Incentives

From tax exemptions to rapid project approval and licensing, Kenya's fiscal incentives aim to create a conducive environment for both local and foreign investors, fostering economic growth and development. This commitment reflects Kenya's strategic approach to stimulate investment, encourage innovation, and promote sustainable business practices within its dynamic economic landscape.

A: Fiscal Incentives

1. Capital Allowance

Capital allowances encompass tax incentives for capital expenditures, covering wear and tear allowances, industrial building deduction, investment deduction, and farm-works deductions.

Wear and Tear Allowances:

1. Class 1 (37.5%): heavy equipment, self-propelling vehicles.
2. Class 2 (30%): computers, photocopiers, scanners.
3. Class 3 (25%): light vehicles, aircraft, motorbikes.
4. Class 4 (12.5%): telephone sets, switchboards, bicycles.

2. Investment Deduction

• 100% deduction for building/machinery expenses.

Foreign tax credit

There is no tax credit for foreign tax paid on business income except as provided for by a Double Taxation Agreement/Treaty (if applicable) between Kenya and the other country. However, foreign tax paid may be deducted as an expense.

Industrial Building Deduction

10% allowance for industrial building capital expenditure (net of investment deduction).

3. Special Economic Zone and Export Processing Zones

Special Economic Zones Incentives

As detailed below Investors in the Special Economic Zones enjoy a raft of incentives that include 100% investment deduction for buildings and machinery, 10% corporate tax for the first 10 years, and 15% for the next 10 years; 5% withholding tax on payments to non-residents

Dividends to non-residents are tax exempt. Additional Details are on the table below;

Export Processing Zones Incentives

The Export Processing Zone (EPZ) program is managed by the Export Processing Zones Authority (EPZA) was created to promote export oriented industrial investment within designated zones.

• 10-year Corporate Tax Holiday, (25% tax rate for the next 10 years).
• 10-year Withholding Tax Holiday
• 100% investment deduction on new EPZ buildings and machinery.
• Perpetual exemption from payment of stamp duty on legal instruments
• Perpetual exemption from VAT and customs import duty on inputs

Newly Listed Companies (at the Nairobi Securities Exchange)

• Preferential corporate tax rates based on listed shares percentage.

Double Tax Agreement Incentives

• Concessionary tax rates based on negotiated agreements.

4. Sectoral Incentives

Telecommunication Sector Incentives

• 20% straight-line deduction for telecom equipment capital expenditure.
• 20% straight-line deduction for software capital expenditure.

Agriculture Sector Incentives

• 100% capital allowance for farm works construction.

5. Special Fiscal Incentives

VAT Exemptions

• Granted to Donor Funded projects and Diplomats upon National Treasury recommendation.

Public Expenditures

• Deductions for capital nature expenditures on public infrastructure with Ministerial approval.

B: Non-Fiscal Incentives

1. Special Economic Zones Administrative Incentives

The Special Economic Zones Authority (SEZA) offers the following administrative incentives:

1. One-Stop-Shop Service for Facilitation and Aftercare: The Special Economic Zones Authority operates a one-stop shop providing assistance to new companies. It offers guidance on labour regulations, work permits, import-export logistics, utility connections application, and registration with tax authorities.
2. Rapid Project Approval and Licensing: Investors benefit from swift project approval and licensing through the one-stop shop. Exceptions apply only to projects requiring environmental licences from the National Environmental Management Authority (NEMA), for which a separate application is necessary.
3. No Exchange Controls: SEZA facilitates a liberalised foreign exchange regime, allowing easy repatriation of capital and profits. Investors have access to foreign currency accounts, both domestic and offshore borrowing.
4. Onsite Customs Documentation and Inspection by Customs Staff: All zones have a resident Customs office for on-site customs documentation and clearance. SEZA management includes a Senior Revenue Officer to assist in customs and excise matters.
5. Unrestricted Investment by Foreign Investors: Investors in the zones enjoy unrestricted investment, with allowances for foreign currency accounts and offshore borrowing.
6. Work Permits: Investors in Special Economic Zones are entitled to work permits for up to twenty (20) percent of their full-time employees. Additional work permits for specialised sectors may be obtained based on the Authority's recommendation.
7. One Licence Framework: Special Economic Zones operators are required to operate under one licence issued by the Special Economic Zones Authority.
8. Exemptions from Administrative Processes: Investors in the zones are exempted from various administrative processes, including:
   • Rent and tenancy controls.
   • Provisions of the Foreign Investments and Protection Act related to certificates for approved enterprises.
   • Provisions of the Statistics Act.
   • Payment of advertising fees and business service permit fees levied by respective County Governments' Finance Acts.
   • General liquor licence and hotel liquor licence under the Alcoholic Drinks Control Act, 2010.
   • Manufacturing licence under the Tea Act.
   • Licence to trade in unwrought precious metals under the Trading in Unwrought Precious Metals Act.
   • Filming licence under the Films and Stages Plays Act.

2. Export Processing Zones Administrative Incentives

The Special Economic Zones Authority (SEZA) offers the following administrative incentives:

• Operation under essentially one licence issued by EPZA
• Rapid Project approval and licensing
• Onsite customs documentation and inspection by Customs Staff
• One-Stop-Shop service for facilitation and aftercare
• Quality infrastructure available for lease at competitive rates