We always hear that doing business in Kenya is quite expensive, but exactly what do you need in order to start an enterprise in Kenya. Both as a Kenyan citizen or as a foreigner. To start of you must first of all register your business. You need to conduct a name search, in order to establish that no other business in Kenya is trading with the name you want to use. A single search costs 100 shillings, and a convenience fee of 50 shillings. This is not too bad as it is done online.
You will the fill in a few forms with your details, such as your name(s), National ID numbers, KRA PIN etc. You also need to decide on the type of company you want to register. The types available are
- Sole proprietorship
- Limited liability Company.
Today we will discuss about a limited liability, it being what you should have if you aim for your brand to really grow. To register an LTD, you will need to part with kshs 10,650. It can take you up to a month to be are registered business. After this you need to apply for a license from the city county you are operating from. If your business is going to be situated in Nairobi business license costs Kshs 15,000 for a small shop, but for an office you will have to part with kshs 35,000. Now you are ready to begin trading.
I am assuming you already had sorted your finances by the time you venture into business. Every month you will be required to file your returns if you have registered for VAT. Most companies deal with items that are vat able. VAT in Kenya is at 16% .Therefore if you are selling an item for Kshs 1000; Kshs 160 belongs to the government. If you fail to do a return every month, when your tax compliance certificate expiries you will not be given a new one till you pay nil your areas, in addition to that for every month you did not file your return a fine of Kshs 10,000 will apply.
At the end of the year you are expected to pay corporate tax .This is 30% of your net profit. This is quite a hefty sum of money to pay. If you as the owner of the business decide to use the remaining money for your personal use. You will be expected to pay again Kshs 30% of that money as Pay-As you earn. With all this taxation is it worth it venturing into self employment. If you have a job already. Remember in business profits are not guaranteed, and you can take several years to get your return on investment. The good news however that is you can declare losses for 5 consecutive years. All you need is to show that your expenses were more than your profit.
When starting your business the most important thing is to know all your tax obligations. Do not register with KRA for a tax obligation that you should not have. For example if you deal in fresh foods. There would be no need to register for VAT, as they are VAT exempt. In order to avoid making such costly mistakes. It is prudent to engage the services of a professional. They will advise you on how best to structure your organization. In order to pay as little tax as possible.
Statistics from the Kenya Bureau of statistics show that every single year 400,000 businesses close shop. Due to the high cost of doing business in this country. Perhaps its time the government looked into ways of easing the tax burden of LTDS, In order to encourage people to start these ventures and also ensure so many do not fail.