairobi City Council (NCC)
d. Compliance with National Social Security Fund (NSSF) and National Hospital
Insurance Fund (NHIF)
e. Compliance with National Industrial Training Act (NITA) and Work Injury Benefits
Compliance with the registrar of companies
The first step for an investor to set up a company in Kenya is to register with the registrar of companies. Upon successful registration with ROA, the following business document are issued as a certification that the company is registered in Kenya, meets all requirements, and can commence business in Kenya.
i. Certificate of Registration or Certificate of Incorporation
ii. C12 which has details of the company’s shareholding and directorship
iii. Beneficial Ownership Register
You will have to appoint a certified Company Secretary (CS) in the following circumstances;
i. Either none of the directors is physically present in the country;
ii. Or the company’s share capital is above 5 million Kenyan shillings.
The role of the CS is to ensure compliance with statutory and regulatory requirements and also that decisions of the board of directors are duly implemented. For that purpose, he will maintain the company’s statutory books. In case it is a branch, the appointment of a local representative who is a resident in Kenya is expedient.
Lastly, in regards to the registrar of companies, annual returns should be filed on an annual basis for all local entities. Whether the business has started its operation or not. It is required to ensure that the information about the company is regularly updated. Thus, ensuring that, the Registrar of Companies maintains valid information about the company.
Compliance with Kenya revenue authority
The company is required to obtain KRA PIN. Upon issuance of a certificate of registration, the Personal Identification Number (PIN) is one of the next obligations for a company to operate in Kenya. This is a unique identification tax number issued by the Kenya Revenue Authority (KRA). The PIN enables KRA to track the company’s compliance with tax, returns, and statutory obligations as per Kenyan law. Note that, when it comes to taxes, compliance applies for any type of Permanent Establishment (PE). Both corporate and individuals. Upon registering for KRA PIN, one is issued a KRA PIN certificate. A permanent establishment (PE) is a fixed place of business that gives rise to income or value-added tax liability in a particular jurisdiction.
Kenya essentially operates a source-based tax regime and effectively taxes all income accrued in or derived from Kenya. In essence, therefore, Kenya would tax all residents and non-residents. Non-residents can either have a permanent establishment in Kenya or have absolutely no physical presence. Non-residents with no physical presence are taxed through the withholding tax system, where withholding tax is applicable, whilst those with a permanent establishment are taxed through the corporate tax system. There are very minor differences in the taxation of Kenyan residents and that of non-residents who have permanent establishments.
Under the KRA regulatory body, the company should comply with the following regulations:
a. Income tax: Here, the company is required to file and submit an income tax return on or before the end of the 6 th month of the following fiscal year. Also, to pay and submit PAYE returns on or before the 9 th day of the following month. PAYE is chargeable for salaries of Kshs. 24,000 and above per month. The Corporate Income Tax is one of the obligations of a company in Kenya. The rate of Corporate Income Tax for resident companies, including subsidiary companies of foreign parent companies, is 30%. The CIT rate for branches of foreign companies and PEs is 37.5%. Resident companies are taxable in Kenya on income accrued or derived from Kenya. Resident companies with
business activities outside Kenya are also taxed on income derived from business activities outside of Kenya.
b. Installment tax: The Company is required to pay installment tax in four equal installments in the 4th, 6th, 9th, and 12th months of the fiscal year. The final tax is calculated and paid as part of the last installment.
c. Withholding tax: WHT is levied at varying rates (3% to 30%) on a range of payments to residents and non residents. Resident WHT is either a final tax or creditable against CIT. Non-resident WHT is a final tax. In the case of management or professional services, 5% Withholding Tax applies to the taxable amount, which is remitted to KRA on behalf of the taxpayer on or before the 20 th day of the following month who receives the WHT certificate.
d. FBT: This is a benefit obtained by the director, employee, or relative to the director when he or she gets a loan at a low-interest rate than the prevailing market rate. The charge is 30% of the benefit which is payable on or before the 20th day of the following month.
e. VAT: Regarding VAT (Value Added Tax) registration can either be mandatory or voluntary on the following basis: voluntary where the activities of the company involve purchase and sale of vatable goods or services. VAT currently is at 16%, it is remitted to KRA on or before the 20th of the following month. However, the only time registration for VAT becomes a mandatory exercise is when the company reaches the threshold of 5 Million turnover per year.
f. Tax compliance certificate: Lastly, you may request a Tax Compliance Certificate (TCC). This certificate is important for companies in Kenya as it is an indicator that the company is complying with tax laws, thus it facilitating several administrative procedures.
Compliance with Nairobi city council
NCC is a government body that takes charge to provide business services, healthcare facilities, emergency response, waste collection, water and sanitation, and many more services. I agree, that’s a lot huh! We will just discuss a few services that NCC offers that are vital for investors to be aware of.
A business permit is proof that a company has a license authorization to conduct business in a physical space. Why do you need a Business Permit? Well, in the unfortunate event that you are in a physical space without a license to operate, there is a risk of being shut down and payment of penalties and fines. NCC urges all businesses to acquire a business permit which will enable them to run smoothly.
In the case of a co-working space, each business owner should have a license as the nature of the business is different from the co-working service provider.
The next important piece of information you should know is that for any business premises, you are required to have a fire certificate. Basically, in case of a fire, you can mitigate damages and the people in the building can escape safely. NCC audits the office premises and gives OHSE recommendations in regards to fire hazards. Once the measures are implemented, you will be issued a certificate.
Of course, the OHSE requirements from NCC depend on the type of activities being conducted.
Therefore, it can also refer to food and sanitation.
Compliance with NHIF and NSSF
The National Hospital Insurance Fund and the National Social Security Fund are the government parastatals that handle health and retirement benefits respectively. Any new company or employees working in Kenya are required to be registered with these two entities. It is a mandatory requirement to remit on the same monthly. Failure to register or late remittance of these contributions will of course lead to penalties and fines.
Compliance with NITA and WIBA
Do you know NITA can take over your staff training cost when you are training Levy compliant?
Employers need to register as training Levy payers and pay industrial training Levy on regular basis at Kshs.50 per month per employee. Up to now, many companies have not yet embraced National Industrial Training Authority (NITA) services. Yet, NITA offers high-quality standards of industrial training in Kenya and they can supply well-trained manpower at all levels.
WIBA is a legal requirement in Kenya for businesses or organizations to cover themselves against compensation for injuries caused to their employees. Besides being a mandatory requirement for employers. It protects you financially against liabilities that arise from your employees’ work-related injuries and occupational diseases. It covers you as an employer against legal liability under the Labor Laws about Health and Safety Act 2007.
Indeed, the training teaches a lot about measures and the dos and don’ts in the workplace. A conducive work environment not only brings comfort but increases the scale of production.
There are other regulatory bodies for a company operating in Kenya depending on the industry. For instance, the Kenya Bureau of Standards (KEBS) promotes standardization in industry and commerce; National Construction Authority (NCA) regulates and builds capacity for construction; Information and Communications Technologies in Kenya (ICT) sets and enforces the ICT standards and guidelines for the human resource, infrastructure, processes, systems and technologies for public offices; The Communications Authority of Kenya (CAK) and Central Bank of Kenya (CBK) which regulates any company engaging in communication and financial services respectively. It is highly recommended to work with professional experts to avoid any oversight that could lead to risk exposure and penalties.
Wycliff Murunga Hassan
Audit Associate- MGK Consulting