What are the statutory obligations for a company in Kenya?

Introduction

What are the statutory obligations for a foreign investor to successfully run a business in Kenya? Depending on what structure your business takes, your company in Kenya will be subject to certain legal obligations and requirements.

It is vital for companies to seek relevant advice when establishing and meeting their specific obligations. Keeping on top of a company’s statutory obligations is important as non-compliance can lead to penalties, prosecutions and reputational damage.

Let’s dive right into these statutory obligations to better understand what an investor should have in mind.

Registrar of Companies

The first step in order to operate on a market is the entity set-up. Once the registration process is complete, the investor is issued with a certificate of registration ; it can be either a certificate of compliance, a certificate of incorporation or a Business Name certificate. Don’t forget to request for the other documents of your business registration. For example, the CR12 is very important as it details the company’s shareholding and directorship. 

You will have to appoint a certified Company Secretary (CS) in the event to the following; Either none of the directors is physically in the country ; 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. To that purpose, he will maintain the company’s statutory books. As for a branch it is mandatory to appoint a local representative who is a resident in Kenya.

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 so as to ensure that the information about your company is regularly updated. Thus, the Registrar of Companies always have valid information.

Kenya Revenue Authority (KRA)

What is a PIN?

Upon issuance of a certificate of registration, the Personal Identification Number (PIN) is one of the next obligations for a company in Kenya. It is a unique 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 the Kenyan law. Note that when it comes to taxes, compliance applies for any type of Permanent Establishment (PE). Both corporate and individuals.  

What is a PE?

By definition, a Permanent establishment (PE) is a fixed place of business which 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 fiscal presence. Non-residents with no fiscal 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.

What is PAYE?

As an employer you are required to deduct PAYE from your employees’ salaries and wages at the prevailing rates and remit the same to KRA on or before the 9^th of the following month. PAYE is chargeable to persons of employment income of Kshs. 24,000 and above per month. 

What is CIT?

Without surprise, the Corporate Income Tax is one of the obligations for a company in Kenya. The rate of Corporate Income Tax for resident companies, including subsidiary companies of foreign parent companies, is 25%. 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.

What is VAT?

In regard to VAT (Value Added Tax) registration can either  be mandatory or voluntary on the following basis: voluntary where the activities of the company involves purchase and sale of vatable goods or services. VAT currently is at 14%, it is remitted to KRA on or before the 20^th 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 turn-over per year.

What is WHT?

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 tax payer who receives the WHT certificate.

What is TCC?

Lastly, you may request for a Tax Compliance Certificate (TCC). This certificate can be very helpful for companies in Kenya as it will be viewed as law-abiding. The major advantage of the TCC is that it proves compliance, thus it facilitates number of administrative procedures.

Nairobi City Council (NCC)

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! Today we will just discuss a few services that NCC offers that are vital for investors to be aware of. 

A business permit is a proof that a company has a license authorisation to conduct business in a physical space. Why do you need a Business Permit, you ask?  Well, in the unfortunate event that you are in physical space without a license to operate, you face the risk of being shut down. NCC urges all businesses to acquire a business permit which will enable the smooth running. In the case of a co-working space, each business owner should have their own 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 fire certificate. Basically, in case of a fire, you can minimise damages and the people in the building can leave unscathed. NCC audits the office premises and gives OHSE recommendations in regards to fire hazard. Once the measures are implemented, you will be issued with 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.

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 employee working in Kenya are required to be registered to 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.

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 organisations to cover themselves against compensation towards injuries caused to their employees. Besides being a mandatory requirement for employers. It protects you financially against liabilities which arises 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.

These two coupled up minimize the risk of injuries in the work environment but also increases proficiency. Indeed, the training teaches a lot on preventive measures and the dos and don’ts in the workplace. A conducive work environment not only brings comfort but increases the scale of production.

Conclusion

There are more obligations for a company in Kenya. They vary and often change depending on the nature of business being conducted within the company. Some of these governmental bodies to mention but a few may include; Kenya Bureau of Standards (KEBS) promotes standardisation in industry and commerce; National Construction Authority (NCA) regulates and builds capacity if you are looking to venture into the construction business; 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 Kenya (CAK) and Central Bank of Kenya (CBK) which covers any company engaging in communication and financial services respectively.

The list of statutory obligations for a company in Kenya may seem impressive, which is why it is important to work with experts so as to avoid any oversight that could lead to exposure and penalties.