Kenya offers two significant investment promotion initiatives: the Export Processing Zones (EPZ) and the Special Economic Zones (SEZ). While both programs share similarities, they also feature distinct fiscal incentives aimed at fostering export-oriented investments. This article will provide a comprehensive overview of these programs and their key differences.
The EPZ Program Established under the Export Processing Zones Act of 1990, the EPZ program is designed to enhance and enable export-driven investments. The Export Processing Zones Authority (EPZA) is responsible for enforcing the provisions of the EPZ Act, ensuring a conducive environment for both local and foreign investors.
Key Benefits of the Kenya EPZ Program
EPZs are designated areas in Kenya that operate outside the usual customs territory, allowing businesses to benefit from various incentives, including:
- A 10-year corporate tax holiday, followed by a 25% tax rate for the next decade.
- A 10-year withholding tax holiday, on dividends and repatriated profits for non-residents.
- A 100% investment deduction on buildings and machinery.
- Exemptions from VAT and customs dutieson input materials.
- Stamp duty exemptions on legal instruments.
- Exemptions from exchange and tenancy controls.
- Facilitated customs clearance through the green channel.
- Access to a one-stop shop for government services.
To qualify for the EPZ program, businesses must be primarily export-focused, with at least 80% of sales directed outside the East African Community. Local sales can only make up to 20% with prior governmental approval.
EPZ Licensing: There are two main types of licenses under the EPZ program: the EPZ Developer/Operator License and the EPZ Enterprise License.
1. EPZ Developer/Operator License: This is granted to parties looking to develop infrastructure in designated EPZ areas or to maintain facilities for EPZ enterprises. Applicants must demonstrate capital investment, expertise, and commitment to developing the EPZ.
2. EPZ Enterprise License: This license is issued to companies established within an EPZ for the purpose of conducting export-oriented business. Businesses must comply with environmental standards and regulations established by Kenyan authorities.
The SEZ Program To further advance its investment opportunities, Kenya introduced the Special Economic Zones Program through the Special Economic Zones Act. This initiative aims to refine and enhance the existing EPZ framework.
Advantages of the SEZ Program Notably, the SEZ program offers several attractive incentives over the EPZ program:
- A 10% corporate tax rate for the first ten years, transitioning to 15% in the following decade, and rising to 20% thereafter.
- A reduced withholding tax rate of 5% on interest, management fees, and royalties.
- Exemptions on VAT for both local supplies and customs duties on imported goods.
- No export thresholds, enabling companies to operate without stringent export mandates.
Similar freebies on stamp duty, exchange, and rent controls as seen in EPZ. The licensing structure mirrors that of the EPZ, with the scale and requirements corresponding to the operations within the zones.
Participating in an SEZ Businesses can choose to join an existing SEZ, engaging directly with the respective SEZ operator to understand available facilities, rental terms, and operational guidelines. The licensing and renewal fees for the SEZ program stand at **$1,000**, presenting a clear pathway for enterprises looking to tap into this growing market.
Conclusion
Understanding the distinctions between Kenya’s EPZ and SEZ investment programs is crucial for anyone considering investment opportunities in the region. Both frameworks offer valuable incentives aiming to promote export-led growth, yet key differences in taxation and operational requirements may influence the choice of program for potential investors.
