Overview of Kenya's Special Economic Zones
Kenya has established several types of special economic zones and investment regimes to attract foreign direct investment, promote exports, and drive economic growth. These zones offer significant tax incentives, streamlined procedures, and operational advantages for qualifying businesses.
Types of Special Zones and Regimes
- Special Economic Zones (SEZs) - Governed by the Special Economic Zones Act, 2015
- Export Processing Zones (EPZs) - Operating under the Export Processing Zones Act, Cap 517
- Manufacturing Under Bond (MUB) program
- Commercial Free Zones (CFZs)
- Free Ports
Export Processing Zones (EPZs)
Kenya's EPZ program, established in 1990, remains one of the most successful special economic regimes in East Africa. The program is administered by the Export Processing Zones Authority (EPZA).
EPZ Benefits and Incentives
- Corporate Tax Exemption: 10 years for the first EPZ enterprise, 25 years for subsequent enterprises
- Withholding Tax Exemption: On dividends paid to non-resident shareholders
- VAT Exemption: On raw materials, machinery, equipment, and intermediate goods
- Duty-Free Imports: For all raw materials, machinery, equipment, and consumer goods
- Investment Deduction Allowance: 100% on investment in buildings, machinery, and equipment
- No Foreign Exchange Controls: 100% foreign ownership permitted
EPZ Requirements
- Minimum investment of USD 500,000 (to be verified)
- Export orientation requirement of at least 80% of production
- Compliance with environmental and labor standards
- Valid EPZ license from EPZA
Special Economic Zones (SEZs)
The Special Economic Zones Act, 2015 established a more comprehensive framework for special economic zones, expanding beyond the traditional EPZ model.
SEZ Categories
- Multi-Product SEZs: Mixed industrial and service activities
- Multi-Services SEZs: Focus on service sector activities
- Single Product SEZs: Specialized manufacturing zones
- Free Trade Zones: Commercial and trading activities
- Free Ports: Port-based operations
SEZ Incentives Package
- Corporate Income Tax: 10% rate for the first 10 years, then 15% thereafter
- Withholding Tax: Reduced rates on payments to non-residents
- Stamp Duty Exemption: On instruments relating to SEZ operations
- Custom Duties: Suspension on imports for SEZ operations
- VAT Zero-Rating: On supplies to SEZ enterprises
Manufacturing Under Bond (MUB)
The MUB program allows manufacturers to import raw materials, components, and packaging materials duty-free for the production of goods intended for export.
MUB Benefits
- Duty and tax suspension on imported inputs
- Simplified customs procedures
- Reduced cash flow requirements
- Access to both local and export markets
MUB Requirements
- Minimum export commitment of 70% of production
- Valid manufacturing license
- Acceptable financial guarantees
- Compliance with Kenya Bureau of Standards requirements
Key Operational Locations
Major EPZ and SEZ Locations
- Athi River EPZ: Near Nairobi, focus on textiles and manufacturing
- Sameer Africa EPZ: Located in Nairobi
- Kipevu EPZ: Mombasa-based, near the port
- Kilifi EPZ: Coastal location for agro-processing
- Mahiga EPZ: In Nyeri County
- Mombasa Special Economic Zone: Integrated port and industrial zone
Investment Promotion and Facilitation
Key Government Agencies
- Kenya Investment Authority (KIA): One-stop shop for investment services
- Export Processing Zones Authority (EPZA): EPZ administration and promotion
- SEZ Authority: SEZ development and oversight under the Ministry of Industrialization
- Kenya Association of Manufacturers (KAM): Private sector support and advocacy
Application Process
- Submit investment proposal to relevant authority
- Technical and financial evaluation
- Environmental Impact Assessment (where required)
- License approval and issuance
- Land allocation or lease agreement
- Construction and operational permits
Sector-Specific Opportunities
Priority Sectors for Investment
- Textiles and Apparel: AGOA benefits for US market access
- Agro-Processing: Value addition to agricultural products
- Information Technology: Business process outsourcing and software development
- Pharmaceuticals: Regional manufacturing hub potential
- Automotive Assembly: Growing domestic and regional market
- Leather and Leather Products: Raw material availability
Compliance and Regulatory Framework
Key Legal Requirements
- Compliance with the Employment Act, 2007 for labor relations
- Environmental compliance under EMCA, 1999
- Foreign investment approval where applicable
- Annual reporting to relevant zone authorities
- Maintenance of minimum employment levels (to be verified)
Monitoring and Evaluation
Zone enterprises are subject to regular monitoring to ensure compliance with license conditions, export requirements, and regulatory standards. Non-compliance may result in penalties or license revocation.
Current Developments and Future Outlook
Kenya continues to expand its special economic zones program with new developments including the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) corridor projects and the proposed Naivasha Special Economic Zone. The government aims to establish at least one SEZ in each county to drive balanced regional development.
Recent policy reforms focus on improving the ease of doing business, enhancing digital services for zone operations, and strengthening linkages between special zones and the broader Kenyan economy. The integration of Kenya's special economic zones with the broader East African Community market presents additional opportunities for investors seeking regional market access.