A foreign company, registered outside of Kenya, that intends to conduct business within the country has the option to establish either a branch office or a subsidiary in Kenya. While a subsidiary is classified as a local company and is subject to compliance regulations comparable to those applicable to domestically owned enterprises, a branch office is distinct and is categorized as a foreign entity according to Part XXXVII of the Companies Act, 2015.
The Companies Act, 2015, bears significant resemblance to the Companies Act of 2006 in the United Kingdom, outlining obligatory compliance criteria as follows:
- Business Registration – Foreign companies are obligated to register their business entities with the Registrar of Companies in Kenya. This typically entails submitting the necessary documents to the registrar of companies and remitting registration fees.
- Registered Office – A registered foreign company must establish and maintain a registered office in Kenya. Any change to the registered office must be communicated to the Registrar within seven days. Furthermore, a registered foreign company is required to prominently display its business hours and affix easily legible letters on the exterior of each office and accessible place where its business is conducted.
- Local Representative – Under the Companies Act of 2015, a foreign company seeking registration in Kenya must appoint at least one local representative who must reside within the country. The local representative is not obliged to hold shares in the foreign company. Their responsibilities, as outlined in Section 981 of the Act, include:
- Ensuring compliance with the Act on behalf of the foreign company, handling necessary filings with the Registrar of Companies, and maintaining an open registered office during business hours for receipt of communications and notices.
- Acting as the primary liaison between the foreign company, Kenyan government agencies, and the general public. Actions taken by the local representative are binding on the foreign company, and they are authorized to receive legal processes on behalf of the company. It is imperative for anyone accepting the role of a local representative to ensure they are adequately empowered by the foreign company to fulfill their duties.
- Handling tax compliance matters of the company.
- Remaining available during office hours.
- Submitting a notice of any change in the office address for registration with the Registrar.
- Annual Compliance – A registered foreign company is required to lodge a copy of its financial statements, prepared in accordance with the laws applicable to the company in its place of origin, at least once every calendar year. These statements must be accompanied by a written statement, supported by a statutory declaration, verifying their authenticity. Documents prepared in languages other than English must be accompanied by certified translations.
- Communication and Documentation – A registered foreign company must include its name and other specified information in all documents and communications pertaining to its business in Kenya.
- Changes – The Act mandates that a registered foreign company must inform the Registrar within one month of any changes to the following information or documentation related to the foreign company:
- Its constitution or any other document submitted during registration.
- Directors.
- Powers of directors residing in Kenya and members of a Kenyan board of directors.
- Local representative(s).
- Name or address of the local representative.
- Tax Registration & Compliance – Foreign companies are required to register with the Kenya Revenue Authority (KRA) for tax purposes, including obtaining a Tax Identification Number (TIN) and fulfilling obligations such as corporate tax, Value Added Tax (VAT), and withholding tax. Corporate tax is levied annually at a rate of 37.5 percent on taxable income.
- Winding Up – Within twenty-one days of a registered foreign company ceasing business operations in Kenya, being dissolved, or deregistered in its place of origin, the local representative in Kenya must lodge a notice of this fact with the Registrar for registration. It is important to note that foreign companies ceasing operations at a place of business for a continuous period of six months are considered to have closed their businesses.
Other statutory compliances include;
- Work Permits – Foreign employees working in Kenya may require work permits or visas. Companies should ensure their employees have the necessary permits to work legally in the country.
- Employment Laws – Compliance with Kenyan labor laws is essential. This includes regulations concerning employment contracts, minimum wages, working hours, and health and safety standards.
- Data Protection – Compliance with data protection laws is crucial. The Data Protection Act governs the collection, processing, and storage of personal data by foreign companies operating in Kenya.
- Environmental Regulations – Companies involved in activities with potential environmental impacts must comply with environmental regulations. This may involve obtaining environmental impact assessments and adhering to waste management and pollution control requirements.
- Intellectual Property Protection – Protecting intellectual property rights is important. Foreign companies should register trademarks, patents, and copyrights to safeguard their intellectual property assets in Kenya.
Conclusion
Statutory compliance is essential for foreign companies. It ensures legal adherence, risk mitigation, and stakeholder trust. Prioritizing compliance underscores commitment to ethical business conduct, pivotal for sustained success in international markets.