Kenya has a market-based economy and is generally considered the economic, commercial, and logistics hub of East Africa. With the strongest industrial base in East Africa, Kenya has been successful in attracting private equity capital. More U.S. companies are investing in Kenya and setting up local and regional operations to take advantage of Kenya’s strategic location, comprehensive air routes, and status as a regional financial center.
Kenya is not a low-cost economy. In fact, the cost of skilled, educated labor is high by developing world standards. A very large portion of the young population under the age of 35 is relatively unskilled, and subsists in an employment environment that offers few opportunities. Even so, Kenya’s skilled, educated labor pool is relatively abundant in comparison with neighboring countries.
Widespread violations of intellectual property rights (IPR) for videos, music, software, and consumer goods continue to cause major problems for some U.S. firms. The American Chamber of Commerce (AmCham) in Kenya has an IPR committee of rights holders, who are very engaged along with the U.S. State Department in combating counterfeiting in Kenya.
Title to land is uncertain, reducing the borrowing capacity of families and businesses and constraining Kenya’s ability to broaden its capital base. Land reform is a divisive and emotional issue, complicated by tribal traditions, land sale scams, and perceived historical injustices, which Kenya’s young democracy has so far been unable to resolve.
Shipment times from the U.S. average eight weeks, and customs irregularities are not unusual. If market size warrants the need, U.S. firms should consider warehousing in Kenya for prompt supply and customer service.
In July 2013, the Customs Department of the Kenya Revenue Authority (KRA) imposed a 1.5% Railroad Development Levy (RDL) on all shipments arriving in Kenya. The levy is applied on goods arriving by air, ship, rail or truck. The RDL will be used to fund the construction of a standard gauge railway network under construction and is charged at a rate of 1.5% on the customs value of goods which is paid by the importer.
In September 2013, Kenya’s Value Added Tax Act of 2013 (VAT) took effect. The new VAT Act was introduced as a measure to increase government revenue by expanding the tax base, restricting exemptions to a short list of products primarily within basic commodities, and adhering to a flat tax rate of 16%.
For U.S. companies operating in Kenya, it should be noted that the VAT and RDL are applied on a non-discriminatory basis and reflect policy decisions of the Kenyan government within their domestic competence. It is unlikely that the Kenya government will be willing to introduce new exemptions for either of these measures.
Despite the many challenges that Kenya presents, there are a good number of opportunities locally and regionally. In fact, with the stabilization of the Kenyan Shilling (Ksh), trading between Ksh 84-87 to the dollar, US exports increased by over 14 percent in 2013.
The Country Commercial Guide provides more information on best prospects for U.S. companies looking to do business in Kenya, and by extension East Africa using Kenya as a hub or gateway.
Market Entry Strategy
Establishing an Office in Kenya
To establish a legal presence in Kenya, U.S. firms may need to register with the Kenyan Registrar of Companies (KRoC) as a foreign company rather than register a business or incorporate in Kenya. Incorporation of a company in Kenya as a subsidiary of a U.S. corporation, as opposed to the registration of a U.S. firm, is a more complicated and expensive process. Within 30 days of establishing a business in Kenya, companies must deliver the following items to the Attorney General Chambers, in Nairobi:
1. A copy of the charter, statutes, Memorandum of Understanding, Articles of Association, or other instrument constituting or defining the company and certified as accurate by a Notary Public;
2. A list of the company directors and a secretary containing their full names, physical or postal address, nationalities, business occupation, and directorships (if any) of Kenyan companies;
3. A statement of all mortgages or charges (if any) accumulated by the company for any property situated wholly or partly in Kenya;
4. The names and postal addresses of one or more people resident in Kenya authorized to accept service of legal proceedings or notices on behalf of the company;
5. The full physical and postal address of the company's head office or registered office;
6. The physical and postal address of the company's place of business in Kenya.
7. Declaration of compliance: A commissioner of oath must sign this form on your behalf.
8. Register with the Tax Department for the single taxpayer identification number Online
The Registrar of Companies issues a "Certificate of Compliance" that certifies that the requirements of the Kenyan Companies Act have been fulfilled. This allows the company to obtain trading licenses from local authorities and the Ministry of Industrialization and Trade Development.
The U.S. Commercial Service Kenya recommends that U.S. firms obtain the services of a local attorney to undertake registration. Well-established Kenyan legal firms provide such services for an average fee of US$500 plus a Government of Kenya Stamp Duty that is worth of 1% of share capital value. Interested U.S. firms may contact U.S. Commercial Service Kenya for a list of reputable attorneys.
In the major urban centers of Nairobi, Mombasa and Kisumu, Kenya has well- established realtors specializing in all areas of real estate management. The U.S. Commercial Service Kenya office assists in identifying realtors to recommend suitable office space.
The Commercial Service in Nairobi provides a variety of services to assist U.S. firms with market entry. Please refer to Services for U.S. Companies for further information.
Visit Investment Kenya for details on how to register a business in Kenya.
To access the 2015 Kenya Country Commercial Guide, click here
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