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published on october 10, 2018 / reading time approx.: 5 minutes
A foreign company registered outside Kenya wishing to do business in Kenya may either register a branch office or a subsidiary in Kenya. A subsidiary is considered a local company with compliance requirements similar to those of local companies owned by locals. A branch office on the other hand is unique and is considered a foreign company under Part XXXVII of the Companies Act, 2015 (Companies Act).
It is worthy of note that the Companies Act is very modern and it borrows heavily from the Companies Act, 2006 of the United Kingdom. It is also more elaborate on disclosure and compliance of foreign companies compared to its predecessor. It sets out the mandatory compliance requirements and proceeds to enforce the same through set fines and penalties on non-compliance.
A registered foreign company is required to establish and maintain a registered office in Kenya to which all communications and notices may be addressed. Any change to the registered office should be made known to the Registrar within a period of seven days. A registered foreign company is required to paint or affix in letters easily legible, on the outside of every office and place (including its registered office) that is in Kenya, at which its business is carried on and that is open and accessible to the public the following details:
The registered office must remain open on each business day from at least 10 a.m. to 12 noon and from at least 2 p.m. to 4 p.m. and a notice of the same lodged with the Registrar.
The Companies Act is silent on whether a local representative ought to be a Kenyan. The old law provided that the equivalent of a local representative had to be a person resident in Kenya. Section 983 of the Companies Act provides that a foreign company must ensure that a local representative of the company is present at all times when the office is open. Essentially, this means that the local representative must have residency in Kenya and indeed must be a holder of a valid work permit. The local representative therefore exposes him or herself to potential risks of non-compliance by the foreign company. The responsibilities of a local representative include:
A registered foreign company is required to state its name and other specified information in all and any of its documents and communications relating to its business in Kenya.
The Act obliges the registered foreign company to notify the Registrar within one month of any changes in any of the following information and or documentation relating to the foreign company:
A registered foreign company is required to at least once in every calendar year and at intervals of not more than fifteen months, to lodge a copy of its financial statement made up to the end of its last financial year, in such form and containing such particulars, and including copies of such documents, as the company is required to prepare by the law for the time being applicable to that company in its place of origin, together with a statement in writing, supported by a statutory declaration, verifying that the copies are true copies of the documents so required. The language of the registry of companies in Kenya is English and it would thus follow that documents prepared in other languages must be accompanied by certified translations.
A registered foreign company is required to pay corporate tax annually at the rate of 37.5 percent on taxable income. The Income Tax Bill, 2018 contains a proposal to reduce the corporate tax rate for foreign companies to the resident rate of 30 percent. However, an additional tax of 10 percent will apply in the event these companies decide to repatriate any profits derived by their foreign branches in Kenya. This branch repatriation tax is set to be a move towards equity since both resident and foreign controlled companies in Kenya are always subject to withholding tax on any distributed profits.
Within twenty one days after a registered foreign company has ceased to carry on business in Kenya or has been dissolved or deregistered in its place of origin, the local representative of the company in Kenya is required to lodge with the Registrar for registration a notice of that fact. It is noteworthy that foreign companies that do not carry on business at a place of business of the company for a continuous period of six months are considered to have closed their businesses.
In Conclusion, each officer of the company who is in default of the above shall be liable to a fine ranging between Kenya Shillings 100,000/- to 500,000/- upon conviction (the penalty varies across the compliance requirements). Subsequent to conviction, failure to make good the wrong leads to a further offence on each day of default or non-compliance on which the default continues and this attracts a penalty ranging between Kenya Shillings 10,000/- to 50,000/- for each day of default.
The applicable penalty for any unpaid tax is 20 percent of the principal tax and a further 2 percent interest per month on the unpaid tax. In addition, failure to submit an annual income tax return leads to a late filing penalty of 5 percent of tax due for the year or Kenya Shillings 20,000, whichever is higher.
Penninah Munyaka
Associate Partner
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