Are you interested in starting a business in Kenya? If YES, here is a complete guide plus legal requirements for starting a business in Kenya as a foreigner.
Okay, having provided an in-depth analysis of the top 50 best small business opportunities in Kenya and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Kenya. So put on your entrepreneurial hat and let’s proceed.
In official parlance, it is called the Republic of Kenya, and it is a country in Africa and a founding member of the East African Community (EAC), with its capital and the largest city in Nairobi. Kenya’s territory lies on the equator and overlies the East African Rift covering a diverse and expansive terrain that extends roughly from Lake Victoria to Lake Turkana (formerly called Lake Rudolf) and further southeast to the Indian Ocean.
The country is circled by smaller economies and also pariah states. It is bordered by Tanzania to the south, west by Uganda, South Sudan to the northwest, Ethiopia to the north and Somalia to the north-east. Kenya covers 581,309 km2 (224,445 square miles) and had a population of approximately 45 million people in July 2014.
The capital, Nairobi, is a regional commercial hub. The economy of Kenya is the largest by GDP in East and Central Africa with a figure estimated at $143.051 billion and Per capita income stands at $3,245. Agriculture is a major employer; the country traditionally exports tea and coffee and has more recently begun to export fresh flowers to Europe which has emerged as an alternative to flowers in Europe. The service industry is also a major economic driver.
If you are considering starting a business in Africa, precisely in East and Central Africa, you should give this multi-ethnic nation a thought as it offers a wide array of opportunities that can be found as an investor. New millionaires are emerging from this frontier market and you can also make enough to be listed on Forbes if you take a step in starting a business in Kenya.
Facts and Figures of the Kenya That Will Interest You as an Investor/Entrepreneur
There are loads of facts and figures that make the Kenya attractive as a business destination. It is no wonder that people frequent the Eastern African country to do one form of business or the other there. This is because of the vast human, natural and material resources that the country possesses. Here are some good facts that you might find handy;
- The official currency of Kenya is known as Kenyan Shilling.
- There are 47 counties in Kenya.
- There is a large deposit of limestone, soda ash, salt, gemstones, fluorspar, zinc, diatomite, gypsum, wildlife, and hydropower.
- Kenya is usually classified as a frontier market or occasionally an emerging market, but it is not one of the least developed countries.
- The service, industry and manufacturing sectors only employ 25% of the labour force but contribute 75% of GDP.
- Kenya is East and Central Africa’s hub for financial services. The Nairobi Securities Exchange (NSE) is ranked 4th in Africa in terms of Market capitalization.
- Kenya is the biggest and most advanced economy in east and central Africa, and has an affluent urban minority.
- The important agricultural sector is one of the least developed and largely inefficient, employing 75% of the workforce compared to less than 3% in the food secure developed countries.
A Brief Economic Analysis of Kenya
The outlook for Kenya’s economy is bright. GDP growth will be supported by infrastructure projects, rising agricultural production, low oil prices and a looser monetary policy, even though ongoing security issues and uncertainty surrounding next year’s elections pose downside risks. Focus Economics Consensus Forecast panelists see the economy expanding 5.8% in 2016, which is unchanged from last month’s projection.
In 2017, the panel sees the economy growing 6.1%.Kenya’s economic performance was more solid last year than most other large African economies. The country’s economy is fairly diversified and relies relatively little on commodities exports, making it more resilient to the price slump in raw materials.
GDP growth likely ticked up to 5.5% in 2015, driven by gains in every sector except tourism, which suffered due to security concerns. While the current account deficit likely narrowed somewhat last year mainly due to low oil prices, Kenya’s large twin deficits remain a concern.
Against this backdrop, the government’s recent calls for moderate fiscal consolidation and Kenya’s recently-secured USD 1.5 billion precautionary deal with the IMF are steps in the right direction to reduce macroeconomic fragility.
Possible Threats and Challenges You will Face When Starting a Business in Kenya
There isn’t a country on the face of the earth that is free from business challenges- no matter how mild. Kenya is not an exception. Here are some challenges to face when you do business there;
- Although the cost of skilled, educated labor in Kenya is high by developing world standards, it is relatively abundant in comparison with neighboring countries. Nonetheless, a large portion of the young population (35 and under) is relatively unskilled, and subsists in an employment environment that offers few opportunities.
- While Kenya’s physical infrastructure is also superior in many cases to that of its neighbors, it remains rudimentary and is a key obstacle to economic development.
- Corruption and insecurity also continue to pose significant challenges to business. Transparency International ranked Kenya number 154 of 183 countries surveyed in 2011. Problems exist particularly in land purchases and large government contracts.
- Kenya’s public contracting law is not an effective tool to limit government officials from steering contracts to those who offer bribes.
- Widespread violations of intellectual property rights (IPR) related to medicines, videos, music, software, and a wide range of consumer goods continue to cause major problems for many firms.
Starting a business in Kenya is a multi-step process that involves planning, making key financial decisions and completing a series of legal activities. Here are the steps you can follow that will help you to plan, prepare and manage your business.
Starting a Business in Kenya as a Foreigner – A Complete Guide
1. Draft a Business Plan: in order to ensure the success of your business, it is pertinent to draft a business plan which will serve as a road map for your business. This document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues.
While there are various templates that can help you get started online, the best outcome would result from you personalizing your business plan to your needs. Read as many case studies online to get a better understanding of the challenges entrepreneurs face while coming up with a business plan
2. Get Business Assistance and Training (if necessary): in order to ensure the success of your business, it is very important that you learn and grow throughout the life of your business. An important step in starting your business is to get as much training as you can get from local forums, government as well as formal education about starting and running a business. This step is not for everyone especially if you are not a novice to running a business.
3. Choose a Location: even though these days, it is not unheard of for a business to operate from a virtual location, however, most businesses need to have a physical location from where they operate from. It is very important to select a location that is customer friendly.
In Kenya, especially in Nairobi, the choice for location has been made easier by Co-Working spaces that not only ease your hassle but offer a range of support services that will get you started in the shortest time possible. It is even possible to rent a boardroom space at an hourly rate.
Top 5 Cities to Do Business in Kenya
Whilst it is okay to do business generally in the Kenya, there are however some cities and states that have an edge over others because of the very favorable conditions they offer. Different businesses have gone ahead to be borne here and they have birthed other businesses as well. Here is a list of top 5 best cities to do business in Kenya;
4. Determine the Legal Structure of Your Business: there are a lot of legal structures that a business can take in Kenya. Some of the popular ones are;
- Sole Proprietorship: Usually most business start with a single person. Starting as a sole proprietor is cheaper and easier to set up. This legal structure for a business gives more control to the entrepreneur over decision making in all parts of the business. It can be upgraded at any-time to Limited company once registered.
- Partnership: A partnership business is usually cheaper to setup and a lot easier for a group of people thinking of starting a business. You need to have a minimum of 2 people and a maximum of 20 people to form a Partnership Business in Kenya.
- Limited Company: Limited Company is by far the best business legal structure to operate with when running any business. The reason is because the liabilities are limited to the business assets and you can enjoy some tax benefits that sole proprietor business don’t.
You need to have a minimum of 1 director and up-to a maximum of 7 directors, however you can add more shareholders in the company. Other types of business entities include; corporation, nonprofit or cooperative.
List of Legal Documents You Need to Run a Business in Kenya
There are several documents that must be in place to run a business in Kenya. The inability to have all or more of these documents in place means that you just might be found wanting along the line. As such, here are some of the documents that you will be needing;
- Certificate of Incorporation
- Business Plan
- Non-Disclosure Agreement (NDA)
- Insurance Policy
- Contract documents
- Patent or Copyright registration
- Operating Agreement
- Business License
5. Finance Your Business: there are many ways by which you can finance your business apart from using personal finance. Some of these methods include, Government backed loans, venture capital and research grants can help get you started.
6. Register your Business: Register your business name with the government. Depending on the type of business you choose to operate: sole proprietorship, partnership, corporation, nonprofit or cooperative, you will need to register it under the laws of Kenya.
- Legal requirements: Legal requirements that registered businesses must acquire include VAT number, Personal Identification Number (PIN), National Social Security Fund (NSSF) number, and the National Hospital Insurance Fund (NHIF) number. Other requirements are specific to business type.
- Investment Certificate: An investor may obtain an Investment Certificate from the Kenya Investment Authority (KIA) provided the investment capital is at least $500,000 and that the investment and the activities related to it are beneficial to Kenya. Beneficial activities are determined by such criteria as creating employment, skills upgrading, transfer of technology, foreign exchange and tax revenue generation, among others.
An Investment Certificate grants the investor such benefits as entitlement to all licenses required for his or her operations, and work permits for three members of management or technical staff and three shareholders or partners valid for 2 years each. Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial because Kenya has a rather extensive licensing requirement.
- Trademarks and Patents: Trademarks are regulated by the Trade and Service Marks Act, and patents are administered by the Kenya Industrial Property Institute (KIPI). The duration of trademarks is seven years from the date of filing and renewable every 14 years. Kenya is an active member of World Intellectual Property Organization with several recognized IP lawyers.
- Incorporation: Investors must log their proposed business names with the Registrar of Companies at the Attorney General’s office. This application can be made by the applicants directly or through legal representatives and policy experts.
Once approved, Memorandum and Articles of Association are filed with the Registrar who issues a Certificate of Incorporation. A foreign company wishing to open a branch office in Kenya can do so at the Registrar of Companies. Both private and public companies may allot shares for considerations other than cash as long as the registrar of companies is informed of such allotments.
7. Register for Taxes: it goes without saying that if you a running a for profit business, you are mandated to pay taxes. The Kenya Revenue Authority will have a few instructions for you on which taxes to pay and how to pay them once you choose to do business in Kenya.
All resident companies are subject to tax on their incomes at the rate of 30%. Branches of non-resident companies pay tax at the rate of 37.5%. Taxable income is generally defined to be income sourced in or from Kenya. Value Added Tax (VAT) is levied on goods imported into or manufactured in Kenya, and taxable services provided. The standard VAT rate is 16%.
8. Get your Business Licenses and Permits: your business will need to have some licenses and permit if you would want to do business in Kenya. These license are issued by the county or municipal council to regulate how business is conducted in their jurisdiction. All business do not require the same permit and licenses so you will have to make some research in order to find out the types of license or permits that apply to your business.
Business Licenses and Permits You Need to Start a Business in Kenya
For you to start a business in Kenya, you will need federal and state business licenses and permits. However, there are basic and most common licenses and permits that all businesses need. Without these licenses you risk being clamped down on by the authorities involved in the execution of business laws in America. They include the following;
- State registration of legal entity, statistical, and tax registration with the Center for Public Registration. Cost KES 100
- Stamp the memorandum and articles and a statement of the nominal capital. Cost KES 8,080 (1% of nominal capital + KES 2,020 stamp duty on Memorandum and Articles of Association)
- Pay stamp duty at bank. Cost KES 100 (bank commission)
- Declaration of compliance (Form 208) is signed before a Commissioner for Oaths. Cost is KES 200.
- File deed and details with the Registrar of Companies at the Attorney General’s Chamber in Nairobi (Sheria House). Cost KES 5,836.
- Register with the Tax Department for the single taxpayer identification number online. No cost.
- Apply for a business permit. Cost KES 10,000
- Register with the National Social Security Fund (NSSF). No cost
- Register with the National Hospital Insurance Fund (NHIF). No cost
- Make a company seal after a certificate of incorporation has been issued. Cost KES 3,000 (between KES 2,500 and KES 3,500)
List of Government Agencies and Parastatals That are In-charge of Registering Businesses and Issuing Licenses and Permits in Kenya.
The Investment Promotion Act 2004 constitutes of a powerful body, the Kenya Investment Authority (KIA) – a semi autonomous agency – which replaced the Investment Promotion Corporation. Its mandate is to promote and facilitate investment.
A foreign investor may obtain an Investment Certificate from the KIA provided he invests US $ 100 000, (a local must invest KES 1 million), and that the investment and the activities related to it are beneficial to Kenya. Beneficial activities are determined by such criteria as creating employment, skills upgrading, transfer of technology, foreign exchange and tax revenue generation, among others.
A Certificate of Incorporation or Registration, Memorandum and Articles of Association and Royalty and Management Agreement (in case of joint ventures) must be submitted to KIA. Obtaining the Investment Certificate at KIA’s “one-stop” is beneficial as Kenya has an extensive licensing requirement.
The Authority encourages investments that are labour intensive, local resource-based, earn or save foreign exchange and lead to efficient transfer of technology. Trademarks are regulated by the Trade and Service Marks Act, and patents are administered by the Kenya Industrial Property Institute (KIPI). The duration of trademarks is seven years from the date of filing and renewable every 14 years.
9. Understand Employer Responsibilities: Now that you are an employer, learn the legal steps you need to take to hire employees lest you get into trouble. Some responsibilities govern how you treat, remunerate and even house you employees. So you have to be abreast with all these information.
- Work Permits: Work permits are required for all foreign nationals wishing to work in the country. Investors are allowed to have expatriate staff in senior management, or where locals with specific skills are not available. Work permits are valid for a maximum of two years and can be renewed by the Immigration Department.
When your business is finally operational, taking the next steps for sales and marketing geared towards growth should be top of your agenda. Depending on the sector or industry of business, you can join institutions that lobby on your behalf. Private sector aligned businesses might want to consider KEPSA and other organizations that can help them network and grow the reach of their business.
Factors or Incentives Encouraging Investors to Venture into Business in Kenya
The liberalization measures include a shift to market force control of price setting, a repeal of the Exchange Control Act, removal of discretionary clauses in the tax laws, a removal of duty rates on capital goods and abolishing trade licenses to reduce bureaucracy in venture start-ups
- A Business Regulatory Reform Unit was established by the Ministry of Finance to simplify the complex licensing regulations. In 2007, 315 out of 1,325 licenses were eliminated and 379 simplified.
- To encourage manufacturing in Kenya for World Markets, the Government has established an in-bond programme open to both local and foreign investors.
- Enterprises operating under the programme are offered the following incentives: exemption from duty and VAT on imported plant, machinery, equipment, raw materials and other imported inputs, 100% investment allowance on plant, machinery, equipment and buildings.
- Bonded manufacturing enterprises can be licensed to operate in Nairobi, Mombasa, Kisumu, Eldoret, Nakuru, Nyeri and Thika or within the immediate environs of these towns.
Starting a Business in Kenya as a Foreigner – Market Feasibility Research
Kenya’s economy is market-based with a few state-owned infrastructure enterprises and maintains a liberalized external trade system. The country is generally perceived as Eastern and central Africa’s hub for Financial, Communication and Transportation services.
Major industries include: agriculture, forestry and fishing, mining and minerals, industrial manufacturing, energy, tourism and financial services. As of 2015 estimates, Kenya had a GDP of $69.977 making it the 72nd largest economy in the world. Per capita GDP was estimated at $1,587.
The government of Kenya is generally investment friendly and has enacted several regulatory reforms to simplify both foreign and local investment, including the creation of an export processing zone. The export processing zone is expected to grow rapidly through input of foreign direct investment.
An increasingly significant portion of Kenya’s foreign inflows are remittances by non-resident Kenyans who work in the US, Middle East, Europe and Asia. Compared to its neighbours, Kenya has well-developed social and physical infrastructure.
As of March 2014, economic prospects were positive with above 5% GDP growth expected, largely because of expansions in telecommunications, transport, construction and a recovery in agriculture. These improvements are supported by a large pool of English-speaking professional workers. There is a high level of computer literacy, especially among the youth.
List of 10 Well Known Foreign Brands Doing Business in Kenya
Over the years, several brands have gone from being small to becoming household names. One of the good things about these brands is that they are foreign. Here is a list of 10 well known foreign brands in the Kenya;
- British American Tobacco Limited – US and UK
- Cooper Motor Corporation – USA
- Dubai Bank Kenya – UAE
- Total Kenya – USA
- Delta Connection – USA
- Coca Cola – USA
- PriceWaterHouseCoopers – Great Britain
- Pfizer – USA
- Nestlé – Switzerland
- Nokia – Finland
List of 10 Well known indigenous Entrepreneurs in Kenya
Just as there are foreign entrepreneurs doing business and excelling in Kenya, so are there indigenous counterparts. These indigenous moguls have grown from small to solid and have become a force to reckon with. Here is a list of indigenous brands doing business in Kenya;
- KimitiWanjaria & Ian Kahara – Founders, Serene Valley Properties.
- Evans Wandogo – SDFA Kenya.
- CosmasOchieng – Ecofuels Kenya.
- KariukuGathithu – MPAYER
- Eric Muthomi – Stawi Foods and Fruits
- Joe Mwale – Skydrop Enterprises
- Mark Kaigwa – Affrinovator
- Richard Turere – Lion Lights
- Boniface Mwana – PichaMtaani
List of 10 Most Popular Indigenous Entrepreneurs/Business Owners
Owning a business in the Kenya isn’t rocket science. A lot of folks over the centuries have built strong businesses. Whilst some have not made it past the first few years of operation, yet others have stood the test of time and have continued to wax stronger and stronger as the years go by. Infect these businesses have gone beyond being known in Kenya alone, but in Africa and to the world at large. Here are 10 most popular indigenous businesses Kenya;
- Mary Okelo, Makini Schools Ltd
- OryOkolloh, Omidyar Network
- KalpaPadiaRaka, Milk Processors Ltd
- ShivaniRadia Patel, Zen Gardens
- Patrick Quarcoo, Radio Africa Group
- FarazRamji, Norda Industries Ltd
- NjeriRiongeInsite and Wanachi Online (msafiri)
- Aly Khan Satchu, Rich Management
- Atul Shah, Nakumatt Holdings Ltd (msafiri)
- Jonathan Somen, AcessKenya Group Ltd
- Bharat Thakrar, Scangroup Ltd
- JS Vohra, Sarova Hotels, Resorts & Game Lodges
- Anthony Wahome, Linksoft Group