Foreign investors looking to establish a presence in Kenya often face a pivotal decision: Should you register a branch of your foreign company or incorporate a subsidiary?
This choice carries significant implications for taxation, liability, ownership, and control. Below, we answer the most common questions investors ask about these two options under the Companies Act, 2015 (Kenya).
What is a Subsidiary Company in Kenya?
A subsidiary company is a locally incorporated company in Kenya that is owned or controlled by a foreign parent company. It operates as a separate legal entity distinct from its parent. This means it can own property, enter into contracts, and sue or be sued in its own name. The subsidiary is typically registered as a Private Limited Company (Ltd).
Key Features of a Subsidiary
- Local Incorporation: Registered under the Companies Act, 2015, as either a Private Limited Company or Public Limited Company.
- Limited Liability: The liability of the parent company is limited to the extent of its shareholding.
- Separate Legal Personality: It exists independently from the parent company.
- Ownership: The parent company holds a majority or 100% of the shares.
- Local Directors: At least one director must be a Kenyan resident or appoint a certified company secretary.
- Activities: Can engage in a wide range of business activities, including those different from the parent.
- Registered Office: Must maintain a local registered office in Kenya.
- Tax Residency: A subsidiary is considered a resident company for tax purposes.
What is a Branch of a Foreign Company in Kenya?
A branch is an extension of a foreign company, registered in Kenya under Part XXXVII of the Companies Act, 2015. It is not a separate legal entity, and the parent company remains fully liable for its operations.
Key Features of a Branch:
- Legal Status: There is no legal separation branch that operates as part of the parent company.
- Liability: The parent company is fully liable for debts and obligations incurred by the branch.
- Control: Full control remains with the foreign parent.
- Local Representative: Must appoint a local representative in Kenya, responsible for compliance and operations.
- Tax Residency: Treated as a non-resident entity for tax purposes.
- Registration Certificate: Receives a Certificate of Registration of a Foreign Company rather than a certificate of incorporation.
- Activities: Must mirror the parent company’s business
Comparison: Subsidiary vs Branch
| Aspect | Subsidiary Company | Branch of a Foreign Company |
| Legal Identity | Separate legal entity | Extension of the parent company |
| Liability | Liability limited to parents’ shareholding | Parent company bears full liability |
| Tax Residency | Resident company (taxed locally at 30%) | Non-resident company (taxed at 37.5%) |
| Shareholding | Shares held by the parent or its nominees | No shareholding structure; part of parent |
| Governance | Managed by its own board of local directors | Managed directly by the parent company as part of the foreign entity’s structure |
| Control | Operational independence | Controlled directly by the parent company |
| Compliance | Subject to full local company obligations | Simpler compliance; fewer filing requirements |
| Repatriation of Profits | Profits can be retained or repatriated as dividends. | Profits are considered income of the foreign parent and are remitted to the parent company. |
| Continuity | Continues despite parents’ changes | Ceases if the parent dissolves |
| Perception | Considered a local business | Seen as a foreign extension |
What are the Advantages of a Subsidiary Over a Branch?
- Limited Liability: The parent’s liability is limited to its shareholding.
- Independent Legal Status: Protects the parent company from direct legal or financial exposure.
- Local Credibility: Kenyan clients and banks often prefer dealing with a locally incorporated company.
- Flexibility in Operations: Easier to enter local contracts, tender for government projects, and secure local financing.
- Tax Planning: Treated as a resident company, qualifying for local tax incentives and double taxation relief.
- Brand & Market Expansion: Enables localised branding and long-term growth strategy in East Africa.
What are the Advantages of a Branch Over a Subsidiary?
- Simplified Setup: Fewer incorporation requirements.
- Lower Administrative Burden: No need for local directors or share capital.
- Direct Control: Parent company retains full control over operations, policies and finances.
- Profit Repatriation: Easier remittance of profits without dividend withholding tax.
- Unified Identity: Maintains the same global brand and reputation.
- Ideal for Market Testing: Suitable for exploring Kenya’s market before full incorporation.
How is Each Entity Taxed in Kenya?
| Tax Element | Subsidiary | Branch |
| Corporate Tax Rate | 30% (resident company rate) | 30% + tax on repatriated income |
| Withholding Tax (WHT) | 15% on dividends to the parent company | No WHT on profit remittance |
| Tax Incentives | Eligible for local incentives (e.g., EPZ) | Not eligible for local tax incentives |
| VAT & PAYE | Applicable | Applicable |
| Annual Returns | Filed independently | Filed for both the branch and the parent |
| Tax Residency | Resident for tax purposes | Non-resident |
| Tax Deductions | Full deductions for local expenses | Limited deductions for head office expenses |
Which Option Should You Choose: Branch or Subsidiary?
The right choice depends on your objectives, risk appetite, and operational needs:
- Choose a Subsidiary if you want:
- Legal separation from the parent company
- Tax efficiency and access to local tax incentives
- Local market credibility
- Long-term local brand in Kenya
- Greater operational independence
- Choose a Branch if you want:
- Simplicity in set-up and direct control
- Short- to medium-term presence
- Easy profit repatriation
- Continuity of the parent brand identity
Can a Branch Be Converted into a Subsidiary in Kenya?
Yes. A foreign company operating as a branch can restructure and incorporate a subsidiary under Kenyan law. This process involves:
- Incorporating a new local company
- Transferring assets, contracts, and employees
- Deregistering the foreign branch (if desired)
This conversion may be advantageous for tax and liability management.
How Njaga & Co. Advocates Can Assist
At Njaga & Co. Advocates LLP, we are a leading corporate and commercial law firm in Nairobi, Kenya, helping foreign and diaspora investors navigate Kenya’s business landscape seamlessly and with confidence.
Our Services Include:
- Advising on the optimal structure: branch vs subsidiary
- End-to-end registration and compliance support
- Drafting constitutive documents and shareholder agreements
- Tax structuring and compliance advisory
- Immigration and work permit facilitation
- Ongoing legal and regulatory support
Whether you’re expanding into Kenya or formalising your presence, we ensure your entry is strategic, compliant, and future-ready. Contact us today to schedule a consultation and let our corporate law experts help you seamlessly establish your presence in Kenya.
Disclaimer: This article provides general information and does not substitute legal advice on specific circumstances of any individual or organization. While the information is accurate as of the date published, we cannot guarantee it remains accurate at the time you read it or that it will stay current. Before acting on any of this information, please seek professional legal advice tailored to your situation.
