The Special Economic Zones Act, No. 16 of 2015 was adopted by Parliament on 12 February 2015 and came into operation on 15 December 2015. It provides for the establishment of “Special Economic Zones” (“SEZs”). It is important to note, as briefly as possible, the objectives of the new SEZ law (1), the eligibility criteria for the different types of SEZs licenses (2), the benefits granted to businesses within the SEZs (3) and the implementation of the new law (4).
1. Objectives of the new SEZs law
SEZs are designed to attract investors, particularly in export-oriented industries. They are designated administrative areas within a country's borders that are accorded privileges, such as exemption from value added tax, income tax, custom and excise duties, stamp duty which do not apply to other regions, territories or other areas within the country. Businesses located within such zones benefit from lower cost of operations and a more conducive operating environment.
This Act sets the legislative framework for the establishment of SEZs in strategic towns in Kenya with the view of attracting foreign investment, growing export trade and spurring economic growth. This law is an integral part of the country's strategy towards industrialization.
2. Eligibility to qualify for a SEZ license
The types of SEZs established in terms of Part II Section 4(1) of the Act will include, among others: business service parks (e.g., regional headquarters), free port zones, free trade zones, industrial parks, information communication technology parks, science and technology parks, agricultural zones, livestock zones and tourist and recreation zones.
According to Part V section 28 of the Act, in order to qualify for an SEZ license, the applicant must, in addition to such other criteria and requirements as may be prescribed:
(a) Be a company incorporated in Kenya for the purpose of undertaking SEZ activities;
(b) Have financial capacity, technical and managerial capacity, and associated track record of relevant development or operational projects required for developing or operating the SEZ;
(c) Own or lease land or premises within the Special Economic Zone as stipulated under the Special Economic Zones (Land Use) Regulations to be enacted within 180 days of the coming into force of the Act.
Therefore, any person intending to carry on business as SEZ developer, operator or enterprise shall apply to the Authority for an appropriate license.
3. Benefits granted to businesses within the SEZs
Under Part VI Section 35 of the Act, all licensed special economic zone enterprises, developers and operators shall be granted exemption from all taxes and duties payable under all the domestic tax legislations including the East African Community Customs Management Act. The benefits apply on all special economic zone transactions.
As a result, all licensed companies undertaking industrial activities within the zone shall be exempt from value added tax, income tax, custom and excise duties, stamp duty and work permit quota.
Under the Act, a licensed SEZ enterprise and its shareholders shall enjoy certain rights such as profit and capital repatriation, the full protection of its property rights against all risks of nationalization or expropriation and industrial and intellectual property among others.
The licensed special economic zone enterprises, developers and operators shall be entitled to work permits of up to 20% of their full-time employees, under Part VI section 35(3) of the Act. However, on the recommendation of the Authority additional work permits may be obtained for specialized sectors.
4. Implementation of the Special Economic Zones Act
The Ministry of Industrialization and Enterprise Development plans to roll out the SEZs in the first quarter of 2016.
The implementation of the SEZs Act will allow for a wider range of commercial ventures, including primary activities such as farming, fishing and forestry, and will not be restricted to the enclaves. The establishment of special export zones will also allow for the existence of free ports and trade zones across the coastal strip, science and technology parks, agricultural free zones and tourism development zones.
A few African countries have successfully implemented the SEZs concept, leading to an increase in export earnings, diversification of manufactured goods, and linkages of various sectors of their economies.
In brief, the next implementation of the new law on SEZs will create a favourable environment for both global and local investors.