Tax Exemptions & Incentives For Special Economic Zones in Kenya

Kenya’s Special Economic Zones (SEZs) offer a robust and multi-layered package of fiscal incentives and regulatory exemptions designed to attract investment and reduce operational costs for licensed entities.

EXEMPTIONS

Corporate Income Tax (CIT) rate.

Licensed SEZ enterprises benefit from a reduced CIT of 10% for the first ten years from the commencement of operations. Following this initial period, the rate increases to 15% for the next ten years. This stands in contrast to the standard corporate tax rate, providing significant long-term tax savings.

Withholding Tax (WHT

• WHT benefits are equally substantial. Dividends paid by an SEZ entity to shareholders, whether resident or non-resident, are fully exempt from tax.
• For other outward payments, a special regime applies during the first ten years. Royalties, interest, and payments for management, professional, training, and consultancy services made to non-resident persons are exempt from WHT. This rate increases to 5% after the initial decade.

Customs Duty& Related Duties

• SEZ enterprises are exempt from paying Import Duty on all raw materials, inputs, and capital goods (machinery) imported for use within the zone.
• Exempt from Excise Duty on such imports
• Exempt from standard Import Declaration Fee (IDF).

The Value Added Tax (VAT)

• The supply of goods or taxable services toa licensed SEZ enterprise is zero-rated, meaning suppliers charge VAT at 0%.
• Special Economic Zones enterprises themselves are not required to register for or charge VAT on their own sales, which simplifies administration and eliminates VAT cash flow constraints.

Stamp Duty & Capital Gains Tax

• Gains on the transfer of property within an SEZ by a licensed entity are exempt from Capital Gains Tax.
• Stamp Duty is also exempt on the execution of any instrument, such as leases or loan agreements, that relates to the business activities of the SEZ.

Other fees and regulatory licenses.

• SEZ entities are exempt from requiring a Foreign Investment Certificate
• Exempt from specific sectoral licenses, including those under the Tea Act, the Trading in Unwrought Precious Metals Act, and the Films and Stage Plays Act.
• At the county government level, they are exempt from advertisement fees and business service permit fees.
• Other notable exemptions include relief from general and hotel liquor licences under the Alcoholic Drinks Control Act and from rent or tenancy controls under the Landlord and Tenant Act.
• SEZ enterprises are also exempt from certain provisions of the Statistics Act.

CAPITAL ALLOWANCES

To encourage capital investment, SEZs offer enhanced capital allowances. Any person who incurs capital expenditure on buildings or machinery for use in an SEZ is entitled to an investment deduction equal to 100% of the cost incurred. This allows for the complete write-off of the capital cost against taxable income.

IMPORTANT CONSIDERATIONS

• All incentives are strictly contingent upon obtaining and maintaining a valid SEZ license (Developer, Operator, or Enterprise) from SEZA.
• The regulatory landscape is also subject to change, as seen in government strategies aimed at rationalizing tax incentives.
• Importantly, an SEZ license is not a complete tax holiday; entities and their employees remain liable for other taxes such as Pay-As-You-Earn (PAYE) and must make National Social Security Fund (NSSF) contributions. Strict compliance with filing requirements and regulatory procedures is essential to retain the licensed status and associated benefits.

Disclaimer: This article provides general information only and does not constitute legal or tax advice. Tax laws are complex and subject to change. Always consult qualified professionals for advice specific to your situation.