How Kenya Protects Foreign Companies Operating Within the Country

 How Kenya Protects Foreign Companies Operating Within the Country

Kenya, one of the most strategically located countries in Eastern Africa, is quickly becoming a hub of industry and investment. The country has been ranked among the top nations on the continent for foreign investment and has contracts with countries worldwide. 

These companies range from manufacturing to retail, including massive international brands such as British American Tobacco, Standard Chartered, and the Coca-Cola Company. These companies, among others, have invested billions in the country to reach local markets, take advantage of the country’s position, and expand their holdings. 

Trade Relations

Companies don’t invest in the country on a whim when looking to expand into new territories. The government has strong trade relations with others like Uganda, the Netherlands, the United States, and the United Kingdom. 

With these trade relations comes trust that companies from these regions can rely on when investing in Kenya and starting local ties. What aids in these relationships is the fact that the Kenyan government has taken a proactive stance on making the country favorable to foreigners—even going so far as to make it more appealing to invest for them than for locals. 

Kenyan Tax Relief

One of the biggest things Kenya has done to attract foreign investment has been offering tax relief to specific countries with a good trade relationship. These also benefit Kenyans by providing the same relief in reverse and have made great strides in encouraging outsiders to operate in the local market.

The first of these occurred in September 2023. Under new trade policies, Kenya will offer preferential tax policies to any Chinese company operating in the local market. The move not only bolsters investment from China but is also set to improve bilateral relations between the nations, benefiting Kenyans in the long run. 

Under the new exemptions, which are still being finalized, these companies will receive relief on the four types of tax that the Kenya Revenue Authority (KRA) charges. These include wear and tear allowances, investment deductions, farm-work deductions, and industrial building deductions. 

With Kenya importing more than $8.25 billion of goods from China in 2022, the country is also considering signing a double taxation avoidance agreement, or DTA, with China. This is alongside the DTA with Bangladesh, which is currently in final discussions.

This DTA, which allows for Bangladeshi companies operating in Kenya to be exempt from paying any form of tax except what is owed in the Asian country, will work both ways, with Kenyan companies in Bangladesh also offered tax relief. The move will remove any tax evasion opportunity and lighten the load on businesses by eliminating double taxation. 

The only time the DTA will not be recognized is if a company from either nation takes up a permanent establishment in the other. Should this occur, the company or brand will be subject to local taxation as if it were a local business.

With both the creation of tax exemptions and DTAs, Kenya is welcoming new businesses of all forms. These include manufacturing that uses the country’s extensive workforce to those operating in specific niches like the iGaming sector through resources like casinos.com. However, this influx of investment has come at a cost. 

Tax Collection

While Kenya is fighting to protect foreign companies operating within the country by offering tax exemptions and other regulations that make it more affordable and worthwhile, local taxes are rising. This growth led President William Ruto, elected in 2022, to be labeled the tax collector.

Despite the tax break for foreigners, locals have been subject to increased personal income tax, which can now reach up to 35% depending on wages. In addition, fuel taxes have risen to 16%, medical insurance to 2.75%, and a new housing tax of 1.5% has been introduced. 

A 3% levy on turnover has been implemented for local businesses that needs to be paid on gross revenue. For many small businesses operating in the country, this has led to devastating effects on viability and resulted in many needing to increase prices drastically to stay profitable.

Since these changes have come into play, the country has reported more than 70,000 job losses in the private sector alone. As of December 2023, a further 40% of local businesses that aren’t backed by foreign funding are considering scaling back operations and reducing their workforces. 

Government Response

While many have been calling for the government to focus more on protecting locals and home-based businesses above the interests of foreigners, these calls have seemingly fallen flat. Speaking on the country’s independence day, President Ruto acknowledged the hardship of the additional taxes but did not remark on lowering the leniency on foreign companies.

Instead, the KRA and government have said that the taxes are a matter of necessity to save the country from spiraling national debt, which had accumulated to more than $70 billion by the end of 2023. Locals, however, claim a different story.

Many have questioned the government’s excessive spending, with officials’ travel expenses particularly being questioned. After 40 international trips in the year, the president defends against these calls by stating that the government has made budget cuts to ensure that travel expenses and other spending align with revenue. 

Conclusion

Despite the government’s insistence that measures are being implemented to mitigate expenses and control debt, locals have found it hard to see where these measures are being executed. Alongside this, the government’s protection of foreign companies over those of residents has become a substantial issue of contention in the country—especially among rising levels of unemployment, which is forecast to reach 6.19% in 2024.

As the aforementioned tax exemptions and DTAs are formalized, the government must pay special attention to balancing the need for foreign investment with caring for local residents. Failure to do so could result in civil unrest, rising prices, and lowered employment, making foreign investment policies useless as investors may consider going elsewhere.