Kenya has capped the period for Special Economic Zones (SEZs) investors to enjoy tax benefits and incentives at 10 years, reducing the time in which the government loses revenue in order to attract investors.
This is a shift from the previous scenario where there was no limit with the State instead offering incentives and benefits such as corporate income tax (CIT) in a graduated phase at the rate of 10 percent for the first 10 years, which then rises to 15 in the next 15 years.
SEZ enterprises are not required to register for value-added tax (VAT) and the supply of goods or taxable services to an SEZ is zero rated.
Additionally, licensed investors are also exempted from all duties and taxes payable under the Excise Duty Act, the Income Tax Act and the East African Community Customs Management Act.
These SEZ incentives, together with benefits extended to other types of investors, have hit the government with the Treasury saying that Kenya lost Sh510.56 billion to the tax breaks in 2023.
“The incentives and tax benefits granted to a licensed special economic zone developer, operator or enterprise under this Act or any other written law shall apply for a period not exceeding 10 years from the date of issuance of the licence,” reads the Business Laws Amendment Act, 2024 Act which amended the Special Economic Zones Act.
Investors at the SEZs are also spared from stamp duty on the execution of any instrument relating to business at the zones and payment of advertisement fees and permit fees levied by counties among others.
Besides the tax breaks, SEZ investors enjoy other benefits such as exemption from the legal requirements where landlords are barred from evicting tenants without issuing a termination notice of at least two months.
Other benefits extended to SEZs investors include work permit facilitation for a defined number of foreign workers and protection and repatriation of profits.
The incentives and benefits are meant to woo investors by lowering the costs they incur to set up and run businesses, with the ultimate goal being attracting more investors to increase Kenya's exports and create jobs.
SEZs have turned out to be a major route that the government is banking on to spur job creation in a bid to ease the unemployment crisis. The zones are also key to growing the country's exports for manufactured goods.
Kenya has gazetted over 25 gazetted SEZs with Dongo Kundu SEZ, Naivasha Special Economic Zone, Konza Technopolis and Mombasa Industrial Park being some of the major public SEZs.
The private ones include Tatu City SEZ, Two Rivers International Finance and Innovation Centre SEZ, Northlands SEZ and the East Africa Free Zone SEZ.
