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[ESTABLISHING A BUSINESS ENTITY IN KENYA]
2. License, including a conditional license, under the Trade Licensing Act (Cap. 497). 3. Import license or export license under the Imports, Exports and Essential Supplies Act (Cap. 502). 4. Registration of premises as a factory under the Factories Act (Cap. 514). 5. Approval of plans under section 69G of the Factories Act (Cap. 514). 6. Development permission under section 33 of the Physical Planning Act, 1996 (No. 6 of 1996) and a certificate of compliance referred to in section 30(7) of that Act. 7. Registration under an order under the Industrial Training Act (Cap. 237). Pursuant to the provisions delineated within the Land Control Act Cap 302 , it is expressly stipulated that consent for the disposition of land or shares, through means such as sale, transfer, lease, exchange, or partition, to a foreigner or a foreign company shall not be granted. Consequently, this statutory mandate engenders the legal consequence that foreign individuals and foreign corporate entities are precluded from entering into lease agreements or acquiring agricultural land within the sovereign territory of Kenya. In the realm of taxation, it is imperative to note that the Republic of Kenya has entered into Double Taxation Treaties with several nations, including but not limited to the United Kingdom, Zambia, Germany, and Canada. In situations where such bilateral treaties are not in place, it is conceivable that subsidiaries of foreign entities operating within the jurisdiction of Kenya may find themselves subject to the imposition of corporate taxes at the rate of 30% in Kenya, while concurrently being obligated to meet their tax obligations in their respective
countries. This dual taxation scenario inevitably amplifies the fiscal burdens borne by these entities. Moreover, it is noteworthy that Double Taxation Treaties serve to delimit the permissible withholding rates applicable to income derived within the Kenyan jurisdiction. Nevertheless, it is imperative to emphasize that both contracting countries retain the authority to levy taxes on dividends, interest, and management fees arising from such income sources. Capitalization obligations In accordance with the Finance Act of 2023, significant modifications have been introduced to the thin capitalization rules, delineating a refined framework for the restriction of deductible interest expenses incurred on foreign loans. These changes carry implications for tax planning strategies, particularly in regard to thinly capitalized entities. A key provision of these amendments is the limitation placed on the deductibility of realized foreign exchange losses, which is now confined to a 5- year window, thereby imposing a temporal constraint on tax planning considerations. Under the revised regulations, the restriction pertaining to interest deduction will be expressly applicable to the gross interest disbursed or payable to non-resident individuals or entities. This delineation effectively retains the allowance for interest expenses incurred on locally sourced borrowings. Notably, the Finance Act constitutes an alteration to the previous interest restriction rule, which previously imposed a cap on deductible interest at 30% of earnings before interest, tax, depreciation, and amortization (EBITDA), regardless of the origin of the loan. The resultant effect of these statutory changes manifests as a considerable alleviation for
ILN Corporate Group – Establishing a Business Entity Series
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