effecting the termination. An employee may challenge termination of their employment in court. The maximum damages that the court can award is 12 month’s salary and/ or reinstatement of the employee. Real Estate Under the Kenya Constitution, whilst a non-citizen may hold land, this is restricted to owning a maximum of 99 year leasehold interest in properties which are not agricultural. This restriction applies to corporate entities that have foreign shareholders as well When it comes to leases for office premises, most landlords will insist upon a lease for a minimum period in excess of 5 years. This minimum period is necessary to avoid the controlled tenancy provisions of the Landlord and Tenant (Shops, Hotels & Catering Establishments) Act. Some landlords are willing to negotiate a ‘diplomatic break’ clause or equivalent provision to the effect that the lease may be surrendered if the tenant ceases to carry on business in Kenya. This should be raised at an early stage of negotiations. Investment Promotion and Incentives Investment Certificate under the Investment Promotion Act (IPA) Foreign investors intending to invest 10 million Kenya Shillings (approximately USD 100,000) or more in Kenya may obtain an Investment Certificate from the Kenya Investment Authority under the Kenyan IPA. While it is not mandatory to obtain this certificate, the holder of an Investment Certificate is entitled to several additional licences for a particular investment from the relevant authorities. The licences comprised in an Investment Certificate include business permits and development permissions. In addition, foreign investors holding an Investment Certificate would be entitled to a range of entry permits they otherwise may not be able to obtain. The intention of the Kenyan Investment Authority is to streamline the licensing process, however, in reality, the incentives offered take a considerable amount of time to obtain and are subject to usual bureaucratic delays. The effect is that most investors tend to apply for the various licences and permits independently. Tax Incentives Capital expenditure on certain industrial and commercial buildings (including buildings used by an electricity undertaking), plant and machinery, mining operations and
some agricultural works may be deducted for tax purposes at the applicable depreciation rates. There are accelerated investment deduction allowances in respect of buildings used in manufacturing, certain hotel buildings and filming equipment. The amount of the allowance is dependent in some cases on the location of the building. There are provisions preventing the application of double depreciation deductions and investment deduction allowances. Export Promotion Incentives • Export Processing Zones ( EPZs ) – EPZs are designated areas in Kenya where goods (and export related services) are accounted for, in so far as duties and taxes are concerned, as being outside the customs territory and are accordingly afforded various tax incentives and exemptions. Enterprises which operate in EPZs enjoy several incentives including a 10 year corporate tax holiday and thereafter a flat 25% tax for ten years, a ten year tax holiday on withholding tax, duty and tax remissions on inputs, and stamp duty exemptions. The EPZ regime is export oriented and therefore only applicable to manufactured goods that are exported. • Special Economic Zones ( SEZs ) – in December 2015, the Special Economic Zones Act (the Act ) came into force. Whilst this Act is yet to be come into operation, it is intended to establish a broader concept than that of an EPZ. Various types of SEZs are established under this Act including free trade zones, industrial parks, free ports, agricultural zones, tourist and recreational zones. Specific tax incentives are also available to SEZs. • Manufacture under Bond – to encourage manufacturing for export purposes, local and foreign investors licensed by the Kenya Revenue Authority to operate under the ‘manufacture under bond’ programme are exempt from customs duty and VAT on imported rawmaterials. • Tax Remissions Export Office ( TREO ) – under the TREO programme the government encourages local manufacturers to export their products by remitting duty and VAT in rawmaterials used in the manufacture of goods for export. Regional Dimension On the regional front, Kenya’s membership of the East African Community ( EAC ) and the Common Market for Eastern and Southern Africa ( COMESA ) presents opportunities for manufacturing operations to exploit the benefits of these markets.
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