- Q. Is there any obligations to have Kenyan shareholders in an EPZ
A. No, an EPZ firm may be 100% foreign owned, 100% Kenyan owned or any combination of foreign/Kenyan ownership.
- Q. What activities are eligible for EPZ incentives?
A. Activities eligible for licensing are those of:
•Zone developer/operator (the party that builds a zone, provides premises for investors to occupy and manages those premises)
• Enterprise (the party that undertakes the export-oriented investment activities) including:
- commercial activities eg. bulk breaking, labelling, repacking, trading. (the 10 year tax holiday does not apply to commercial activities)
- export-related service activities including brokerage and repair, consulting and information but excluding financial services.
- Q. How does one obtain a licence to become an Export Processing
A. The investor contacts the Export Processing Zones Authority with his initial project proposal and discusses it in some detail to see whether the intended activities are suitable for the EPZ scheme. The Authority provides the investor with appropriate application forms and the investor completes these and returns them to the Authority with a US$ 250 fee. The application covers such issues as intended company name, product description, shareholders, production flow chart, machinery requirements, production costs, intended markets, sources of technological know-how, project cost, sources of finance, employment created, utility requirements and intended location.
Within 30 days of receipt of the completed application the Authority advises the investor of the decision to accept, reject or accept with modifications the proposed investment project.
The approved applicant completes the registration of an EPZ company in Kenya whose articles of association and memoranda reflect only EPZ related activities.
The new firm is then issued with a letter of approval which will enable it to establish its activities in a gazetted export processing zone. This approval letter may have terms and conditions attached to it including:-
- permitted activities
- permitted volume of sales to the Kenyan market
- date by which the firm must have commenced exports
- Q. Where can EPZ enterprises be located and how much does it cost to operate in a Kenyan EPZ?
A. EPZ enterprises must be situated in one of the gazetted export processing zones. These are specific areas that for the purposes of implementing the operating provision and incentives of the export processing zones scheme are treated as being outside the customs territory for VAT, customs tariff and exchange control purposes.
There are currently over 40 gazetted zones in Nairobi, Voi, Athi River, Kerio Valley, Mombasa and Kilifi in various stages of development by both private and public zone developer/operators. A few of these are specialized one-factory EPZ's, while the rest are intended to attract investing enterprises to occupy pre-built premises or lease serviced plots where a custom-built industrial building can be built by the investing enterprise. The oldest zone is Sameer Industrial Park in Nairobi which has been successfully operating for 12 years and currently has 5 investors exporting products ranging from horticulture to PC's to garments.
The largest zone at Athi River, is located 30km away from Nairobi city centre. It is publicly funded and managed by the Authority. It occupies, in phase 1 a total of 93 hectares and included 12 pre-built industrial units of minimum floor space 1000 square metres each, and 62 serviced 1 hectare plots suitable for investors to construct their own buildings. Private EPZ service companies have constructed over 20 additional sheds for rental.
The Athi River zone is surrounded by a secure boundary fence and the Authority has provided each building or plot with access to utilities â€“ telephone, electricity, water and sewage servicesâ€”for which the tenant can obtain connection with the relevant utility service company. Garbage collection, street lighting, landscaping and security are provided to tenants by the Authority which receives a service charge from tenants. The zone has its own fire station and health clinic. Banking, retail and postal services are available in nearby Athi River town or in Nairobi.
The Authority is providing a site and service scheme for low income housing, on land owned by the Authority which will be made available to developers to erect low-income housing to accommodate EPZ workers.
The terms for occupation of buildings at Athi river are:
• Rental of $ 2.50 â€“ $ 2.80 per square foot per annum payable in convertible currency, quarterly in advance plus 15% service charge.
(Rents in other zones vary between 2.00 â€“ 3.70 $sq.ft/year)
• Six year lease which is renewable, and rents reviewed every two years
The terms for occupation of land plots at Athi River are:
• Rental of US$5,000 per hectare per annum payable in convertible currency, quarterly in advance for a thirty year minimum lease; or a one time payment of US$100,000 per hectare for a 60 year lease.
- Q. Can an EPZ enterprise bring in foreign workers?
A. Yes, enterprises indicate at the time of application their requirement for foreign work permits in three possible categories â€“ technical, training and managerial employees. Once the project is approved then the enterprise may apply for work permits for the approved categories and numbers of foreign employees, from the Department of Immigration.
- Q. What exemptions are EPZ companies allowed as incentives?
A. EPZ companies operate in a liberalised regime which enables them to be exempt from various regulations that normally apply to companies operating in Kenya. These include:
- exemption from payment of custom duties and value added tax on imported raw materials, intermediates, capital equipment, spare parts, construction materials, documents relating to business, except non-zone-resident motor vehicles and certain petroleum fuels.
- exemption from payment of corporate taxes for the first ten years from the date of first sale
- exemption from payment of stamp duty
- exemption from withholding taxes on dividends paid to non-resident shareholders out of tax exempt profits
- autonomous control of foreign exchange earnings and unrestricted repatriation of capital and dividends from those earnings i.e. exemption from exchange controls on all receipts and payments by EPZ enterprises by permitting them to operate foreign currency and external accounts.
- One-stop-custom clearance within the EPZ for both incoming and outgoing materials and goods; no clearance required at the port of entry or the port of departure because goods move under transit bond
- unrestricted foreign ownership and employment of foreign nationals in managerial, technical and training positions
- unrestricted access to foreign borrowing and capital
- no value-added requirements or product specific approvals required (except for products for health, environmental or national security reasons)
- exemption from certain licensing provisions including:
- application for licences under the Trade Licensing Act
- application for export licences under the Imports, Exports and Essentials Supplies Act
- the provisions of the Factories Act
- the provisions of the Foreign Investment Act relating to certificates of approved enterprise
- exemption from the provisions of the Statistics Act and the Industrial Registration Act
- Q. Can EPZ companies sell their products to Kenya?
A. The law allows EPZ companies to sell their products into Kenya upon payment by the customer of VAT and import duty, if prior approval has been granted by the Minister responsible for industry. Normal import procedures must also be implemented. However, projects are approved on the understanding that they will be exporting outside East Africa as their primary activity. Manufacturing and services export projects are approved with up to 20% of their sales going to Kenya, Uganda or Tanzania, which are classified as domestic market. Commercial enterprises are not permitted any domestic sales.
Note, that EPZ goods are taxed at non-COMESA rates of duty even if they originate within a Kenyan zone.
- Q. Are skilled and productive workers available in Kenya?
A. Yes, Kenyan workers are extremely adaptable and are generally perceived to be industrious. In 2002/3 Kenya achieved 90.8% (6.371 million students) enrolment in primary education due to the free primary education programme of the NARC government. The average school leaver with 4 years secondary education is both numerate and literate and has achieved fluency in both English and Kiswahili. 847,287 students were enrolled in Secondary schools in 2002.
There are various technical and vocational schools, institutes of technology and polytechnics with 32,750 students enrolled in 4 national polytechnics and technical training institutes in 2002. These are able to supply technically trained workers at several levels of expertise (trade, apprentice, technician and diploma levels). Commercial colleges and polytechnics train secretarial, clerical and accounting staff while a number of computer schools produce data entry clerks, programmers and systems analysts.
Tertiary institutes of education include 6 public universities and at least 10 private universities which grant degrees in a number of relevant professional areas such as commerce (business administration), communication, law, pharmacy, food technology, agriculture, engineering, architecture, education, journalism and science. University enrolment stood at 63,216 in 2002.
- Q. Can an investor convert an existing manufacturing company
A. Yes, this can be done in exceptional cases, if there is substantial new investment planned and the government agrees to forgo tax revenue from existing business. The business must be pre-dominantly export oriented.
- Q. Can an investor convert a pre-built industrial premises in the Kenyan customs territory into an export processing zone, for lease to investors?
A. Yes, where no EPZ facilities currently exist in that location. This pre-built industrial premises may either be a one-factory EPZ or a multi-factory EPZ. The latter is preferred because it can provide industrial space for other EPZ investors to occupy. The premises should conform to the requirements of the EPZ Act (LN 228) and the investor must apply for gazettement of the premises and obtain a developer/operator licence. Each of the EPZ enterprises therein must also obtain an enterprise licence.
- Q. Do special labour laws apply to EPZ companies?
A. No, EPZ companies are subject to the same labour regulations as other companies in Kenya. Thus EPZ workers enjoy the same rights and privileges as workers in the customs territory, including right to join unions.