Kenya understands the value of promoting economic progress through focused strategies, identical to many other emerging economies. The creation of Special Economic Zones (SEZs) is one such strategy that is gaining traction. These designated zones provide special infrastructure and incentives to draw in both foreign and domestic investment, promote industry, generate job opportunities, and increase exports. This article explores the idea of SEZ and highlights the Kenyan government’s initiatives to create these zones to spur economic development. It is these efforts by the Kenyan government, that gives us the confidence that the future of SEZ in Kenya is promising.

The Special Economic Zones Act (SEZ Act), enacted in 2015, provides the legal framework for establishing, operating, and regulating SEZs in Kenya. Under this legislation, SEZs are granted autonomy in terms of governance, taxation, and customs regulations, offering investors a conducive environment for business operations.

In the spirit of ensuring Kenya remains the preferred hub for investments under SEZ, an amendment bill to the SEZ Act, Special Economic Zones Authority (SEZA) Amendment Bill 2023, is currently under consideration
in Parliament. The goal of the amendment bill is to encourage long-term planning by investors. Truth be told, the proposed tax incentives in the bill elevate Kenya’s SEZ policies to a very high competitive level. With the most noticeable changes being made to the licensing timeline and corporate income tax provisions, the bill is expected to have a significant positive impact on SEZ across the country. The bill went through public participation forums hosted across the country which concluded last year and is widely supported by the Special Economic Zones Authority (SEZA) as well as the key stakeholders in the public and private sector.

Currently, the Kenyan government provides SEZs with a variety of tax and administrative incentives. Some of the significant incentives include:
1. A lower corporate income tax of 10% for the first 10 years, 15% for the next 10 years and 30% thereafter;
2. A lower rate of withholding tax of 5% on payments made to non-resident persons;
3. VAT is zero-rated for supplies of goods and services made to SEZ enterprises;
4. Exemption from stamp duty on documents signed relating to SEZ business activities;
5. A 100% deduction of capital expenses from the taxable income of SEZ entities;
6. Rapid processing of work permits for foreign full-time employees.

SEZs are unquestionably a useful strategic tool for raising Kenya’s level of competitiveness, drawing in foreign capital, and expediting the country’s industrialization and economic transformation. By utilizing the special benefits these zones provide, Kenya will undoubtedly establish itself as a regional economic powerhouse and a top choice for both domestic and foreign investors. Through a well-defined strategy, efficient management, and unwavering dedication, SEZs possess the capacity to accelerate Kenya’s progress toward realizing its developmental goals and enhancing the quality of life for its populace. To give our clients—and new clients—the necessary guidance and assistance when establishing a business in any of the gazetted public or private SEZs, we at Andersen are undoubtedly keeping up with the latest developments in the SEZ sector.

By;

Mark Njoroge

Legal & Tax Associate, Andersen in Kenya.