Registration of foreign companies in Kenya is provided for under the new Companies Act 2015. Under the Act a‘foreign company’ is defined as a company incorporated outside Kenya. A foreign company cannot carry on business in Kenya unless it is registered in Kenya as well. A foreign company should be distinguished from a company registered in Kenya by foreigners, in that the latter is deemed a Kenyan or resident company as it is first registered in Kenya, while the former is first registered outside Kenya. Under the Act, theterm ‘carrying on business in Kenya’ includes offering debentures in Kenya or being a guarantor for debentures offered in Kenya.
Registration of a foreign company in Kenya starts by an application being made to the Registrar of Companies in the prescribed form. The application should contain the following documents and information:
- A certified copy of Incorporation Certificate in its country of origin
- Certified copy of the Constitution of the company in its country of origin
- Names, email addresses and phone numbers of directors and shareholders
- A signed Memorandum stating the powers of directors resident in Kenya
- A notice of the address of registered office and principal place of business in its country of origin
- A notice of the registered office in Kenya
- Name, email address, phone number and residential address of a local representative
- The name: the foreign company can use either its original name or an alternative name.
A new provision requiring 30% Kenyan ownership was introduced in the new Companies Act 2015, which repealed the previous Companies Act Cap 486 Laws of the Kenya. The same was viewed by some as draconian in a liberal market while a different school of thought viewed it as an opportunity to empower locals by creating partnerships. Due to the wide negative reception of this requirement, the same was repealed in September 2016.
Upon registration the foreign company is issued with a Certificate which contains the name of the company, a unique identifying number, the date of its registration and the date of its incorporation in its country of origin. Foreign companies are registered in a special register called the Foreign Companies Register.
Foreign companies in Kenya are afforded some protection from investigations as provided by the Act. Whereas local companies under the new Act are subject to investigations into a company’s affairs, which may be instigated by the Attorney General, foreign companies are exempted from this provision. The Attorney General cannot therefore commence investigations into the ownership of a foreign company or on any of its securities. Further the general Companies’ Regulations established under the Act only apply to foreign companies where it is expressly provided for.
Foreigners interested in doing business in Kenya should consider several factors that will determine which mode of registration would be preferable i.eregistration of a foreign company in Kenya or registration of a Kenyan/resident company. There are two main implications arising from method of registration of company by foreigners. Firstly, if the company is registered as a foreign company in Kenya the 30% local ownership rule as mentioned above will apply. On the other handif a foreigner chooses to register a Kenyan company, the company shares may be fully owned by the foreigner and no local shareholding will be required.
Secondly, taxation rates will differ between the two in that the applicable tax rates for foreign companies are significantly higher compared to that of Kenyan or resident companies. Whereas Kenyan companies pay corporate tax at 30% and withholding tax on dividends at 5%, foreign companies are required to pay corporate tax at 37.5% and withholding tax on dividends at 20%.
There are other regulations in different industries requiring local involvement on contracts being done by foreign companies. For instance in the construction industry which is regulated by the National Construction Authority (NCA), foreign companies are required to share 30% of the contract value with locally-owned companies. This means that foreign contractors are required to enter into joint ventures with or subcontract local companies for any construction works being done in Kenya. In the telecommunications industry which is regulated by the Communications Commission of Kenya (CCK), a foreign company applying for a telecommunications license in Kenya is required to allot a minimum of 20% of their total shares to individual Kenyan citizens within three years from the date the license is issued.This means that foreign investors will have upto 3 years from the date they receive the licence to incorporate the local ownership into their company.
Managing Partner, Kanaga & Associates
Advocates, Commissioners for Oaths & Notary Public