A Comprehensive Guide for Setting Up a Branch of a Foreign Company in Kenya

Introduction 

A branch of a foreign company is established when a new location, division, department, or office is established in another jurisdiction as part of a foreign legal entity. This entity is organized to conduct business and promote the objectives of the foreign company in the new jurisdiction. Unlike a subsidiary, a branch does not have a separate legal identity from the foreign company; it shares the same directors, governance documents, and policies.

Features of the Branch Office

1. Separate Legal Personality:
   • A branch office is not a separate legal entity from its foreign parent company. It operates as an extension of the parent company.
2. Limitations of Liability:
   • Any limitations of liability depend on the law of the country in which the foreign company is established.
3. Ownership and Governance:
   • The branch is owned and controlled according to the constitutional documents and laws of the foreign company’s jurisdiction. The number of shareholders is the same as in the parent company.
4. Governance and Management:
   • Internal governance and management are dictated by the foreign company’s constitutional documents and laws. A local representative must be appointed in Kenya to handle compliance under the Companies Act. This local representative is responsible for all acts, matters, and things required by the Companies Act for compliance purposes. The local representative can be a resident person or a non-citizen and is deemed an officer of the foreign company in Kenya, potentially liable for fines imposed on the foreign company for non-compliance.
5. Capacity:
   • A branch has the same capacity to enter into contracts, hire employees, and conduct business as its parent company, subject to any restrictions in its constitutional documents or foreign laws.
6. Objects:
   • The branch can only carry out activities specified in the foreign company’s constitutive documents.
7. Transfer of Shares/Equity:
   • Transfer of shares or equity depends on the laws of the country of incorporation.
8. Publication of Financial Statements:
   • The branch must file the parent company’s financial statements annually, at intervals not exceeding fifteen months, accompanied by a statutory declaration verifying the copies.

Requirement to Register and Process

Under the Companies Act, a foreign company must be registered in Kenya before carrying on business in Kenya. Failure to do so would constitute an offense punishable by a fine of up to KES 5,000,000 on conviction. The documents required and the process of registration of a foreign company are as follows:

1. Name Search and Reservation:
   • Conduct a name search to ensure uniqueness. A foreign company may use an alternative name different from its registered name overseas for business purposes in Kenya, as stipulated by Section 977 of the Companies Act 2015.
2. Provision of Incorporation Documents:
   • Provide certified and notarized incorporation certificates, constitutive documents, and a list of directors and shareholders with their details. Documents in foreign languages must be translated into English.
3. Registered Office:
   • Establish a physical office and postal address in Kenya.
4. Appointment of a Local Representative:
   • Appoint a local representative responsible for compliance with the Companies Act. The representative can be a citizen or non-citizen residing in Kenya.

Taxation of a Branch

Upon successful registration and issuance of a Certificate of Compliance by the Registrar of Companies, the branch must register with the Kenya Revenue Authority (KRA) and obtain a Personal Identification Number (PIN). According to Section 5(1) b of the Income Tax Act, a branch is classified as a permanent establishment, with its income generated in Kenya taxed at 37.5% (non-resident), net of allowable expenses. It is crucial to check for any double taxation agreements between Kenya and foreign jurisdictions to understand the tax implications.

Expatriate Employees and Immigration Considerations

Branches often deploy expatriate employees to implement the foreign company’s structure and culture. It is essential to address immigration issues by securing the necessary permits, such as the Class D employment work permit and the Kenya Dependent’s Pass (KDP) for immediate family members.

Advantages of a Branch

1. Same Organization:
   • The branch operates as part of the same organization as the parent company, allowing it to trade under the same name and apply similar reporting structures.
2. Ease of Setup and Wind-Up:
   • It is easier to set up and wind up a branch compared to a subsidiary. The local representative must notify the Registrar within one month of ceasing business, after which the branch will be struck off the register.
3. Tax Benefits:
   • The branch is not subject to thin capitalization and deemed interest, allowing flexible funding options.

Disadvantages of a Branch

1. Reporting and Compliance:
   • The branch must file annual financial statements with the Registrar, unless exempted.
2. Liability:
   • The branch is an extension of the parent company, with no ring-fencing of risk. The parent company is liable for the branch’s actions.

Conclusion

Section 974 of the Companies Act 2015 mandates that any foreign company conducting business in Kenya must be registered. Compliance is critical to avoid legal issues. Whether establishing a branch or a subsidiary, ensuring the legal status of the entity is paramount.

How Njaga & Co Advocates Can Assist You

• Procuring a registered office.
• Providing the services of a local representative.
• Comprehensive advisory and establishment of a branch office in Kenya.
• Tax advisory services.
• Securing relevant work permits for non-Kenyan representatives and expatriate employees, as well as their dependents.
• Drafting requisite contracts with employees and local representatives.
• Conducting due diligence on the property and negotiating leases or sale agreements.
• Offering employer of record (EOR) and payroll services for branch employees.
• Conducting immigration audits to ensure compliance with immigration regulations.
• Addressing any other related issues.

Contact us at Njaga & Co Advocates for expert legal assistance in establishing and maintaining your branch office in Kenya.