In the last post, we discussed the process of registering a company for citizens. In this post, we shall look at the process of opening a subsidiary and a branch of a foreign company in Kenya. An investor who wants to open a business in Kenya can do so either by a registering a subsidiary or a branch of the foreign company in Kenya. However, before we proceed, it is important to understand the difference between a branch and a subsidiary. In this context, we shall look at the differences in definition, taxation obligations, liabilities and incentives.
|Definition||First, a branch is a location, other than the main office, where business is conducted.|
Simply put it is a parent company conducting business in another jurisdiction.
|Act: means a company of which another company is its holding company.|
Another: A company whose full or partial controlling interest is held by another company.
|Legal liability||It is not a separate legal entity from the parent company.|
meaning that the actions of the branch company can be imputed on the parent company.
|It is a separate legal entity from the holding company. |
In most cases, it is liable for its own actions.
|Tax obligations||Corporate tax 37.5%. It is taxed as a non-resident local entity. Local benefits cannot accrue to them.|
It may also expose them to taxation on the entire income.
Withholding tax does not apply.
|30% on income accrued and derived from Kenya. |
It is taxed as a resident. Local benefits tax benefits can accrue to the company.
Its dividends are subject to withholding tax.
|Name||Can be different from that of a parent company.||Can be different from that of parent company|
|Winding up||The process is simple||Complex procedure in winding up.|
From the above table, it is evident that registering a subsidiary is advantageous compared to a branch. This is because the tax obligations and liabilities are more lucrative compared to registering a branch.
The next thing is to understand the process of registering a subsidiary and a branch of a company in Kenya.
The registration process of a branch and a subsidiary company.
Foreign company: this is a company that has been incorporated outside Kenya. In short, a company registered in another country, say United States.
Registered foreign company: This is a company that has been registered according to the provisions in the act relating to a registered foreign company.
A company of which another company is its holding company. Simply put a company that is owned partially or wholly by the holding company.
Holding company in relation to another company, means a company that
- Controls the composition of that other company’s board of directors;
- Controls more than half of the voting rights in that other company;
- Holds more than half of that other company’s issued share capital; or
- Is a holding company of a company that is that other company’s holding company.
Having demystified the above concepts, we shall then evaluate the process of registering a branch of a foreign company in Kenya and evaluate how they are regulated.
The registration process
Let’s say Elvis LLC incorporated in the United States wants to register a business in Kenya. And Elvis LLC is to own majority the majority share of the subsidiary. So what is the process?
1. Register with e-citizen.
This is done online. It is important as most government services are now offered online. Also, most governmental payments are made via the e-citizen account. The registration can be done here. The documents required include national id/passport/alien card, passport photo and email address.
2. Apply and pay for a name search
Being a ‘person’, a company has to have a name. And for the name to be registered, it has to comply with certain provisions as follows:
a) Application for reservation of a name.
Under section 48 of the Act, the Registrar may, on written application, reserve a name pending registration of a company or change of name by a company.
The reservation of a name remains in force for a period of thirty (30) days.
However, the Registrar may, for special reasons, allow the extension of the period. However, the extension period cannot exceed sixty (60) days. During the period in which the reservation is in force, no other company is entitled to be registered by that name.
The application is made by filling a form (See; Form CR14-application and reservation of company name).
However, this procedure is now done online using the e-citizen platform under the business registration tab. (More convenient)
In addition, the name can be:
- The name of the company where the company has been incorporated; meaning that Elvis LLC can still maintain its name only that the name shall be Elvis ltd; or
- An alternative name; that means that Elvis LLC can adopt something like ABC limited. However this it has to lodged with the registrar; that name shall be the corporate name for the purposes of carrying out business in Kenya.
b) Circumstances under which a name will not be registered.
Rule 20 of the Companies Regulations prohibits the registration of a company by a particular name if:
- it is the same as a name appearing in the Registrar’s Index of Company Names, Business Names, Limited Liability Partnerships or Partnerships;
- it has a close phonetic resemblance to the name of company, business name, limited liability partnership or partnership that is already registered;
- It differs from the name of another company, business name, limited liability partnership or partnership that is already registered only by the addition of the name of a place, locality or region within Kenya;
- It is identical to, or closely resembles, that of a name that has been reserved by the Registrar for use in connection with a proposed company, business name, limited liability partnership or partnership;
- It is identical to or closely resembles, the name of a company or limited liability partnership that has been dissolved, or has been struck off the register of companies or register of limited liability partnerships, or the entry of a business in the register of business names or partnerships kept under the Registration of Business Names Act 2015 has been cancelled;
- It is the same as a name of a body corporate or established under a written law;
- The Registrar believes on reasonable grounds that its use would involve the commission of a criminal offence;
- The Registrar believes on reasonable grounds that it is offensive or undesirable or contrary to public interest.
c) Indications for type of company
Under section 54 of the Companies Act, a private company whose liability is unlimited may be registered only with a name that ends with the word ‘limited’ or the abbreviation ‘ltd.
d) Permitted characters
Under Rule 9 of the Companies Regulations, the following should be adhered to when it comes to names and characters of a company.
First, the characters, signs, symbols (including accents and other diacritical marks) and punctuation set out Part 1 of the Sixth Schedule can be used in the name of a company registered or to be registered under the Act. In this case.
Secondly, the following characters can be used in any part of a company name:
- Any character that has an accent or other diacritical mark, sign or symbol set out in Part 1 of the Sixth Schedule;
- 0, 1, 2, 3, 4, 5, 6, 7, 8 or 9;
- A full stop, comma, colon, semi-colon or hyphen;
- Any other punctuation referred to in column 1 of Part 2 of the Sixth Schedule but only in one of the forms set out opposite that punctuation in column 2 of that Part.
Thirdly, the signs and symbols set out in Part 3 of the Sixth Schedule are characters that can be used but not if they are one of the first three characters of a company’s name.
Lastly, the name of a company may not consist of more than 160 permitted characters.
e) Display of registered name by the company
Rule 14 of the Companies Regulations require a company to continuously display its registered name in legible characters at:
- Its registered office
- Every business venue of the company (business venue means an office or a place, other than the company’s registered office where it carries on its business and is open to the public.
A company is also required to ensure that its registered name is properly positioned so that it can be easily seen by any visitor to the office or business venue.
f) Obtain a company name reservation
After, the application is successful, one obtains a company name reservation online on e-citizen. However, if you cannot obtain one, which means that the name that you have submitted does not comply with the provisions of the law and you will have to reapply again.
3. Appointment of local representative.
Under the Companies Act, a foreign company may not be registered unless it has appointed at least one local representative. This appointment has to be lodged with the registrar during the registration process.
The notice of appointment has to specify the person’s name and residential address and such other particulars (if any). Therefore Elvis Limited has to appoint a local representative.
4. Apply and pay for registration.
A company that wants to be registered herein shall lodge with the registrar the following documents.
- A certified copy of the company’s certificate of incorporation; this copy has to be notarized i.e. duly certified by the notary public of the country of origin. Or a document of similar effect. This applies if the company is incorporated in a country that issues another document other than the certificate of incorporation.
- A certified copy of its constitution; (also has to be notarized)
- List containing the names of the directors and the shareholders and their personal details. If this list includes either directors who reside in Kenya or are members of a local board of directors, a memorandum that is duly executed by or on behalf of the foreign company and states the powers of those directors;
- A notice of address of either a registered office for the purposes of a law there in force in its place of origin or its principal place of business in its place of origin;
- Notice of address registered under section 983. This section requires a company to have a registered office;
- Notice of appointment of local representative: Form FC2 (original);
- Application for registration of foreign company: Form FC4 (original);
- Notice specifying opening hours of the business: Form FC6 (original).
a) Additional documents to accompany the application
Under Rule 5 of the Companies Regulations, the following documents should be attached to the application for registration of a company:
- A copy of the personal identification number (PIN) certificate of each person proposed to be a director;
- A copy of the identity card or passport of each such person;
- A passport size photograph of each such person;
- In the case of a non-Kenyan citizen, a copy of the person’s passport and a passport size photograph.
Note: the application procedure is done online via e-citizen. In case of any troubles, that’s when one visits the registrar’s office.
5. Issuance of a certificate of registration.
Upon successful registration, the registrar issues the company with:
- A unique identifying number
- Issuance of a certificate of registration.
The certificate of registration is valid only if it states the following:The name of the company and its unique identifying number and the fact that the company is registered under this Act as a foreign company;
- The name of the company and its unique identifying number and the fact that the company is registered under this Act as a foreign company;
- The date of its registration as a foreign company and the date of its incorporation in its place of origin; and
- It has an official seal.
6. Kenya Revenue Authority & Investor registration.
Under section 4 of the Income Tax Act, income from businesses is taxable. In addition, under the first schedule to the Tax Procedures Act, a pin is required for the registration of a business name and registration of a company. In addition, Pin is required for the filing of returns.
a) Apply for director’s pin
Under this, one is required to apply for a director’s pin. One requires a passport of the director and contact details. This procedure can be done here. When one makes this application, he obtains an acknowledgement receipt from KRA.
b) Application for investor registration and request for pin facilitation.
Under the Investment Promotion Act, a foreign investor has been defined as a company has been incorporated outside Kenya.
- Section 3 of that Act provides that a foreign investor may apply to the Kenya Investment Authority for an investment certificate. Under section 4 of the Act, for a foreign investor to get an investment certificate, he has to fulfil the following requirements and submit the following documents:
- Proof that the investment is lawful and beneficial to Kenyans. This consideration is based on factors such as creation of employment for Kenyans; acquisition of new skills and technology for Kenyans; technology transfer to Kenyans, among others.
- The application has to be made as per the Act.
- Investment application form,
- Pin acknowledgement receipt
- Cover letter: this letter be addressed to the Managing Director Kenya Investment Authority requesting for investor registration and foreign taxpayer pin facilitation.
- A copy of certificate of registration
- Copies of memorandum and articles of association.
- A passport (copy) displaying the current visa page.
- Proof of investment i.e. proof that the investment is worth USD $100,000 or the equivalent in any currency.
- The agent’s current practicing certificate: in this case the agent can either be an advocate or an auditor.
- Letter of authority for the designated representative signed by the CEO or equivalent.
c) Obtain an endorsement letter
Once the application for an investor certificate is issued, one obtains an endorsement letter addressed to the Commissioner for Domestic taxes. It specifies that a particular company intends to invest in Kenya and the amount the company intends to invest. The letter implores the commissioner to issue the company with a business pin.
e) Obtain a directors pin
After the issuance of the acknowledgement receipt and the endorsement letter, one now is issued with a director’s pin. In order to be issued with the said documents one should submit the following documents:
- A pin-acknowledgement receipt
- An original passport
- Original endorsement letter
In absence, the documents can only be presented by an advocate or a certified public accountant.
f) Apply and pay for company pin
When a company wants to apply for a pin, it must have the following documents:
- Copy of Certificate of registration
- Copy of CR12.
- Copy of Memorandum and Article of Association (optional).
- Copy of PIN Certificate for one of the company’s directors.
- Copy of Tax Compliance certificate of one of the company’s directors.
- Copy of the Acknowledgement receipt.
Pin registration is done online via iTax. The procedure is as follows: Visit iTax; Select “New PIN Registration”; Fill the online form appropriately; Submit online application.
NOTE: upon completion, you will receive an acknowledgment receipt
A follow up email will be sent to you with either further instructions on where to present the required documentation for verification or a PIN certificate.
7. Obtain a unified business permit.
This is a mandatory license that is issued to traders in Nairobi and has to be renewed before 31st of March every year. It covers all other licenses required and one does not have to obtain many permits.
To get this permit, one has to first create an account on the Nairobi city county website and obtain the permit.
8. National Hospital Insurance Fund
Under section 16 of the NHIF Act, an employer has the obligation to make statutory deductions from the employee’s salaries and remit them to the board. However, for this to happen, one must apply for NHIF employer registration.
The employer is required to submit the following documents online:
- The employer’s registration form; (this document is easily accessible from the NHIF’s website.)
- Certificate of registration;
- Pin certificate.
Upon successful registration, one is issued with an employer’s code.
9. Social security registration
Under section 19 of the NSSF Act, every employer, who under a contract of service, employs one employee or more shall register with the Fund as a contributing employer and shall, register his employee or employees, as members of the Fund.
To register a company under NSSF, one is required to complete the NSSF employer’s registration form and attach certificate of incorporation, registration of business name and a trading license. After successful registration, one is issued with a NSSF certificate of registration. See important information here.
In conclusion, opening a company in Kenya is simple as most of the procedures are online. In the next post, we shall look at the process of hiring employees in Kenya and the laws that one ought to know about.