REGISTRATION OF FOREIGN COMPANIES IN KENYA; ACQUISITION OF A PIN CERTIFICATE

REGISTRATION OF FOREIGN COMPANIES IN KENYA; ACQUISITION OF A PIN CERTIFICATE.

Kenya is one of the go-to destinations for investors and multinational corporations looking to set up a business in a foreign country. With a robust rate of growth economically, Kenya offers an incentive to foreign businesses seeking to expand their global footprint. Expanding a business in Kenya depends on a lot of factors which include:

1. your business goals,?
2. operational requirements,?
3. legal considerations,?
4. risk management procedure.

When it comes to legal considerations, part of the issues to consider includes Tax obligations. Regarding tax obligations, Investors expected to earn an income from Kenya are required to have a Personal Identification Number (PIN) (hereinafter referred to as the KRA PIN or COMPANY PIN CERTIFICATE) issued by Kenya Revenue Authority (KRA). A PIN is a unique identifier for tax purposes normally used for submission of returns or any other transaction as required under the tax law. Both the company and the directors are required to have a PIN. It is impossible to run a business in Kenya without a COMPANY PIN CERTIFICATE.??

Major transactions that are crucial for the survival of a Company are dependent on the acquisition of a COMPANY PIN CERTIFICATE. For instance, opening accounts with financial institutions and Investment Banks in Kenya requires a company to have a COMPANY PIN CERTIFICATE.? Additionally, the Kenyan Income Tax Act provides that regardless of whether a person is a resident or a non-resident, provided that they earn an income in Kenya, they have to be charged an income tax for each year of income derived in Kenya. The definition of a person in the income Tax Act also encompasses Companies. It is only through submission of returns that the KRA can calculate the income tax that is due. Submission of returns can only be effected if a business has a COMPANY PIN CERTIFICATE.

How to obtain a COMPANY PIN CERTIFICATE; a step by step guide.

1. Identify your ideal business structure.

The companies Act, 2015 regulates the registration of companies in Kenya and stipulates that foreign companies can be registered in Kenya in the following two capacities:

1. As a branch; or
2. As a subsidiary.

The first step is to choose the structure of the company to be set up before applying for the PIN.?

1. Factors to consider in deciding whether to register the foreign company as a branch or as a subsidiary:

The following are some of the key considerations that a company looking to expand to Kenya should consider prior to incorporation:

FACTORS

BRANCH

SUBSIDIARY

Legal Status

For Branch - It is not a separate legal entity but an extension of the Parent Company. To be fully registered in Kenya, the Registrar has to issue a Certificate of Compliance.

For Subsidiary - It is a separate legal Entity distinct from its Parent Company and therefore will have to apply for its own certificate of incorporation.

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Liabilities

for Branch - Liabilities Extend to Parent Company meaning the parent company is fully liable for the obligations and liabilities of the branch

For Subsidiary - Liabilities are limited to Subsidiary meaning that the parent company's assets are protected from the subsidiary's liabilities. This is primarily because the Subsidiary and the Company are separate legal entities.

Entity Name

For Branch - Must be similar to the Parent Company especially in terms of the branding.

For Subsidiary -Can be the same or Different from Parent Company.?

Allowed Activities

For Branch - Must be the same as the Parent Company in terms of operational and legal structures.

For Subsidiary -Can be the same or Different from Parent Company as it enjoys some degree of autonomy.

Taxation

For Branch - It is majorly taxed as a non-resident entity since it was incorporated outside Kenya. Local tax benefits are therefore not available?

For Subsidiary -Taxed as a resident entity as it is issued with a certificate of incorporation in Kenya. local tax benefits are therefore available

Compliance & regulatory?

For Branch - Subject to local laws and regulations in Kenya, including registration, licensing, tax compliance, reporting, and other legal requirements

For Subsidiary - Subject to local laws and regulations in Kenya, including registration, licensing, tax compliance, reporting, and other legal requirements. However, a subsidiary may have more regulatory and compliance obligations than a branch with its own legal and financial reporting requirements.

Company Annual Returns

For Branch - Must file Branch Office as well as Parent Company’s Accounts

For Subsidiary - Must file Accounts of the Kenyan Subsidiary only

Business objectives and long-term plans

For Branch - If you want a simpler and more centralized operational structure, a branch may be more appropriate.?

For Subsidiary - A subsidiary may be a suitable option if you are looking for more control, autonomy, and liability protection

Bank Account

For Branch - Can open Bank Account in Kenya

For Subsidiary - Can open Bank Account in Kenya

Shareholding

For Branch - It is the same as the parent company

For Subsidiary - Can be fully owned by the parent company or have other shareholders

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1. REGISTERING THE COMPANY

Requirements for the registration of a branch or a subsidiary company in Kenya?

It is only after considering the factors above that a foreign investor can decide how to set up a business in Kenya. Each option has its own distinct requirements which are as follows:

1. Registration of a Branch

Registration of a foreign company branch in Kenya is regulated under Sections 975 of the Companies Act, 2015. The following documents are required for registering a foreign company’s branch in Kenya:

• Duly notarized copy of the company’s incorporation certificate or registration document from its country of origin.
• Duly notarized copy of the company’s Memorandum and Articles of Association;
• List of directors and shareholders, including their details such as names, addresses, nationalities, and contact information.
• Notice of the address of the registered office in the company’s home country and its principal place of business if in Kenya.
• The company’s working hours and days.
• The company must also appoint a local representative who will serve as the communication liaison between the foreign company and the authorities in Kenya.
• Where documentation is in a language other than English, the company registry requires that they be translated to English.

Upon lodging the requisite documents with the registry and payment of the requisite government registration fees, the company becomes duly incorporated as a branch in Kenya and is issued with a Certificate of Compliance.

1. Registration of a Subsidiary

A subsidiary company is a company whose more than half of its issued shares is held by another company, typically referred to as the parent company (which in this case would be the foreign company)

The requirements for registration of a subsidiary are as follows:

• At least four names must be proposed to the company registry for registration;
• A list of the intended directors and shareholders;
• The email address, phone number, postal address, residential address, occupation and passport sized photos of the directors and shareholders; for a director/shareholder who is a company, a copy of a notarized certificate of incorporation;
• The company’s registered address;
• The intended company’s business area;

Upon lodging the requisite documents and payment of the requisite government registration fee, the subsidiary will be duly registered and shall be issued with a Company Registration Certificate.?

Procedure for the incorporation of a foreign company in Kenya

The application for registration of the companies is made to the company registry in Kenya who upon lodging of all the requisite documents, review the documents and where they are in compliance with the legal requirements approves and registers the company.

Registering your foreign company in Kenya opens the door to growth into new markets. While the process may be daunting, with the right support, it becomes seamless. Kioi & Co. Advocates is here to guide you through every step, ensuring a smooth and efficient registration.?

1. OBTAINING THE COMPANY PIN CERTIFICATE AS A BRANCH

A multinational corporation that opts to register its company as a branch is required to obtain a KRA PIN for the branch which is referred to as a Company PIN Certificate. Acquiring a COMPANY PIN CERTIFICATE for the Branch can be facilitated by Keninvest which is a platform dedicated to promote Investments in Kenya. A foreigner has to have a foreign national registration Certificate (an Alien ID) if it intends to acquire the PIN Certificate directly from Kenya Revenue Authority without the facilitation of Keninvest. When opting for the latter approach, you may need assistance in the application for the foreign National Registration Certificate.?

There are two types of foreign investors recognized by the Kenyan Tax laws. These are:

1. Non-Kenyan Investor – Resident. – (Local Companies and Subsidiaries can fall under this category)
2. Non-Kenyan, Non-Resident Investing in Kenya (Residing outside Kenya) – Branches can fall under this category

A Foreign company that is fully owned outside Kenya seeking to open a branch in Kenya can seek the services of a tax agent. A tax agent is important in assisting the foreign Company to comply with the Kenyan tax laws. The tax agent’s KRA PIN is also required in order to obtain a COMPANY PIN CERTIFICATE for the company. The Tax agent has to be qualified when assessed against the standards set by the Kenya Revenue Authority. Other requirements needed include (When facilitated by Keninvest):

• Certificate of compliance issued by the Registrar of Companies.
• Letter of appointment of tax Agent by applicant
• Documentary proof of investment (Certificate of incorporation – for subsidiaries/Compliance – for a branch, CR12, CR8, CR 2, project proposal, Ken Invest application).?
• Endorsement by Kenya Investment Authority (Ken Invest Endorsement letter is given to registered companies with an investment exceeding USD 100,000)
• Class G - Investors permit for investments less than USD 10,000.
• Original valid Passport of applicant or a certified copy of the passport for investors residing outside Kenya.
• KRA PIN application acknowledgement receipt

Exemption from the requirement of a KRA PIN

There are some instances under the Tax Procedures Act where a party may be exempted from the requirement of a COMPANY PIN CERTIFICATE. Some businesses. This exemption only applies if KRA is satisfied that the activities of the foreign company/investor qualifies them for exemption. Due to its limited scope, the exemption does not cover a huge number of foreign businesses and investors looking to conduct business in Kenya. This exemption is typically limited to the following categories of investors:

1. Traders in corporate and government bonds?
2. Trading in securities listed in the Nairobi securities exchange.
3. Entities involved in fund management.
4. Investment Banks.
5. Banks.

Such investors, due to the nature of their activities (having temporary establishments in Kenya and generating passive income) do not have to register for a PIN. They may instead be granted a private ruling which then allows them to conduct some vital transactions which they would otherwise not conduct without the PIN.?

• Private rulings, what are they?

These are common rulings that are issued by the Kenya Revenue Authority which stipulates how KRA interprets a tax law and its import to a taxpayer. For instance, a taxpayer who is seeking an exemption from the requirement of a COMPANY PIN CERTIFICATE can make an application in writing to KRA. The taxpayer has to disclose all the details relevant to the transaction in question. An investor may therefore inquire whether their business is exempted from the COMPANY PIN CERTIFICATE requirement in the application.?

Application for a COMPANY PIN CERTIFICATE for a foreign business registered in Kenya requires you to be informed of various factors as illustrated above. In case of any challenges, it is crucial to consult experts who have handled issues of a similar nature. Kioi & Company Advocates hones Legal expertise spanning from years of experience in practice.?

In case of any questions, please feel free to contact us through any of the contact details provided on our website or book a consultation with any of our associates for this or any other related legal matters.

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Disclaimer

This article is for informational purposes only and should not be construed as legal advice.