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SPECIAL ECONOMIC ZONES: TAX EXEMPTIIONS AND UNEXPLOITED OPPORTUNITIES FOR BUSINESSES IN KENYA

11-06-2018 |  By:  |  Comments

By Mandela Joseph

The Kenya Vision 2030 aims to transform the country into a newly industrializing, middle income country providing a high quality of life to all its citizens in a clean, secure environment and also to move the country’s economy towards modernization and globalization. For this to happen and to fast track the country’s vision 2030, Special Economic Zones were designated.

In 1980, Shenzen a small fishing village in southern China bordering Hong Kong was selected as a Special economic zone to bring economic transformation and attract foreign investments.

 

 

SEZs are designated areas in which business and trade laws are different from the rest of the country. The major aims of SEZs are;

  • increased trade,
  • increased investments,
  • job creation and
  • effective administration.

To encourage businesses to set up in the Zones, financial policies are introduced. Businesses may be offered tax exemptions, where upon establishing in a zone they are granted a period of lower taxation. The benefits a business gains by being in a SEZ may mean that it can produce and trade goods at a lower price, aimed at being globally competitive.

In December 2015, Kenya gazetted the Special Economic Zones Act, an Act of Parliament passed to provide for:

  • the establishment of SEZs,
  • the promotion and facilitation of global and local investors,
  • the development and management of enabling environment for such investments and
  • for connected purposes.

Some of the tax incentives and exemptions are;

*Withholding tax exemptions and reduced rates up to 5%

*Investments Deductions;

  • 100% for construction of buildings or purchase of machinery.
  • 150% for buildings &machinery in SEZs located outside Nairobi and Mombasa

*Corporate Income Tax rates:

  • 10% for the first 10 years and 15% for the next 10 years

*Custom duty exemptions

*VAT Zero rating for goods purchased by the sez entity

*Stamp duty, IDF and other exemptions.

 

Sectors that are likely to be covered by SEZ Act include;

*Business parks *Livestock Zones

*Freeport Zones *Agricultural Zones

*Free trade zones

*Industrial Parks

*Regional Headquarters

*Tourist and recreational centers

*Science parks

*ICT Parks