Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

RestrictionsOwnership of land

The Constitution of Kenya prohibits foreign nationals or foreign controlled companies from owning a freehold interest in land. Foreigners may hold land on leasehold tenure up to a maximum of 99 years. A project company is regarded as a citizen if it is wholly owned by one or more citizens. Even property held in trust is regarded as held by a citizen if all the beneficial interest of the trust is held by persons who are citizens.

Joint venture construction projects

Regulation 16(1) of the National Construction Authority Regulations, 2014 restricts ownership in a joint venture for construction works between a local and foreign company. The local company should own at least 30 per cent of the construction works with the profits being shared along the same rationing.

Ownership in the mining sector

The Mining (Local Equity Participation) Regulations 2012 condition every mining licence on a local equity participation of at least 35 per cent of the mineral right. Under section 164 of the Mining Act, a mineral dealer’s permit is issued to Kenyan citizens and in the case of a company, to one in which 60 per cent of the shareholding is held by citizens of Kenya.

Ownership in the energy sector

The Energy Act 2019 and the Petroleum Act 2019 do not currently place restrictions on the ownership of companies involved in these industries.

Ownership in the insurance industry

The Insurance Act prohibits the registration of an insurer unless at least one third of the controlling interest, is held by citizens, a partnership whose partners are, or a body corporate whose shares are held by citizens of a partner state of the East African Community or the government, or a combination of them.

Fees and taxes

Share purchases are subject to stamp duty at 1 per cent of the value of the shares. The charges payable to the Registrar of Companies to effect these changes are nominal. Taxes are charged in accordance with the Income Tax Act, the Tax Procedures Act, the Value Added Tax Act and other tax legislation in the ordinary course of business.

Kenya has entered into and ratified several bilateral treaties towards easing investment restrictions to promote foreign direct investments.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

The law permits foreign insurance companies to insure project assets but only if they are registered to operate in Kenya and licensed by the Insurance Regulatory Authority. Even so, at least 25 per cent stake in the company must be reserved for citizens.

Insurance policies may be payable to foreign secured creditors. Payment of insurance premiums to foreign companies is subject to withholding tax and value added tax.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

There are no such restrictions in Kenya against foreign workers. However as administrative policy, the Immigration Department requires businesses to bring in foreign staff only if their expertise, skills and qualifications are not available locally.

Equipment restrictions

What restrictions exist on the importation of project equipment?

There are no restrictions on the importation of project equipment in Kenya. However, customs duty is payable under the Customs and Excise Act. If the Local Content Bill is adopted, locally produced equipment will be given preference.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The Foreign Investment Protection Act protects foreign companies and assets from nationalisation or expropriation. This protection is supplemented by bilateral and multilateral investment treaties, which offer protection to foreign companies.