Merchandise Trade

• Kenya has been a World Trade Organization (WTO) member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since February 5, 1964.


• Deepening regional integration in the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA), Tripartite Free Trade Area (TFTA) and the Africa Continental FTA (AfCFTA) is part of the country's long-term goals that will yield benefits for the trading environment.


• Kenya's EAC membership gives businesses in the country access to a large market with reduced trade costs. EAC member states have signed a protocol to establish a common customs union.


• As part of COMESA, most members have an open border for traded goods and services and preferential tariff rates. The final objective of COMESA is to establish a fully integrated, unified economic space.


• Overall tariff barriers to trade in Kenya remain somewhat high, at an average of 8.9%, placing a particular burden on firms reliant on imported inputs.


• There is increasing emphasis on improving intra-regional trade, and the Kenyan government has been at the forefront of major regional infrastructure development to realise this aim. In a fresh bid to open up their borders and facilitate investment and trade, leaders from Kenya and Ethiopia agreed to remove various barriers that impede business development and intra-regional trade. Changes made include relaxed rules on residence for investors, streamlined application procedures for Kenyan companies seeking to invest in Ethiopia and relaxed work permits. Over the medium term, Kenyan investors venturing into Ethiopia should expect fewer restrictions to their businesses once an agreement signed by the two countries is implemented.


• In 2017, Kenya and Tanzania opened the modern Holili/Taveta border post to facilitate regional trade. This marks the first modern border post to be operated among the 13 one-stop border posts in East Africa and South Sudan. Authorities from both countries expect that the facility will reduce the cost of doing business by 40% and accelerate regional integration and economic growth among the East African member states. While non-tariff barriers remain a major challenge across the borders, the facility will enhance integrated border management to increase the free flow of movement and goods. In addition, further changes were implemented, such as opening the port of Mombasa for 24 hours and reducing the frequency of road blocks, which reduce import and export lead times and costs.


• In October 2016, South Africa and Kenya moved to soften trade and visa barriers between the two regional powerhouses as part of ongoing efforts to boost low levels of commerce within Sub-Saharan Africa.


• Kenya has signed bilateral trade agreements with several countries, including Argentina, Bangladesh, Bulgaria, Mainland China, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt, Hungary, India, Iraq, Lesotho, Liberia, Netherlands, Nigeria, Pakistan, Poland, Romania, Russia, Rwanda, Somalia, South Korea, Eswatini, Tanzania, Thailand, Zambia and Zimbabwe.


• A Railway Development Levy has been in place since 2013, imposing a 1.5% tariff on all imported products. Non-tariff barriers to trade, including high levels of bureaucracy, delays at customs clearance and port congestion, add costs to imports for businesses.


• In September 2016, Kenya's parliament ratified the Economic Partnership Agreement with the European Union (EU), allowing Kenya to export its agricultural products to Europe in a move to secure duty-free market access to the EU.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Updates

Bilateral trade agreements are under negotiation with several countries, including Belarus, Czech Republic, Ethiopia, Eritrea, Iran, Kazakhstan, Mauritius, Mozambique and South Africa. Increasing trade partners will provide a solid basis for durable export and import growth in the long term.

Multinational Trade Agreements

Active

1. COMESA: Kenya is part of COMESA, a collective of 21 countries under an FTA. Most members have opened their borders for traded goods and services. Notably this group comprises Burundi, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt, Eswatini, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tunisia, Uganda, Zambia and Zimbabwe. The agreement entered into force on February 17, 1999 and covers the trade of goods. However, not all members subscribe to the FTA.


2. EAC: The EAC comprises Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. The agreement entered into force on July 7, 2000 for goods and July 1, 2010 for services. The customs union aids regional trade flows and allows businesses to use Kenya as an entry point for the East African market. Trade with neighbouring states is substantial.


3. EAC-United States: The United States is a major export market and the Trade and Investment Framework Agreement and Africa Growth and Development Act (AGOA) removed tariffs for some product exports to the United States (such as textiles), reducing trade barriers. Under AGOA, Kenya qualifies for duty free-access to the United States market until 2025. Some of Kenya's major products that qualify for export under AGOA include textiles, apparels and handicrafts. Under the Generalised System of Preferences (GSP), a wide range of Kenya's manufactured products are entitled to preferential duty treatment in the United States, Japan, Canada, New Zealand, Australia, Switzerland, Norway, Sweden, Finland, Austria and other European countries. In addition, no quantitative restrictions are applicable to Kenyan exports on any of the 3,000-plus items currently eligible for GSP treatment.

Ratified and Awaiting Implementation

The AfCFTA: The AfCFTA is a trade agreement signed by 54 African Union (AU) member states with the goal of creating a single market followed by free movement and a single currency union. Eritrea is the only country out of the 55 AU member states that is yet to sign the agreement. The AfCFTA was signed in Kigali, Rwanda, on March 21, 2018 and was ratified by the necessary 22 states in April 2019. Since then, a further seven states have ratified the agreement, bringing the total to 29 countries. The implementation of the agreement came into effect on May 30, 2019, 30 days after the documentation regarding the ratification of the agreement was submitted to the AU. Negotiations continued in 2019, including negotiations surrounding the relevant competition policy, investment and intellectual property rights. It has been indicated that the start of trading under AfCFTA will begin on July 1, 2020.

Under Negotiation

EAC-EU EPA: The EAC finalised the negotiations for an EPA with the EU on October 16, 2014. Kenya and Rwanda signed the EPA in September 2016 and Kenya has ratified it. For the EPA to enter into force, the three remaining EAC members need to sign and ratify the agreement. EU states are key trade partners and the EPA facilitates access to this large market. Exports from Kenya entering the EU are entitled to duty reductions and freedom from all quota restrictions. Trade preferences include duty-free entry of all industrial products and a wide range of agricultural products, including beef, fish, dairy products, cereals, fresh and processed fruits and vegetables.

Sources: WTO Regional Trade Agreements database, Government websites, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 16%
• Corporate Income Tax: 30%

Source: Kenya Revenue Authority

Important Updates to Taxation Information

• President Uhuru Kenyatta announced various government interventions to help businesses and households cope with the economic fallout from the Covid-19 outbreak, including tax reductions and waivers. Key tax relief measures announced include: a 100% tax exemption for individuals earning less than KES24,000 (USD225); a reduction in highest marginal and corporation taxes from 30% to 25%; a reduction in turnover tax rate for micro, small and medium enterprises to 1% from 3%, as well as in value-added tax to 14% from 16%. The effective date for these measures was April 1, 2020, but there was no indication of their duration.
   
• As in the 2019 Finance Act, effective January 1, 2020, businesses with an annual turnover not exceeding KES5 million will be subject to pay a monthly turnover tax of 3% on the gross income. Businesses liable to turnover tax will still be liable to presumptive tax. The 2018 Finance Act introduced a 15% presumptive tax of the Single Business Permit fee issued by the County Government. However, any presumptive tax will be claimed as a credit against the monthly turnover tax to be paid.
   
• The 2019 Finance Act stated that if a company is listed on the Growth Enterprise Market (GEMS) of the NSE and it makes full disclosure of its past income, assets and liabilities for two years immediately preceding the date of listing, the Commissioner will not assess penalties and interest it accrued. The tax amnesty will only apply if the principal tax is paid in full and the listed company has not been assessed tax by the Commissioner or undergoing a tax audit or investigation. The penalties and interest waived on listing will be recovered if the entity delists from the NSE before the expiry of five years.
   
• The 2019 Finance Act exempted income tax to the investee companies of the Real Estate Investment Trusts. The income of the National Housing Development Fund is also now exempt from tax, while listed bonds, notes or similar securities with a maturity of at least three years, used to raise funds for assets defined under Green Bond standards and guidelines will also be exempt from tax.
   
• The 2018 Finance Act simplied the computation of compensating tax by taxing any distribution of untaxed gains or profits by a company at the resident corporate tax rate of 30%. Under the new Finance Act, manufacturers are eligible for an additional 30% corporate tax deduction of the total incurred electricity bill. The Act also grants the authorities leeway to negotiate for special tax rates for businesses under a special operating framework agreement. These will come into effect on January 1, 2019.

Business Taxes

Source: Kenya Revenue Authority
Date last reviewed: April 29, 2020

Localisation Requirements

Though there are no strict performance requirements (even in SEZs), labour regulations generally continue to restrict the employment of foreign nationals, particularly in low-skilled sectors, despite a large increase in the country's migrant population. The National Construction Authority Act (2011) imposes local content restrictions on foreign contractors, defined as companies incorporated outside Kenya, or with more than 50% ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30% of the contract work is done by local firms.

Obtaining Foreign Worker Permits

Work permits are required for all foreign nationals intending to work in Kenya. Recent policy changes also mandate an assured income of at least USD24,000 annually for the issuance of a work permit. Firms in agriculture, mining, manufacturing, or consulting sectors can avoid this with a special permit. Work permits are classified in different categories that are, in some cases, further subdivided into subcategories. Work permit fees can cost up to USD3,000 and do not distinguish between foreigners and EAC citizens. However, Kenya and Rwanda have exempted EAC citizens from work permit fees. Although businesses may choose to transfer these costs to the employee, other permit costs are less avoidable.

Special Skills

The Kenyan government issues permits for key senior managers and personnel with special skills not available locally. Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search, although the Ministry of Labour plans to replace this requirement with an official inventory of skills that are not available in Kenya. A permit can cost up to KES200,000. Firms must also sign an agreement with the government describing training arrangements to phase out the need for expatriates.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International, Fitch Solutions

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 29, 2020

Hong Kong’s Trade with Kenya

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	113.3
Commodity 2	Office machines and automatic data processing machines	28.7
Commodity 3	Textile yarn, fabrics, made-up articles and related products	12.8
Commodity 4	Miscellaneous manufactured articles	10.4
Commodity 5	Electrical machinery, apparatus and appliances, and electrical parts thereof	4.9

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Fish, crustaceans, molluscs and aquatic invertebrates, and preparations thereof	14.4
Commodity 2	Vegetables and fruit	2.7
Commodity 3	Leather, leather manufactures, and dressed furskins	2.6
Commodity 4	Hides, skins and furskins, raw	2.0
Commodity 5	Non-metallic mineral manufactures	2.0