A Tax & Legal Step by Step guide to setting up your business in Kenya.
Starting a business is an exciting adventure, and in Kenya, it can be both rewarding and challenging. It involves careful consolidation and deployment of financial resources. For this reason, every entrepreneur wants to ensure that they follow the proper legal and tax procedures to avoid the penalties that may arise due to non-compliance. As we shall see later in this article, several start-ups have incurred significant financial setbacks resulting from overlooked financial obligations. We shall walk you through every twist and turn of the registration process and share practical tips to stay compliant.
UNDERSTANDING THE TAX & LEGAL OBLIGATIONS OF DIFFERENT BUSINESS STRUCTURES
Overview of the Common Business Structures
There are different business structures that one can establish in Kenya, and the choice often depends on the entrepreneur’s business goals, scale of operations, risk appetite, ownership preferences, and plans for growth. The common legal business entities in Kenya include Sole Proprietorship, Partnerships, Limited Liability Company, and Limited Liability Partnerships. Each structure has its own set of tax responsibilities and legal obligations, which we will outline in detail.
1. Sole Proprietorship
Sole proprietorships are governed by the Registration of Business Names Act (Cap. 499).
Sole proprietorships are ideal for entrepreneurs who want to be sole owners of their business. Sole proprietorships are easiest and cheapest to set up; it is more of a business registration. The owner of this unit bears unlimited liability in that personal assets can be used to settle the business debt. These business units are taxed as part of the owner’s income.
Sole proprietorships are best for small businesses, side hustles and freelances.
Tax Implications
• Taxed as part of the owner’s personal income.
• Must register for VAT if the turnover is more than KES 5 million.
Legal implications
• Unlimited liability as the owner is personally responsible for all debts and obligations
• It has minimal compliance as no annual returns are made to the Registrar, only KRA tax obligations.
• The business permit must be renewed annually.
2. Limited Liability Partnerships
A Limited Liability Partnership (LLP) is a business association provided for in the Limited Liability Partnership Act of 2011. It combines the characteristics of both a company and a partnership. It is ideal for small and medium enterprises, and the LLP Act prescribes the procedures for conversion of existing partnerships and private companies into LLPs. LLPs are best for Professionals like lawyers and business consultants who want flexibility and limited liability.
Tax Implications
• Income is passed to the partners who are taxed individually as the LLP is not taxed on income. The income is distributed to the individual partners as per the agreed profit-sharing ratios.
• Profits made and paid to the partners is subject to P.A.Y.E which is on a graduating scale.
• Must register for VAT if the turnover is more than KES 5 million.
• There is no double taxation unlike a company; Profits are taxed at the partner level and not at the LLP level.
Legal Implications
• An LLP must be formed by at least Two (2) people who can be persons, companies or a person and a company.
• Limited liability as partners’ assets are protected.
• Partners are required to execute a Limited Liability Partnership Agreement which entails agreements on profit sharing, capital contributions, roles, management among other arrangements.
• Is a separate legal entity that can own property, sue or be sued in its own name
• The process of registration of an LLP is less cumbersome than that of an LLC as fewer formalities are involved.
• Management Structure – Partners manage the business directly unlike a Company where a board of directors is elected by the shareholders.
• Audited Accounts- There is no requirement for audited accounts unless requested by the registrar of company’s office, unlike a Company (LLC).
3. Limited Liability Company (LLC)
An LLC is an entity established and regulated under the Companies Act 2015 which details the steps of its registration. We shall work with a case of a Private Limited Company in this article. This structure is best for businesses that are aiming to grow, attract investors or scale up.
Tax Implications
• Subject to corporate income tax (30%) on net profits for resident companies.
• Dividends to shareholders are subject to withholding tax rate of 5%.
• Eligible for VAT registration if turnover (over 12 months) is more than 5 million.
Legal Implications
• The company’s name must end with “Limited” Ltd”.
• Membership- One or more persons, up to a maximum of Fifty (50) members. An individual can incorporate a Company and be its sole director and sole shareholder.
• Directorship- A company must have at least one or more director(s).
• Members have limited liability; the financial liability of shareholders of a company for the company’s debts and obligations is limited to the par value of the shareholder’s fully paid-up shares. They can only lose what they invested; nothing more.
• Minimum share capital is KES 100,000
• Allotment & Transfer of Shares – There is no restriction on the allotment and transfer of share. The company is, however, restricted in the transfer of its shares as the shares are not freely transferable. This can only be done within the confines of subscribers of the company.
• Company Secretary – No need to appoint a secretary unless its paid-up capital is at least Ksh.5 million and above.
• A company is a separate legal entity from its shareholders and directors thus can own property in its own name, and to sue and be sued in its own name.
THE REGISTRATION PROCESS
Registration of Sole Proprietorships
Name search
The registration of sole proprietorships begins with the name search and reservation on eCitizen portal’s Business Registration Service (BRS). The chosen name must be unique. The total fee for the name search and reservation is KES 150 per name.
Business registration
Under the BRS in the eCitizen portal, you apply to the sole proprietorship after the approval of the business name.
The required documents include ID/Passport, KRA Pin Certificate and a Passport Photo.
You will be required to pay a registration fee of KES 950, a payment which will be made through the eCitizen portal via Mpesa or Card.
You will then receive the Certificate of Registration which is usually processed within 1-3 working days. This is issued online and is proof that your Sole Proprietorship is legally recognized.
Registration of Limited Liability Partnership
Name Search
The process of incorporating an LLP is done though the eCitizen portal.
It begins with a name search which entails identifying and proposing a minimum of three(3) and a maximum of five (5) names for reservation. The cost is KES 150 per name search.
Documentation
The following details/documents shall be provided prior to incorporation:
• Copies of the National Identity Card/Passport of the Partners
• Copies of the KRA PIN Certificates of the partners.
• One (1) colored passport size photograph for each the Partners.
• Occupation of the respective directors.
• Telephone numbers of the directors.
• Residential address of the directors.
• E-mail addresses of the respective directors.
• The postal address of the respective directors.
• The address of the company; the building, plot number, street, road, locality, county, postal address and email address.
Filing a Statement of particulars.
The details which must be signed by the partners include:
• The name of the partnership
• The nature of business
• The proposed registered office
• The personal particulars of the aspiring partners
• The particulars of a corporate if partners are corporates
• The particulars of the would-be manager.
It takes an average of three (3) weeks to process and undertake the registration upon which a certificate of registration is issued.
The statutory/standard cost of incorporation is KES 26,000.
Registration of Limited Liability Company
The process of incorporating a company (LLC) is done through the eCitizen portal.
It begins with the search and reservation of the company name which entails identifying and proposing a minimum of three (3) and a maximum of five (5) names for reservation.
Documentation
The following details/documents shall be provided prior to incorporation:
• Copies of the National Identity Card/Passport of the shareholders and directors of the Company.
• Copies of the KRA PIN Certificates of the directors and shareholders.
• One (1) colored passport size photograph for each director.
• Occupation of the respective directors.
• Telephone numbers of the directors.
• Residential address of the directors. (CR8 Form)
• E-mail addresses of the respective directors.
• The postal address of the respective directors.
• The address of the company; the building, plot number, street, road, locality, county, postal address and email address.
• Memorandum & Articles of Association (CR2 Form)
• Beneficial Ownership Information (Natural personal who ultimately owns the entity)
• Statement of nominal capital (min. KES 100,000 for private companies).
It takes an average of 2 weeks to process and undertake registration upon which a certificate of registration is issued. The statutory/standard cost of incorporation is KES 10,650.
Registration of Subsidiaries
Under the Companies Act No. 17 of 2015, a foreigner or foreign entity seeking to establish a business in Kenya has the option of incorporating a local subsidiary as a private company limited by shares.
The major features relevant to the registration of the subsidiary include:
I. Purpose – The main objective of incorporation of the company should be for purposes of conducting business, trading and other commercial purposes.
II. Name – The application for the consideration of the proposed names of the Company will be made together with the application for the registration of the proposed Subsidiary through the online eCitizen portal maintained by the government. The company’s name must end with “Limited” or “Ltd”.
III. Share Capital – The company must have a share capital of at least KES 2000/=.
Should the company’s authorized share capital be or increase overtime to more than KES 5,000,000/=, it is a requirement under the Companies Act that the Company appoints a Company Secretary who must be qualified as such under the provisions of the Certified Public Secretaries of Kenya Act.
IV. Ownership – The subsidiary may be owned 100% by a person(s) who is not a citizen of Kenya or by a company incorporated outside Kenya.
V. Directorship & Shareholding – The subsidiary must have one shareholder, and one director provide that where there is only one director, that director must be a natural person. The shareholders(s) and director(s) may be one and the same person/people.
VI. Physical and Postal Address – The subsidiary must have a physical and postal address that will act as the registered office of the company.
VII. Trading certificate – Once the Certificate of Incorporation is issued, the Subsidiary may commence business as envisaged in its Memorandum of Association.
VIII. Returns – Upon incorporation, the Subsidiary must file returns with the Registrar of Companies every year. The returns must indicate the registered office of the company, the nominal capital of the company, list of the past and present members of the company, shareholding of the members of the company and the particulars of the directors of the company.
IX. Execution documents – The following documents containing the information relating to the Subsidiary are required to be prepared and submitted to the Registrar accompanied by the prescribed registration fees:
• CR1 Form – Application to register a company
• CR2 Form – Memorandum of Association of a Company
• CR8 Form -Notice of Residential Address of Directors
• Statement of Nominal Share Capital form
It is important to note that the subsidiary is a distinct legal entity from the parent company, thus the parent company is not liable for any (mis)deeds of the subsidiary
For taxation purposes, the Subsidiary is considered a resident corporation within the meaning of that word under the Income Tax Act, Cap. 470 of The Laws of Kenya. The current Corporate Income Tax for a subsidiary is at the rate of 30%.
A locally incorporated subsidiary is also required to file annual returns and to keep books of accounts which must be audited annually.
TAX REGISTRATION
KRA PIN Registration for the Entity
A KRA Personal Identification Number (PIN) is a unique number issued by the KRA to individuals and businesses for purposes of tax compliance. It is not just for payment of taxes, but it is also a key identifier required in many commercial transactions in Kenya.
Why you need a KRA PIN
• Required for opening a bank account in the business name
• Bidding for tenders (Public or private)
• Importing goods.
• Filing tax returns
• Importing goods
• Legal transactions e.g. land transfers, motor vehicle registration etc.
The Registration Process
I. Access the iTax Portal
II. Select New PIN Registration
III. Choose Taxpayer Type -Individual, Non-Individual (For LLPs and Companies)
IV. Provide details – For companies, provide details of the company as required within the platform by filling in the registration form.
V. Once the registration form has been filled, choose your tax obligation, whether income tax. Value Added Tax or Pay as You Earn (PAYE).
VI. Submit the application to Kenya Revenue Authority for Approval.
VII. Once approved, Download the KRA PIN Certificate from the iTax system.
KRA PIN Registration for Foreign Entities
For a foreign entity entering the Kenyan market to establish permanent business operations, the procedure for KRA PIN registration mirrors that of local entities as outlined above.
However, for foreign entities entering the Kenyan market temporarily to conduct business, it is necessary to appoint a tax representative in Kenya pursuant to the provisions of Section 15 of the Tax Procedures Act, 2015 (TPA). The tax representative plays a crucial role in ensuring compliance and facilitating registration, as outlined below:
1. Prepare a formal letter of appointment designating the tax representative for the foreign entity, along with any additional required correspondence to the Commissioner of Kenya Revenue Authority (KRA).
2. Create an iTax sub-account for the foreign entity within the tax representative’s iTax profile and lodge the tax representative registration application on behalf of the foreign entity through the iTax platform.
3. Complete the registration process by submitting the application to KRA and awaiting approval.
4. Serve as the authorized tax representative for the duration of the foreign entity’s activities in Kenya.
Once the tax representative application is successfully approved, a tax representative certificate will be issued, which will serve as the KRA PIN certificate for the foreign entity.
It is important to note that all tax obligations, including Value Added Tax (VAT) and Pay as You Earn (PAYE), can be registered simultaneously when you register for your KRA PIN. Ensure you attach all the relevant information required for each tax obligation during the registration process.
Once you have completed the steps, your KRA PIN registration process is now complete.
Corporate Income Tax
Income Tax is chargeable upon all the income of a person, whether resident or non-resident accrued or derived in Kenya. This tax obligation is mandatory.
Corporate Tax is 30% of profits, filed annually by 6 months after financial year end.
If one has no income to declare, they are required to file a NIL return.
Registration process
The registration process for Corporate Income Tax is linked to the registration of your KRA PIN. Once your KRA PIN is approved and downloaded, it automatically reflects the Income Tax Obligation.
Pay As You Earn (P.A.Y.E)
Section 37 of the Income Tax Act as read together with Rule 4 of The Income Tax (PAYE) (Amendment) Rules, 2010 (“PAYE Rules”) provides that an employer paying emoluments to an employee shall deduct and account for tax thereon. Tax charged on employment income in Kenya is known as Pay as You Earn (“PAYE”).
Register within 30 days of hiring your first employee.
File monthly returns by the 9th of the following month.
PAYE is chargeable on incomes accrued in or derived from Kenya. Individuals considered tax residents in Kenya are liable to tax in Kenya on their worldwide employment incomes.
An employer should file a monthly return in a manner prescribed by the Kenya Revenue Authority (“KRA”) and submit the return to the KRA by 9th of every month.
Registration Process
1. Access your iTax account using your KRA pin and password.
2. On the iTax dashboard, click on “Registration” then on “Amend PIN Details.”
3. Add “PAYE” as a tax obligation.
4. Fill in the necessary employment details and submit the form and wait for Kenya Revenue Authority approval.
5. Once approved, download the new KRA PIN Certificate reflecting the PAYE obligation.
Value Added Tax (VAT)
Value Added Tax (VAT) is a tax imposed on the supply of taxable goods and services and on the importation of goods and services, currently at a standard rate of 16%.
Where the annual turnover of a person is or is expected to be five million Kenya Shillings (KES. 5,000,000) or more, such a person must register for the VAT obligation.
One can also voluntarily register for VAT, especially if they intend to claim input VAT on the purchases they make. Submit VAT 1 Form via iTax and await KRA approval (2–4 weeks).
VAT returns are due for filing every 20th day of the following month.
Registration Process
1. Access your iTax account using your KRA pin and password.
2. On the iTax dashboard, click on “Registration” then on “Amend PIN Details.”
3. Under “Tax Obligation,” check “VAT” and enter the effective date.
4. Attach the required documents:
• The VAT Registration form provided by KRA is filled with all the company information as required.
• Certificate of Incorporation/Business Registration Certificate.
• Identification document (ID) of one of the directors.
• Tax compliance certificate of all directors.
• A sample invoice and a sample customer service agreement
5. Submit the application and wait for Kenya Revenue Authority approval.
6. Once approved, download the new KRA PIN Certificate reflecting the VAT obligation.
Electronic Tax Invoice Management System (Etims)
eTIMS is a software solution that provides taxpayers with options for a simple convenient and flexible approach to electronic invoicing.
The law requires that for any person to claim their business expense, the expense must be supported by an electronic tax invoice. Therefore, all persons engaged in business are required to issue electronic tax invoices, whether registered for VAT or not (non-VAT taxpayers).
eTIMS Registration Process
1. Sign up on the eTIMS Taxpayer portal via etims.kra.go.ke.
2. Click on the Sign-Up button, input your pin and input the OTP sent to your iTax registered mobile number. You will be prompted to create a password for your profile to complete the sign-up process.
3. Log in to the eTIMS taxpayer portal using your User ID (KRA PIN) and the password created during the sign up.
4. Click on the Service Request button to select your preferred eTIMS software solution listed under the” eTIMS Type” Menu.
5. Upload the following documents:
• A copy of the National ID of:
-At least one of the Directors for companies
-At least one of the Partners for partnerships
-The business owner for sole proprietorships
• Duly filled in Commitment form – the form is accessible on the KRA Website
6. Submit your application to complete the onboarding process.
7. An authorized KRA officer will verify the application and approve as appropriate.
8. Once approved Install and configure the eTIMS software on your preferred device.
Turnover Tax (TOT)
Turnover Tax is charged on businesses whose gross turnover exceeds KES 1,000,000 but does not surpass or expected to exceed KES 25, 000,000 during any year of income.
TOT is chargeable under Section 12 (C) of the Income Tax Act (CAP 470).
It is payable at the rate of 1.5% on gross sales.
The due date is on or before the 20th day of the following month.
Eligibility for TOT
• A resident person or corporate whose gross/expected turnover is more than KES 1M but does not exceed or expected to exceed KES 25,000,000.
Exemptions Under TOT
Turn over tax shall not apply to-:
1. Rental income
2. Management or professional or training fees; and
3. Any income which is subject to a final withholding tax under the Income Tax Act.
4. Non-resident taxpayers
Registration process for Turnover Tax
Registration is done online through the iTax platform
1. Login to iTax using your PIN and password via https://itax.kra.go.ke
2. Click on Registration module, select ‘amend PIN details’
3. Under section ‘A’, basic information click on yes under question ‘Do you want to register for TOT?’
4. Under section ‘B’ Obligation details, select the date of registration of TOT and submit the application.
Late filing and payment of TOT attract penalties and interest, as follows:
• Late Filing Penalty: Kshs. 1,000 per month.
• Late Payment Penalty: 5% of the unpaid tax.
• Interest on Unpaid Tax: 1% of the tax due.
Monthly Rental Income Tax (MRI)
MRI is payable by a resident person (Individual or Company) on rental income accrued or derived in Kenya for the use or occupation of residential property. The rate of tax is 7.5% of gross monthly rental income, effective 1st January 2024.
It is applicable to persons earning rental income which is in excess of KES 288,000 but does not exceed KES 15,000,000 per income year.
However, a person may elect, by notice in writing to the Commissioner, not to be taxable under MRI in which case the annual income tax regime shall apply to such a person.
Property owners with rental income above Kshs. 15 million per year are required to declare the rental income together with incomes from other sources (if any) while filing their annual income tax returns.
Note that no expenses are deductible on the gross rent.
Exemptions from MRI
• Rental income from commercial property
• Non-resident landlords
• Landlords who earn rental income in excess of 15,000,000 per year.
How to Register a Property for MRI
1. Registration is done online via https://itax.kra.go.ke
2. Under the registration tab, click on the very last option: Register Property Details.
3. Click on next.
4. There are two sections, section A that has auto-filled details of the landlord and section B, which should be filled by the taxpayer depending on the type of property. There are three options of property
5. New property – for a taxpayer who has never registered any property even prior to this enhancement
6. Update property – for updating property details.
7. Deregister property – for taxpayers wishing to cancel already filled registration details
8. After selecting the type of property, proceed to fill out a PIN of a tenant of the said property.
9. The system will auto-populate the name of the taxpayer.
10. Fill out the needed details depending on the selected option, and enter an “estimated monthly rental income”
11. Then click on ‘add’.
12. Enter any remarks under ‘Application Remarks’ and click on ‘Submit’.
13. You will receive an ‘Acknowledgement Receipt’ for registered property details.
LICENSING AND COMPLIANCE
Once a business has been incorporated and registered for tax, the next step is to obtain the relevant licenses and permits which depend in the nature of the business, location and Industry.
Business Permit (Single Business Permit -SBP)
These permits are issued by the County Government where the business operates and authorizes a business to operate within the county.
The fees range between KES 5,000-50,000 per year.
Application is made through the County Government offices or through the online portals.
Fire Safety Certificate
This is issued by the County fire department and is required for all premises where business is conducted e.g. offices, restaurants and warehouses.
Sector-Specific Licenses
Food & Hospitality
Public Health License- Required for businesses dealing in food, drinks or public health. This is for firms engaged in sensitive operations like restaurants, hotels, salons and clinics. The fees for this license ranges from KES 15,000-50,000 per year depending on the number of staff.
Food Hygiene Certificate – This is required for chefs and handlers and costs KES 2000.
Note that staff in food handling positions often require individual medical certificates as well.
Financial Services
CBK License – for fintechs, forex bureaus, and microfinance institutions and banks.
CMA License – for investment advisors or fund managers
Tech and Media
Communications Authority (CA) License – For telecoms, ISPs, or broadcasters.
Copyright Registration – For software/app developers under the Copyright Act 2001.
Manufacturing/Import/Export
KEBS Certification – Mandatory for product standardization. One applies for this via the KEBS Self-Help Portal.
Import/Export License – Obtain from the Kenya Trade Network Agency (KENTRADE)
NTSA (National Transport and Safety Authority) – for transport and logistics
Tourism Regulatory Authority (TRA) -For hotels, travel agencies.
Compliance With Special Regulatory Bodies
Directorate of Occupational Safety and Health Services (DOSH)
DOSH operates under the Occupational Safety and Health Act 2007 (OSHA)
It ensures that workplaces are safe, healthy and compliant with occupational safety standards.
All employers are required to register their workplace with DOSH before commencing operations
Registration fees are renewed annually at KES 5000.
Office of the Data Protection Commissioner (ODPC)
Regulates the collection, processing and storage of personal data.
Any business handling customer or employee data must comply with the Data Protection Act 2019 under the Data Protection Act 2019:
Fees: KES 4,000 (small businesses), KES 16,000 (medium), KES 40,000 (large).
Submit via ODPC portal.
NEMA License (Environmental Impact Assessment – EIA)
Issued by: National Environment Management Authority.
Required for businesses with potential environmental impact e.g manufacturing, construction, mining and energy businesses)
Cost is KES 10,000 – 100,000 based on the project scale. Apply via NEMA Portal.
National Employment Authority (NEAMIS)
Employers with 25 or more employees are required to report to NEA.
Employers must submit the following to NEA
• Employee register and annual return – a register detailing employees’ names, age, sex, occupation, date of employment, nationality and education level. This should be filed by January 31.
• Vacancy notifications – inform NEA in case a vacancy arises. Once the vacancy is filled or abolished, notify NEA within two weeks.
• Notice of termination within two weeks of any employee termination or layoff.
• Non-compliance can attract penalties under the employment act of up to KES 100,000.
Mandatory Legal Compliance
National Social Security Fund (NSSF)
NSSF is a mandatory scheme established under the NSSF Act 2013 to provide social security to workers.
The law requires both the employer and the employee to contribute 6% of pensionable earnings each. This applies to the salary range KES 8,000 to KES 72,000.
Registration is done on the NSSF Portal, and the employer submits monthly payroll returns through the portal and pays via bank, M-Pesa or EFT.
Eligibility
All employers, regardless of business size, must register with NSSF once they start employing staff.
All employees, whether permanent, casual, or contract, must be registered and contributions made on their behalf.
The contributions must be remitted by the 9th of the following month. Late payments attract penalties of 5% of the amount due.
Social Health Insurance Fund (SHIF)
This is a mandatory public health insurance scheme that replaced the NHIF and is managed by the Social Health Authority.
All employers are to register their businesses with SHIF and deduct contributions to the scheme from their employees’ salary.
Contributions rate is 2.75% of employee salary with a minimum contribution of KES 300.
Contributions must be remitted by the 9th of the following month.
Employers can register and file returns through the SHIF digital portal.
Higher Education Loans Board (HELB)
Employers are legally required under the HELB Act (Cap 213A, Laws of Kenya) to:
I. Ascertain if new employees are HELB Loanees by requesting them to declare.
II. Deduct loan repayments from the salaries of those employees who are beneficiaries.
III. Remit deductions to HELB by the 15th Day of the following month.
Failure to deduct and remit HELB repayments attracts a penalty equal to 5% of the amount due per month.
Affordable Housing Levy (AHL)
The Affordable Housing Levy (AHL) introduced in the Finance Act of 2023 aims to finance the government’s affordable housing programme. It must appear as a separate statutory deduction on the employee’s pay slip.
The employer and the employee each contribute 1.5% of the employee’s gross monthly salary.
Self-employed individuals are required to contribute 1.5% of their gross income.
National Industrial Training Authority (NITA)
NITA is established under the Industrial Training Act 2011
It is mandated to promote and regulate industrial training in Kenya.
It oversees skills development for employees to enhance productivity and their competitiveness.
Employers are legally required to pay KES 50 per employee to NITA.
Penalty for non-compliance is 5% of the amount due for every month or part thereof until payment is made.
Note that there are refunds for costs incurred in staff training programs accredited by NITA.
POST INCORPORATION COMPLIANCE
After registration, it is crucial for businesses to keep up with compliance to avoid falling into penalties. Businesses are regularly required to file their tax returns, their annual returns to the Registrar of Companies where applicable and also to renew their licenses. Compliance is an ongoing process.
Annual Returns and Filing Deadlines
All incorporated companies in Kenya are required to file annual returns with the Registrar of Companies.
Annual filing must be done once every calendar year, within 30 days of the anniversary of incorporation.
The returns include information on the shareholders, directors, shareholding structure and registered office details.
Business name renewal is also required every 1-3 years via the BRS. The fee is KES 950.
Sole proprietorships – No annual returns, only name renewal & tax compliance.
Maintenance of Statutory Registers & Records
Companies are required to keep updated statutory books at their registered office as listed:
1. The Register of Members (shareholders) – Member name and address, date of member registration, date of ceasing to be a member and where the company has a share capital.
2. The Register of Directors and Secretaries -The directors’ biodata, and residential address.
3. The Register of Charges -If the company has borrowed against assets. It should indicate a short description of the property, the amount secured by the charge and the names of the persona entitled to the property.
4. The Register of Beneficial Owners -A company is required to keep a register of beneficial owners within 30days of completing its preparation
5. Minutes of Board and General Meetings.
All these registers must be kept up to date and available for inspection by the Registrar.
Tax Filing Obligations
Corporate Income Tax
Resident Companies pay 30% tax on their profits and non-resident companies pay 37.5% tax on their profits.
Companies must file returns by the 6th month (30th June) after the end of every financial year.
Pay As You Earn (PAYE)
All employers must deduct and remit monthly PAYE via iTax by the 9th of the following month.
Value Added Tax (VAT)
VAT registered businesses must file and pay by the 20th of the following month.
Turnover Tax TOT
Businesses with turnover of KES 1M – 25M
TOT is to be filed and paid by the 20th of the following month
Withholding Tax and Rental Income Tax should also be filed and paid monthly.
Updates to the Registrar of Companies
Companies must Notify the Registrar within 14 days of changes regarding the following:
• Change of directors or company secretary.
• Change of registered office or postal address.
• Transfer/allotment of shares.
• Change of beneficial ownership.
• Changes in share capital.
Licensing and Sector-Specific Renewals
Post incorporation, businesses must ensure annual renewal of applicable licenses.
Business permits and professional licenses should be renewed.
NSSF Contributions – by 9th of the following month
SHIF Contributions by 9th of the following month
DOSH registration and safety compliance if employing staff.
COMMON TAX & LEGAL PITFALLS
1. Penalties for Non-Compliance
Late filing of returns to KRA, The Registrar of Companies, NSSF and SHA can attract automatic penalties and interests that often compound over time.
Case Study: PesaTech Ltd. incorporated as an LLC but failed to file annual returns for two years, incurring KES 50,000 in penalties. Always track deadlines.
Failure to obtain or renew licenses and permits can attract fines, suspensions or even shutdowns by regulators.
Case Study: A start-up in Kilimani was shut down for lacking a fire certificate after an inspection. Always pre-empt inspections.
Failure to remit statutory deductions (PAYE, NSSF, SHIF, AHL, & HELB) amounts to criminal liability for directors or partners and attracts hefty penalties.
Pro Tip: It is essential to keep compliance calendars and reminders from day one of starting your business.
2. Improper or Missing Records
Poor bookkeeping – leads to inaccurate tax returns, cash flow issues and difficulty in securing financing.
Poor bookkeeping also leads to loss of deductions on payable taxes. KRA disallows expenses that are not properly documented with invoices and/or receipts.
Lacking statutory registers – may mean non-compliance with the Companies Act and this may finally attract penalties.
Pro Tip: Invest in accounting systems (Sofia, QuickBooks, etc.) and ensure that you maintain audit-ready books.
3. Selection of the Wrong Tax Regime
Many startups inadvertently register for the wrong regime like:
• Declaring Nill returns despite business activity- This may trigger KRA Investigations.
• Opting for Turnover Tax after exceeding the KES 25M threshold.
• Failing to register for VAT despite crossing the KES 5m annual turnover threshold.
Case Study: GreenFarm Ltd. overlooked VAT registration despite hitting KES 6 million turnover. KRA imposed a KES 100,000 back-tax penalty.
4. Late Filings and Missed Deadlines
Annual returns – Start-up companies must ensure that they file their annual returns within 30 days of the anniversary of incorporation. Late filing incurs penalties per month.
Tax returns – Remember that annual income tax is due by 30th June of the following year, TOT and VAT are due by 20th of the following month, and PAYE is due by 9th of the following month.
5. Overlooking Statutory and Regulatory Obligations
Failing to register with NSSF.
Ignoring industry-specific licenses from regulatory bodies like KEBS, EPRA, NEMA CBK, CMA etc.
CONCLUSION
Starting and running a business in Kenya requires proper registration, compliance with both tax and legal obligations, and awareness of the sector-specific regulations. By following the set procedures, entrepreneurs not only operate legally but also build credibility, access financing and position themselves for stability and growth. With the right tax and legal foundation, Kenya’s dynamic market offers vast opportunities for sustainable business success.
Sofia Platforms by Keldine & Co. LLP offers the firm foundation through its bookkeeping and compliance services to ensure that your business operates within the set tax and legal frameworks and that it remains compliant throughout its business operations.
Disclaimer: This article is intended to provide general information only and does not constitute, nor should it be relied upon, as professional or legal advice. While we aim to ensure the accuracy and relevance of the content, it is not a substitute for personalized guidance. Before taking any action based on the information contained herein, we strongly recommend consulting with a qualified professional. For more information, please contact us directly.
Website: www.sofiaplatforms.com
Email: moc.smroftalpaifos@aifos
Phone: +254 795 710 593
