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Kenya: Local directorship – Not a legal requirement but a practical conundrum for people setting up companies  

19 June 2023
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Overview

  • Whilst the Kenyan Companies Act does not impose any residency requirements on directors, there are hurdles that new companies face that make the appointment of a local director (even temporarily) a practical necessity for ease of the initial setup.
  • A local director can either be a person who is a Kenyan citizen or a foreigner who is a resident of Kenya.

There is no legal requirement for a company incorporated in Kenya to have a local resident director. The Companies Act 17 of 2015 (Companies Act) requires a company to have at least one director who is a natural person but does not prescribe any nationality requirements for the directors of a company. This is keeping in line with enabling ease of doing business in Kenya and attracting foreign investments in the country.

Whilst the Companies Act does not impose any residency requirements on directors, there are hurdles that new companies face that make the appointment of a local director (even temporarily) a practical necessity for ease of the initial setup. A local director can either be a person who is a Kenyan citizen or a foreigner who is a resident of Kenya. We highlight some of the reasons below:

  • Kenya Revenue Authority Personal Identification Number

For tax compliance, a company should be registered in Kenya with the Kenya Revenue Authority (KRA) which involves obtaining a Personal Identification Number (PIN) from the KRA.

For a company to obtain a KRA PIN, KRA’s adopted practice is that at least one of the directors of the company must have a KRA PIN. For a company with no local directors, this would mean that at least one of the foreign directors must obtain a KRA PIN to facilitate the company’s registration for tax in Kenya. This does not however mean that the foreign director will become a tax resident in Kenya. Provided that the foreign director does not generate any income in Kenya, there will be no tax liability for them in Kenya. Such directors will however be required to file annual tax returns even in the case where they have not earned any income in Kenya in which case they would file nil tax returns every year. There are numerous service providers in Kenya who offer tax filing services.

To avoid a foreign director’s registration for tax, the company could opt to appoint a local director (who would ordinarily already be registered for tax and therefore have a KRA PIN). With a local director on record, the KRA would therefore rely on the local director’s existing tax registration to register the new company for tax in Kenya and issue the company with a KRA PIN. Companies must however remember to notify the KRA once the local director ceases to be a director of the company, otherwise the director’s KRA PIN will continue to be linked to the company’s. In some cases, the KRA has refused to issue tax compliance certificates to a company due to a director’s outstanding personal tax liabilities and vice versa.

  • Bank Accounts

Although having a local director is not a requirement for most banks, the absence of such a director would expose the company to certain practical hurdles in both opening and operating a bank account in Kenya.

In our experience, some banks insist that when opening a bank account, the company should submit not only the company’s KRA PIN, but a KRA PIN issued to at least one of its directors. We have discussed this issue (of a foreign director obtaining a KRA PIN) immediately above.

Further, when operating a bank account in Kenya, some banks require the company to introduce an individual who is a resident of Kenya to be appointed as an official of the company and who will become the signatory of the bank account. In our experience, banks are satisfied with this requirement should the company have a local director.

Where a company cannot introduce an individual resident in Kenya (such as where the company only has foreign directors and no local directors), banks allow the introduction of a foreigner with a work permit. Therefore, this means that although a company may be successful in opening a bank account, where the company neither has a local director nor presents the bank with a work permit issued to one of the foreign directors, the foreign directors (not being signatories to the account) will only have observer rights with respect to the bank account. The foreign directors would only be able to view transactions and have visibility of the account but not approve any transactions or otherwise operate the bank account.

  • Nature of Business

As discussed above, the Companies Act does not mandate a company to have a local director. However, doing business in certain sectors in Kenya would practically require that a company have a local director on record.

An example of such a sector would be the telecommunications sector when applying for an Electronic Communications Service Provider licence issued by the Communications Authority under the Unified Licensing Framework. In our experience, when making the application for this licence and where all the directors of the company are foreigners, the Communications Authority would require that the company’s authorised representative (one of the directors, and in this case being a foreign director) also submit a work permit. The Communications Authority does not however require work permits from any foreign directors where the representative of the company is a local director.

Another example would be in relation to an application for, and renewal of, a Customs Agents Licence, whereby the Commissioner for Customs and Border Control may require customs agents to be vetted before issuance of the Customs Agents Licence.

Based on the above, depending on the sector a company intends to do business, a local director should be appointed.

Conclusion

Although the Companies Act does not impose any nationality or residency requirements on directors when setting up a company in Kenya, many companies are choosing to appoint a local director (if only to overcome the administrative hurdles discussed above).

Should a company so wish, the local director could be appointed and later resign once the purpose of their appointment is fulfilled.