A Lawyer’s Checklist: Why Foreigners CAN Direct Foreign Investment to Kenya without Worrying about Foreign Ownership Rules
Foreign direct investment into Kenya is encouraged and foreigners can take advantage of the business opportunities in Kenya – an emerging economy.
Foreigners are allowed to own property in Kenya subject to a few legal constraints. Article 40 of the Constitution of Kenya (2010) enshrines the protection of every person’s right to own and hold property in Kenya irrespective of citizenship but subject to constitutional constraints on foreigners owning freehold land and any other statutory enactments made in the spirit of the Constitution.
Foreign Ownership of Land
Individuals can own land in Kenya and there are two types of land ownership tenures in Kenya – namely: leasehold and freehold. Article 65 of the Constitution of Kenya provides that non-citizens can own leasehold land in Kenya for a lease period not exceeding 99 years but they cannot own freehold land (land in which one has absolute title for all time). On the passing of the Constitution in 2010, any foreigner holding freehold land in Kenya had their title automatically converted to a leasehold title with a remainder interest deemed to expire after a maximum of 99 years and thereafter revert to the Government of Kenya which holds the reversionary interest.
Further, under the Land Control Act (CAP 302), foreigners are not permitted to own agricultural land unless a special dispensation has been obtained from the President; however, in reality, foreigners use a loophole under the law to own agricultural land in the name of a company instead of their own name so as to bypass these restrictions.
Foreign ownership laws in Kenya are stipulated under the Companies Act of Kenya (Act 17/2015) and foreign companies’ regulations made thereunder.
There is no limitation on foreigners subscribing to and owning some or all of the shares in a private or public company registered in Kenya. However, foreigners setting up companies in Kenya must pay heed to local representative requirements if they do not intend to be resident in Kenya.
Foreigners may register a local Kenyan company or they may register a branch of a foreign company.
With regard to minimum local shareholding rules, at the moment there is no catch-all stipulation in Companies Law requiring minimum shareholding to be held by local citizens in a company; however, other statutory enactments on a sectoral basis may compel minimum ownership requirements be adhered to prior to granting of a licence to operate in a particular industry for instance foreigners setting up ICT companies must issue a minimum 30% to local shareholders to obtain a licence to operate in telecommunications and ICT industry under the Kenya ICT Policy.
A foreign company can carry on business in Kenya by registering a local branch in Kenya which is required to have a local representative in Kenya who is legally liable for complying with the requirements of the Companies Act of Kenya 2015. The details of the foreign company and its local branch are put on a Foreign Companies Register at the Companies Registry in Kenya.
Foreigners must note that Kenya now requires details of UBOs who are natural persons when registering all companies therefore foreigners must be prepared to provide this information prior to registration.
Foreign Ownership of Businesses
Foreigners can take advantage of business opportunities in Kenya and set up or buy businesses while living in Kenya. However, they should take note of and adhere to the following legal considerations:
- Work Permits
A foreigner in Kenya requires a work permit to live in Kenya and run a business. There are various classes of work and residence permits depending on the type of investment you are coming to run in Kenya. Further, a foreign investor coming to Kenya with their family will need to obtain the requisite resident permits (dependents’ passes) to facilitate lawful immigration status in Kenya.
Depending on the sector you intend to invest in, listed below are some of the permits a foreigner investor will be minded to obtain before they can initiate their business while living in Kenya:
- ClassA: (for prospecting and mining)
- ClassB: (Agriculture and Animal husbandry)
- ClassC: (Prescribed profession)
- ClassF:(Specific manufacturing)
- ClassG:(Specific trade, business or consultancy)
- Minimum Investment Amount
Any foreigner intending to set up a business and obtain a permit to live and work in Kenya must show that they can provide minimum capital of at least USD 100,000. This is proved by audited accounts provided by the foreign investor in their application to obtain a Permit.
- Requisite Licences
It is important to note that certain sectors are regulated industries and you may need to apply for the requisite licence from the regulating authority (a statutory body under Kenyan Law) before you can legally operate certain businesses. Examples include the oil, energy, mining, pharmaceutical, liquor industries etc.
- Tax rules
Kenya has a residency-based tax system whereby a resident is taxed on their worldwide income while a non-resident is taxed on income derived from Kenya. Therefore, take into consideration whether Kenya has Double Taxation Agreements with your home country in order to take advantage of foreign tax credits with regard to Kenyan tax liabilities on your business income.
The provision of general information herein does not constitute an advocate-client relationship with any reader. All information, content, and material in this article are for general informational purposes only. Readers of this article should get in touch with us/a qualified advocate to obtain legal advice with respect to any particular legal matter.