Kenya’s Special Economic Zones (“SEZ”) program established under the Special Economic Zones Act 2015 (the “SEZ Act”) is now fully operational with over 20 sites gazette as SEZs. The SEZs are officially designated areas for purposes of undertaking SEZ activities with the benefits of enjoying special economic regulations that differ from general trade, tax and investment rules. Among the investments encouraged in the Kenyan SEZs are manufacturing, building and construction, ICT and business process outsourcing and hospitality.
Some of the fiscal incentives of SEZs include: a lower corporate income tax of 10% for the first 10 years, 15% for the next 10 years and 30% thereafter; preferentially rated withholding tax of 5% on payments made to non-resident persons, 5% on interest paid by any SEZ entity to non-resident persons, royalties and management or professional fees and 10% on payments other than dividends; zero-rating for VAT for the supply of goods and services provided to a SEZ enterprise; exemption from stamp duty on documents signed relating to SEZ business activities and import declaration fees on goods imported into the SEZ; and deduction of 100% of capital expenses from the taxable income of SEZ entities.
The SEZs also offer administrative benefits such as: the requirement for one main license issued by the SEZA; rapid project approval and licensing; onsite customs documentation and inspection by the resident Kenya Revenue Authority’s (“KRA”) Customs staff attached to SEZA; foreign currency accounts and offshore borrowing and a high work permit entitlement for full-time employees.
There are 3 categories of SEZ entities provided under the following 3 licences issued by the Special Economic Zones Authority (“SEZA”):
- Developer licence – issued to a corporate entity engaged in the development of integrated infrastructure facilities on a public, private or public-private partnership basis of a gazetted SEZ;
- Operator licence – issued to a corporate entity that is engaged in the management of the SEZ; and
- Enterprise license – issued to a corporate entity carrying out business in an SEZ.
Both the developer/operator license and the enterprise license are valid for one year and must be renewed annually upon payment of the respective fees of USD 5,000 and USD 1,000.
To begin the process for any of the licenses mentioned above, an investor must submit an investment enquiry or letter of interest to SEZA expressing interest to invest in the zones. For the enterprise license, it is expected that the investor would have identified a location gazetted as an SEZ and Customs Controlled area (in order to enjoy the tax incentives) whereby they will establish their proposed business. SEZA will issue the investor with an Investment Project Proposal Form to complete and return together a cover letter addressed to SEZA, a project concept note, business plan, pre-feasibility study, feasibility study, environmental and social impact assessment, corporate information, any other relevant material.
Once SEZA finalizes the review and approves the investor’s proposal, it will issue the investor with the SEZ Enterprise License Application Form to begin the next step of license application. The review of the investment project proposal form may take up to 7 days while the processing of the actual license application could take the SEZA up to 1 month.
It is important to note that SEZ goods declared for sale in the local market (Kenya) will attract import duties, VAT and any other applicable taxes as guided by the KRA.