KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Deborah Sese, Cliffe Dekker Hofmeyr
Tax loss carry forward The carry forward of losses is limited to five years, with the possibility of an extension for an additional five years upon application to the Cabinet Secretary. The amendment is poised to significantly affect private equity-backed companies in capital-intensive sectors that incur tax losses in the early years. Nairobi International Financial Centre (NIFC) The Act has introduced incentives aimed at promot - ing investment in the NIFC by lowering the corporate income tax rate to 15% for the initial three years, fol - lowed by a 20% rate for the subsequent four years, for start-ups accredited by the NIFC. Enterprises under - taking large-scale investments of KES3 billion or more will benefit from a 15% corporate income tax rate for ten years, increasing to 20% for the subsequent ten years. Lastly, the Act has introduced an exemption for dividends paid by a company certified by the NIFC if it reinvests KES250 million in that year of income. VAT in the e-mobility sector Electric vehicles (ie, electric bicycles and electric buses) have been treated as exempted goods rather than zero-rated goods for the purposes of assessing value added tax (VAT). The change from zero-rated to exempt status removes the suppliers’ ability to reclaim input VAT, increasing production costs and thus weak - ening the incentive to invest in the targeted sectors. Implementation of the African Continental Free Trade Area (AfCFTA) Agreement The AfCFTA came into force in 2019 and created the world’s largest trade area (by the number of participat - ing states), with a population of about 1.3 billion peo - ple and a combined GDP of USD3.4 trillion. The main objectives of the AfCFTA are to create a single market for the trade of goods and services on the continent, facilitated by the free movement of businesspersons and investments, and significantly increase economic growth and development on the continent through an integrated single market for goods and services. The AfCFTA has the potential to positively impact pri - vate equity investment in several ways, as outlined in the following.
Increased market access The AfCFTA creates a larger and more integrated market, reducing trade barriers and making it easier for businesses to access new markets across African countries. This expanded market can attract private equity investors who seek opportunities in sectors benefiting from increased intra-African trade. Diversification of investment opportunities The agreement could lead to greater diversification of industries and sectors within African economies. Private equity investors can tap into a broader range of investment opportunities, including manufacturing, infrastructure, agriculture, services and technology, as countries focus on economic diversification. Requirement to disclose beneficial ownership details with the registrar of companies In addition, the Companies (Beneficial Ownership Information) Regulations, 2020 (the “BO Regulations”) introduced a requirement for companies incorporated in Kenya to file a register of beneficial owners hold - ing. A beneficial owner is a natural person who holds at least 10% of the shares or voting rights, a right to directly or indirectly appoint or remove directors of a company, or a right to exercise significant influence or control over the company. Private equity funds may therefore be required to disclose limited partners (LPs) with controlling beneficial ownership, as set out in the BO Regulations. Each officer of a company that fails to declare beneficial ownership commits an offence and is liable, upon conviction, to a fine not exceed - ing KES5,000. The Beneficial Ownership disclosure requirements were developed to adopt the recom - mendations developed by the Financial Action Task Force (FATF), which ensures a co-ordinated global response to prevent organised crime, corruption and terrorism. Private equity funds need to be aware of this requirement and the imposition of penalties when deciding whether to invest in a Kenyan target com - pany.
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