Doing Business in Kenya - RSM International

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3.1.8 Investment Approval ProcessTo facilitate the investment approval process, the Investment Promotion Authority(IPA) operates a one-stop office as the focal point for investor assistance in theacquisition of relevant licences and permits from various Government Ministries,among other services.Potential investors are required to submit their project applications to the IPA ina prescribed form and submit it together with the Certificate of Incorporation,Memorandum and Articles of Association and PIN.3.2 Capital Contribution3.2.1 CapitalThe Memorandum of Association for a limited liability company lays maximum capitalthat a company is permitted to issue. This authorised level of capital is known as the“authorised” or “nominal” share capital. The company can fully issue its authorisedcapital or can have a certain amount of capital which remains unissued. The capitalissued is known as the “issued” share capital. Shares can be issued at par (the facevalue of the shares) or at a premium. Shares cannot be issued at a discount withoutthe sanction of the Court. A company can also not decrease its capital without thesanction of the Court.The authorised capital can be increased by an ordinary resolution of members in ageneral meeting. Statement of increase of Nominal Capital has to be submitted to theLands Office for stamping within 30 days from the date of passing of the resolution.The rate of stamp duty payable is 1% of the amount by which the capital is increased.The stamped Statement of Nominal Capital has to be filed with the Registrar ofCompanies together with the payment of filing fees of Shs 2,200 for the first Shs100,000 and thereafter Shs 120 for each Shs 20,000 of Nominal Capital subject to amaximum filing fee cap of Shs 60,000.3.2.2 Regulation of Foreign InvestmentSubject to a few restrictions on owning shares in financial institutions and theowning of agricultural land, there are no restrictions on the percentage of equity thatforeign nationals may hold in locally incorporated companies. However, having localpartners assists access to local knowledge and market conditions. Subject to certainrestrictions in the financial services sector and the owning of agricultural land, thereare no regulations restricting joint venture arrangements between Kenyans andforeigners, or prohibiting the acquisition of Kenyan firms by foreign-owned firms.These are matters subject to mutual agreement between partners.20DOING BUSINESS IN KENYA
3.2.3 Thin CapitalisationThin capitalisation arises where a company incorporated in Kenya is controlled by anon-resident person alone or together with 4 or fewer other persons, and the highestamount of all interest bearing loans (defined to include all liabilities on which thecompany is paying interest, financial charge, discount or premium) to that companyat any time during the year are more than three times the sum of the revenuereserves (including accumulated losses) and the issued and paid up capital of thatcompany. Where a company is thinly capitalised, the Income Tax Act provides forthe disallowance for tax purposes part of the interest charged in proportion to theamount of debt that exceeds the prescribed ratio of debt to capital. In addition, anyforeign exchange loss on such loans is also deferred for tax purposes. Control inthe case of a body corporate, unless defined in its constitution, means the holdingof 25% or more of the capital or the voting rights. Moreover, where a companywhich is subject to the thin capitalisation rules received interest free loans from theshareholders, the Income Tax Act provides for the levying of deemed interest on suchloans at a rate pegged to the 91 days Treasury Bill rate. Withholding tax is payableon the deemed interest, and both the deemed interest and the withholding tax paidthereon are not deductible for tax purposes. A bank or a financial institution licenceunder the Banking Act is exempt from this provision.3.3 Audit RequirementsAll companies in Kenya formed under the Companies Act (Cap 486) are required tohave their financial statements audited at the end of each financial year. Companies,unless specifically restricted under a certain Act, can prepare their first set offinancial statements for an eighteen month period from the date of commencementof operations.Section 159 of the Companies Act requires that every company appoint an auditor,qualified as per the Accountants Act. The first auditor may be appointed by aresolution of the directors at any time before the first Annual General Meeting. Theauditors shall hold office until the conclusion of that meeting. Subsequently, theauditor is appointed at each Annual General Meeting.Societies are also required to have their financial statements audited in accordancewith Section 29 of the Societies Act. Partnerships and sole proprietors do not haveany audit requirements; however by practice many of the large partnerships and soleproprietors have their financial statements audited.DOING BUSINESS IN KENYA21
Page 7: 2.0 General2.1 IntroductionKenya li
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6.0 ACCOUNTING6.1 Statutory Framewo
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7.0 INTELLECTUAL PROPERTYRIGHTSKeny
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Years 1 Shs 1,000Year 2 Shs 1,500Ye
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8.0 Listing Rules8.1 The Capital Ma
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• At the date of application, the
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8.3 Payable FeesCompanies pay an in
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9.0 Investing in Kenya9.1 General I
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9.3 Foreign Ownership of Shares and
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Contact Details - RSM AshvirRSM Ash
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Appendix of Acronyms used in the Bo
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Notes90DOING BUSINESS IN KENYA
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