Part I

Mr. Adamu Baraka has built a successful business of exporting flowers globally. He is married to his wife Zuri and they have 3 adult children. Mkubwa, his first son is married with 2 children, followed by Amani, his daughter, who is also married with 2 children and Kijana the last-born son. After many years of hard work, he is considering slowing down and possibly retiring within the next 5 years.

He is concerned about who will succeed him and take over the family business.  Recently, one of his best friends, Hassani, passed away unexpectedly, leaving behind his family of five and a thriving business. However, instead of the family uniting and carrying on the business just like their patriarch did, they are embroiled in a bitter dispute over the future of the business. Saddened by this turn of events, he recognizes the need to understand the succession planning process in order to avoid a similar situation within his family in the future.

Mr. Baraka decides to seek expert advice from his lawyer, Mr. Jabari.

Mr. Jabari listens as Mr. Baraka expresses his fears and desires for the future of his business. “Well Mr. Baraka,” Mr. Jabari begins, “succession planning involves the transfer of ownership and management of the business to the right successors. You will need to establish a clear plan not only in the event of your demise but also in the event that you are unable to run your business due to illness or incapacity”.

Mr. Jabari goes on to explain that without a plan:

  1. the family could get into conflict, with some family members wanting to assume control of the business, while others may prefer to sell and cash out;
  2. the business could be vulnerable without proper leadership leading to communication breakdown resulting in management struggles that could ultimately cause the collapse of the business;
  3. the business could end up being managed by family members who lack the capacity or expertise to run it;
  4. key employees could leave causing panic to customers and suppliers and ultimately occasioning a run on the business; and
  5. the vision that Mr. Baraka worked so hard to achieve could perish with him as is so often the case.

As the consequences of not having a plan remind him of the fate of his friend Hasani’s estate, Mr. Baraka now understands from his lawyer that having have plan is important because:

  1. the successors are known and take control of ownership and management;
  2. there is continuity for the business operations with minimal disruptions;
  3. the next generation can get the kind of mentorship and training they need to eventually manage and lead the organization;
  4. it provides a roadmap that encourages communication and dialogue to create trust amongst family members;
  5. trusts can be created to ensure family wealth is protected and also as a safeguard from errant family members.

Mr. Baraka thanks his lawyer and is ready to take the next step.

Key Lessons: without a succession plan you leave your business vulnerable; it could lead to the collapse of a business that took years to build. However, a good plan leads to business continuity, talent development and family cohesion.

Join us  in Part II of this series where shall look at family dynamics in Mr. Baraka’s family business.


 Should you have any questions on succession planning for family businesses please contact us our estate planning team on This email address is being protected from spambots. You need JavaScript enabled to view it.  

  1. Who needs to sign up on Ardhisasa?
Ardhisasa accounts are MANDATORY for individuals that are owners of land in Kenya. The shift from the manual registry to the digital registry will make it impossible for individuals to transact on their land without having a valid account.
N.B.: You cannot create Ardhisasa accounts on behalf of other people – one mobile number is restricted to use by one account.
  1. Are legal persons also eligible for signing up on Ardhisasa?
Company registrations on Ardhisasa are accepted. Same as LLPs, Business Names, Societies, Saccos etc. However, note to use a telephone number and email address of the company that can accept OTP verification (not directors’). The telephone number and email address must not be used for any other registration on Ardhisasa (even on personal accounts).
  1. What about foreigners?
A foreigner can create an Ardhisasa account.
  1. What happens when you sign up successfully on Ardhisasa?
Upon successful registration on Ardhisasa, you shall be assigned a unique Ardhisasa identification number. This number will be used throughout your interaction with the system to identify you and to especially authenticate your applications.
  1. What land transactions are undertaken on Ardhisasa?
Search applications, Replacement of Title applications, Land Transfer applications, Valuation and Assessment for Stamp Duty applications, Demand and payment of Land Rent, Registration of Leases, Registration of Charges and Discharge of Charges, Registration of Cautions and Caveats. Basically, all land administration applications are rolled out by the Ministry of Lands and Physical Planning through Ardhisasa.

For substantive legal advice on this and other legal matters, please contact us through 
jnjorogeThis email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Introduction

The Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works on 20th April 2020 published the National Construction Authority (Defects Liability) Regulations, 2020. The Regulations, which have received opposition from contractors and lobby groups in the construction industry, aim at conferring protection to developers of commercial properties by regulating the industry limitations on period within which a contractor may be liable for flaws during construction. Prior to the Regulations, model construction contracts used in the construction industry provided for a patent defect liability period in six months from the practical completion date while providing none for latent defects.  The Regulations have introduced a latent defect liability period which is geared towards protecting commercial building owners from concealed structural flaws that may not be detectable during the ordinary patent defects liability period, which has itself been extended.

Patent Defects Liability Period

The interpretation section of the Regulations defines a patent defect to mean a defect which is detectable upon reasonable inspection during the construction period and can be notified to the contractor either before practical completion or during the defect liability period. Notably, unlike the current industry practice where practical completion is defined to mean the date when the architect issues their certificate of completion, the Regulations define practical completion date to mean the date when the certificate of occupation is issued by the County Government. 

The regulations provide that every contract for the construction of a commercial building shall prescribe a patent defects liability period and this period shall be a minimum of twelve months after practical completion. During this period, a contractor, a relevant professional and a sub-contractor shall be liable for the rectification of the patent defects. During this patent defect liability period, the owner and the contractor, relevant professional or sub-contractor, shall jointly prepare a schedule specifying the patent defects identified. Then the contractor, relevant professional or sub-contractor, shall rectify the respective defects specified in the schedule. Upon doing this, the owner shall certify that the defects identified have been rectified.

Latent Defects Liability Period

A latent defect has been defined in the interpretation section to mean a concealed structural flaw in a commercial building or fixed installation that exists but is not apparent or readily detectable during the latent defects liability period. The Regulations provide that every contract for the construction of a commercial building shall prescribe a latent defects liability period and the period shall be a minimum of six years from completion of the patent defects liability period. The Regulations impose liability on a contractor for the rectification of patent defects that become apparent during the latent defects liability period. The relevant professional shall also be liable for the rectification of such patent defects. This has received a lot of criticism from professionals in the construction sector as well as the contractors’ lobby group who argue that the period is unreasonable as it extends this liability beyond the globally agreed timeframes.  The regulations prescribe that a sub-contractor shall be liable for the rectification of patent defects that become apparent during the latent defects liability period.

Insurance Cover for Latent Defects

The Regulations obligate a contractor to obtain insurance cover for latent defects that may become apparent during the latent defects liability period. A relevant professional is also obligated to obtain a professional indemnity cover for latent defects that may become apparent during the latent defects liability period. A sub-contractor shall obtain insurance cover for latent defects that may become apparent during the latent defects liability period.

In addition, every owner of a commercial building is required to insure the commercial building at all times against structural damage attributable to him/her.

Conclusion 

The Regulations have come into place to regulate defect liability in commercial buildings and to ensure that these buildings meet the required standard quality. On the other hand, developers have raised their concerns about the new law saying that prolonging the defect liability period would increase the cost of construction as contractors’ payments valued at five percent on a project’s cost would be withheld further thus hurting cash flows. It is also not clear the regulations are limited to commercial buildings only, without extending to residential buildings that have received most public scrutiny due to occasional building collapses especially in the middle and informal settlements in Nairobi. 

It is important to note that the Regulations seem to have been passed without a comprehensive stakeholder participation. They are also silent on whether they apply to existing contracts. There is need for a review of the agreements to take into account the concerns raised by the stakeholders in the construction industry as is required under the law. While that happens, practitioners preparing and reviewing construction contracts relating to commercial buildings will need to consider these regulations when reviewing or drafting the standard building contracts to ensure compliance. 


Lovin Olang

Disclaimer

This article is intended for general knowledge only. For substantive legal advice on construction contracts and dispute resolution, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it.

The Data Protection Act, 2019 (“the Act”) provides for various safeguards in relation to the protection of personal data of data subjects. To achieve this, it places certain obligations on data controllers and data processors. The Act defines a data controller as a natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purpose and means of processing of personal data. On the other hand, a data processor is defined as a natural or legal person, public authority, agency or other body which processes personal data on behalf of the data controller. Simply stated, a data processor acts on and within the scope of instructions from the data controller.  

From the outset, it is imperative for all entities and individuals involved in the processing of personal data to, based on their specific roles, establish whether they are data processors or controllers. This determination will aid in understanding and appreciating their specific data protection compliance mandates.

Principles of Data Processing in the Act as a Guide for Compliance for Data Controllers and Data Processors

  • Accuracy

This refers to the verification of the correctness of personal data with the data subject before and at different stages of the processing depending on the nature of the personal data and in relation to how many times it may change. This further entails giving the data subjects an overview and easy access to personal data in order to control accuracy and verify it.

  • Data minimization

This entails limiting the processing of personal data for the specific necessary purpose or avoiding the processing of personal data altogether when this is possible. A data controller or processor must demonstrate the relevance of the data to the processing in question. In addition, pseudonymising personal data is a key requirement as soon as the data is no longer necessary for the purpose.

  • Integrity, confidentiality and availability

The principle entails having in place an operative means of managing policies and procedures for information security. This encompasses assessing the risks against the security of personal data and putting in place technical and organizational measures to counter the risks.

  • Purpose limitation

The purpose limitation principle entails specifying the legitimate purpose for the processing of personal data before designing organizational measures and safeguards with respect to the processing. The purpose of collecting personal data should be the main determinant for personal data collection. Data controllers and processors should regularly review their processing activities to determine whether the processing is necessary for the purposes for which the data was collected and test the design against purpose limitation.

  • Storage Limitation

The storage limitation principle requires data controllers and processors to determine the length of storage required for a given type of personal data collected. In this regard, data processors and controllers are under obligation to establish data retention policies and procedures including procedures for archiving and deletion of personal data.

  • Transparency

The transparency principle mandates data controllers and processors to use clear, simple and plain language to communicate with the data subject to enable the data subject to make informed decisions on the processing of their personal data. Additionally, the information on the processing of personal data should be made available to the data subjects.

  • Lawfulness

The appropriate legal basis or legitimate interests should be clearly connected to the specific purposes of processing. The data subject should know what they consented to with a simplified method of withdrawing their consent.

Applicability of the Principles of Data Processing

It is imperative that data processors and controllers ensure strict compliance with the data protection principles in their day-to-day personal data processing activities. The data protection principles should be the bedrock upon which all decisions relating to personal data processing including implementation of technical and organisational safeguard should be anchored.

Other Obligations of Data Processors and Controllers

The Act requires data processors and controllers to be registered with the Office of the Data Protection Commissioner (ODPC). An application for registration should provide for the description of the personal data to be processed, the purpose for which it is being processed, the general description of the risks, safeguards and security measures that have been put in place to ensure the protection of personal data. It is worth noting that entities with a turnover/revenue of below Kshs. Five Million (5,000,000/=) or with less than 10 employees are exempted from mandatory registration. The exemption from mandatory registration based on the turnover limit and number of employees will not apply to entities operating in the following industries: financial sector, health, gambling, hospitality industry, telecommunication sector or service providers, educational and political institutions, property management, and entities dealing with genetic data.

The Act also requires data processors and controllers to inform data subjects, prior to collection of personal data on among others: their rights, the fact that their personal data is being collected, the purpose for the collection, the safeguards to be adopted, data sharing arrangements, the consequences if any, where the data subject fails to provide all or any part of the requested data.

Additionally, the Act mandates data processors and controllers to carry out a data protection impact assessment where it is envisaged that a processing activity is likely to result in high risk to the rights and freedoms of a data subject, by virtue of its nature, scope, context and purposes.

Further, a personal data breach should be reported by a data controller to the ODPC within 72 hours of occurrence.

Consequences of Failure to Comply with Data Protection Obligations

The enforcement mechanisms upon breach of obligations by data processors and controllers have been underpinned under Part VIII of the Act to include issuance of enforcement notices, penalty notices, administrative fines and compensation of data subjects. The ODPC is required to first issue an enforcement notice to a data controller and processor who is in breach of the Act requiring remedial actions. Failure of a data processor or controller to comply with the ODPC enforcement notice will result in a penalty of an amount not exceeding Kes. 5 million or 1% of the data processor’s or controller’s annual turnover of the preceding financial year or to imprisonment for a term not exceeding two years, or to both.


Article by Mary Ndung’u, Pauline Njau and Emily Ogonyo

Published on 5th February, 2024

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.     

  • A. INTRODUCTION

The Finance Act 2022 dated 23rd June 2022 (hereinafter referred to as “the Act”) came into operation on the 1st of July 2022. The Act amended various tax laws including the: Excise Duty Act, 2015), Miscellaneous Fees and Levies Act, 2016, Tax Procedures Act, 2015, The Income Tax Act Cap 470, and The Value Added Tax Act, 2013.

  • B. MAJOR AMENDMENTS TO VARIOUS TAX LAWS
  •    1. The Excise Duty Act, 2015

The Act limited the amount of interest that can be paid on delinquent taxes to the principle, as of July 1, 2022.

The Act also exempted from excise duty neutral spirit imported by pharmaceutical manufacturers upon the Commissioner’s approval and locally manufactured passenger motor vehicles.

  •    2. The Miscellaneous Fees And Levies Act, 2016

In order to account for inflation, the Act amends the export levy for certain items, making it applicable from a date no later than the first of October of each fiscal year where it was previously applicable from the start of each fiscal year .

  •    3. The Tax Procedures Act, 2015

Under the Act, trusts, whether operating for profit or not, are required to inform the Commissioner (Commissioner-General appointed under the Kenya Revenue Authority Act) of any changes to the name, address, or beneficiaries of the trust.

A deduction for input tax must be made within six (6) months after the date of supply in cases where the Commissioner modifies a VAT assessment, according to the Act. This is in accordance with the provisions of the VAT Act on the reimbursable input tax.

Other provisions within The Tax Procedures Act, 2015

      •      a. The range of assets that the Commissioner may utilize as collateral for delinquent tax has increased. The scope now includes land, buildings, vehicles, ships,           airplanes, and other types of property. Moreover, taxpayers may now request that all overpaid taxes, including overpaid instalment taxes, be applied as a                   credit against future tax obligations.
  •      b. The registration of a trust was added as a transaction requiring a PIN in the First Schedule to the Tax Procedures Act given that trusts are increasingly being             used locally to transfer and store assets.
  •    4. The Income Tax Act
  1. Definition of terms

The Act defined various terms including: (i) “Fair Market Value” to mean the comparable market price available in an open and unrestricted market between independent parties acting at arm’s length and under no compulsion to transact, which is expressed in terms of money or money’s worth; (ii) “Financial derivative” to refer to a financial instrument the value of which is linked to the value of another instrument underlying the transaction which is to be settled at a future date,

and (iii) “Permanent home” to refer to a place where an individual resides or which is available to that individual for residential purposes in Kenya, or where in the opinion of the Commissioner is the place where the individual’s personal or economic interests are closest.

  1. Exclusion from thin capitalization provisions

Persons now excluded from the thin capitalization regulations are as shown below:

  •      a. Microfinance institutions licensed and non-deposit taking microfinance institutions licensed under the Microfinance Act, 2006;

         (Important to note that the ones that follow below under this list are amendments that    were not proposed by the Finance Bill, 2022)

  •      b. Entities licensed under the Hire Purchase Act;
  •      c. Non-deposit taking institutions involved in lending and leasing business;
  •      d. Companies undertaking the manufacture of human vaccines;
  •      e. Companies engaged in manufacturing whose cumulative investment in the preceding five years from the commencement of this provision is at least five                   billion shillings;
  •      f. Companies engaged in manufacturing whose cumulative investment is at least five billion shillings where the investment shall have been made outside Nairobi          City County and Mombasa County; and
  •      g. Holding companies that are regulated under the Capital Markets Act.
  1. Deferral of realized foreign exchange loss

The Act now allows companies to defer reporting their realized foreign currency losses where their gross interest payments to connected parties and third parties exceeds 30% of their earnings before interest, taxes, depreciation, and amortization in any financial year. This does not apply  for people who are exempt from the thin capitalization rules.

  1. Exemption from the Digital Service Tax for non-residents who have a permanent establishment in Kenya

The Act exempts non-resident individuals who have a permanent establishment in Kenya from paying the Digital Service Tax. This is aimed at curbing double taxation of a Kenyan Permanent Establishment’s income from digital platforms as well as leveling the playing field with local service providers who are not subject to Digital Service Tax.

  1. Taxation of Cash contributions

The Act now permits charitable contributions made to any tax-exempt organization to be deducted. Prior to this, only "cash" donations made to nonprofit organizations that were registered under the Societies Act or the Non-Governmental Organizations Coordination Act, or for initiatives endorsed by the CS National Treasury, qualified as tax-deductible contributions.

  1. Indefeasible Right of Use allowance alignment

The Act removes the clause that permitted telecommunication companies to deduct 5% of the cost of buying or acquiring an irrevocable right to utilize fiber optic cable.

The cost of the indefeasible right of use of a fiber optic cable by telecommunication operators is already subject to a capital allowance of 10% under the Income Tax Act.

  1. Increment of Capital Gains Tax

The Act increases the rate at which capital gains is taxed from the current 5% to 15% with effect from 1st January, 2023.

  •    5. The Value Added Tax Act 2013
  1. Digital Market place

The definition of a digital market place was amended to now refer to an online platform which enables users to sell goods or provide services to other users.

The Kshs. 5 million barrier for VAT registration was amended to exclude individuals who provide imported digital services over the internet, electronic network, or a digital marketplace.

  1. VAT reduction on liquefied petroleum gas

The Act lowered the VAT on Liquefied Petroleum Gas from 16% to 8%. Petroleum gas includes propane. 

Section 17 of the VAT Act, which allows for the deduction of input VAT to the extent that it was purchased in order to produce taxable supplies was amended to include that a registered person may only claim input VAT if the input VAT was stated in a return for the relevant financial period.

  1. Changing a commodity or service's status from exempt from VAT to standard-rated

The following supplies are changed from exempt to a standard rate of 16% under the Act:

  •       i. Taxable goods for the direct and exclusive use in the development and outfitting of specialized hospitals with a minimum bed capacity of fifty persons; and
  •      ii. Taxable services for the direct and exclusive use in building and outfitting specialized hospitals with lodging facilities.
  • C. AMENDMENTS SET TO TAKE EFFECT FROM 1ST JANUARY 2023
  1. Taxation of gains from financial derivatives for non-residents

Gains made by non-residents in financial derivatives transactions in Kenya, save for those involving financial derivatives traded on the Nairobi Securities Exchange, are now subject to tax. According to regulations that will be published by the CS National Treasury, the gains will be subject to a 15% withholding tax.

  1. Consequences of transfer pricing for firms operating under a preferential tax system

Transactions between residents and the following parties (who are subject to a preferential tax system) have been added to the scope of transfer pricing (TP) by the Act's amendment to section 18 (A) of the Internal Revenue Code:

  •      a. A related resident person;
  •      b. A non-resident person;
  •      c. An associated enterprise of a non-resident person; and
  •      d. A permanent establishment of a non-resident person.

This amendment will expand the range of transactions that come under the purview of transfer pricing. This will also subject taxpayers who conduct business with non-residents under a favorable tax regime to more scrutiny and compliance cost.

  1. Lower tax rate for businesses running a carbon market

The Act subjects revenue received by a business that runs a carbon market exchange or emission trading system that has been approved by the Nairobi International Financial Centre Authority to taxation under the Income Tax Act. For the first ten years following the start of activities, the relevant tax rate will be 15%; after that, it is anticipated that it will revert to the applicable resident corporation tax rate of 30%.

  1. Income from shipping businesses

The Act reduces the rate of taxation for the profits made by a firm running a maritime operation in Kenya. For the first ten years following the start of operations, the relevant tax rate will be 15%; however, beyond that time, it will increase to 30% for resident corporations. This will promote shipping sector investment, which will subsequently promote international trade and foreign direct investment.

  1. Bearer bonds issued outside of Kenya that have interest paid on them

Bearer bonds issued to non-residents outside of Kenya for at least two years are subject to withholding tax at the rate of 7.5% of the gross amount due for interest and presumed interest, as well as interest, discount, or original issue discount.

The low rate of withholding tax is expected to make such bonds appealing to the market and profitable on the global market.

  1. Annual inflation adjustment

The annual inflation adjustment provision is amended to allow the Commissioner General appointed under the Kenya Revenue Authority Act to exempt certain products from inflation adjustment after taking the year's economic conditions into account. This will be done through a notice in the Kenya Gazette on receiving the CS for matters finance’s approval.

This was aimed at shielding customers from price increases brought on by yearly inflation adjustments on the excise duty on particular goods.

  • D. CONCLUSION

The strides made by the various amendments brought by the Act will stimulate growth in various sectors in Kenya, promote foreign investment, provide clarification through the inclusion of new definitions on tax concepts and protect different entities.


Article by & Ann Yvonne Muriithi & Matthew Mbelenga

 

Published on 9th September 2022

 

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Introduction

The Finance Act 2019 introduced VAT at the rate of fourteen percent of the taxable value of the taxable supply. Subsequently, the Cabinet Secretary for National Treasury and Planning has proposed the Draft Value Added Tax (Digital Marketplace Supply) Regulations, 2020 (“Draft Regulations”). The Draft Regulations are intended to provide for the mechanisms for implementing VAT on supplies made through a digital marketplace (which is defined as any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means). 

While the Draft Regulations are yet to be passed, we note that Kenya Revenue Authority (“KRA”), through a press release dated 23rd April 2020, directed business owners trading on digital platforms to charge VAT on their transactions and remit the taxes to KRA. The Commissioner for Domestic Taxes further stated that all non-compliant traders will be penalized for failure to charge VAT as required by law.

Overview of the Draft Regulations

Scope of Taxable Supplies

The digital supplies that are to be subject to VAT include among others, electronic services, downloadable digital content such as mobile applications, e-books and movies, Subscription-based media such as news, magazines, podcasts, TV shows and music streaming, online gaming, Software programs such as downloading software, drivers, website fillers and firewalls, Electronic data management such as website hosting, file sharing, cloud storage, Supply of music, films and games, Supply of search-engine and automated helpdesk services, Supply of digital content for listening, viewing or playing on any audio, visual or digital media, Supply of services on online marketplaces that links the supplier to the recipient such as Uber, Jumia and tickets purchased through the internet for live events. 

Registration of Suppliers of Digital Services

Suppliers of digital services are required to register for VAT in Kenya if the supplier is from a foreign country but supplies services to a customer in Kenya. The registration requirement also applies to a supplier whose place of business is not in Kenya but the recipient of the supply in Kenya, the payment for the supply emanated from a bank registered in Kenya, or the recipient has a business, residential or postal address in Kenya. 

Simplified VAT Registration Framework

The Draft Regulations provide for an online simplified VAT Registration framework to be used by digital marketplace suppliers from foreign countries (“foreign suppliers”). Registration is mandatory and should be done within thirty days from the publication of the Regulations. Any such supplier who experiences difficulties with the system is required to appoint a tax representative to account for the VAT on their supplies. In case a foreign supplier makes an over declaration or an under declaration through this system, amendments to the return can be made. If it is an over declaration, the amount overpaid will be retained as a credit to be offset against VAT payable in subsequent tax periods.

Time of Supply for purposes of Payment of Tax

The Draft Regulation specify the time of supply as being the earlier of the date of payment, in whole or in part or the date on which the invoice or receipt for the supply is issued. The supplier is required to submit a return and remit the tax due on or before the 20th day of the month succeeding that in which the tax became due

Tax Liability

The liability of remitting the VAT lies on the supplier including foreign suppliers. However, if the latter has a tax representative, the tax representative will be liable. A supplier may also work with an intermediary who facilitates the supply of services through the digital marketplace and who is responsible for issuing invoices and collecting payments for the supply on whom the liability of remitting tax and returns will lie. 

Tax Invoice

Suppliers are required to generate an ETR Receipt. However, foreign suppliers are exempt from this requirement provided they issue an invoice or receipt showing the value of the supply and tax deducted.

Further, a foreign supplier is required to submit a record of all the supplies made in Kenya indicating the value of the supplies and VAT deducted, for every tax period.

Claim for Input Tax

Deduction of input tax will not be allowed under the simplified VAT registration framework. 

Offences and Penalties

A supplier who fails to comply with these regulations will be restricted from accessing the digital marketplace until such obligations are fulfilled in addition to the penalties prescribed under the Act.

Conclusion 

While the obligation to charge VAT for supplies made through a digital marketplace has existed since 2019, the appropriate mechanisms are yet to be put in place to facilitate the charging and collection of the tax. The Draft Regulations are therefore geared towards providing the mechanisms for implementing said taxation particularly for foreign suppliers. It is likely that foreign suppliers will be discouraged from providing digital services to the Kenyan market because of the restrictive mechanisms intended to be imposed on them, for example, their inability to claim input tax or get VAT refunds. However, the Draft Regulations are necessary to enable the government facilitate the collection of VAT from business owners trading through a digital marketplace.  


Ivyn Makena and Pauline Njau

Disclaimer

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

The strain in the economy has affected many businesses in Kenya which has forced many employers to reevaluate their revenues and expenses. The goal for most businesses is to reduce expenses especially when the business is not generating enough revenue to meet its expenses. One of the highest expenses for most businesses is employee costs. In a bid to reduce these costs, employers have had to tread the dreary path of redundancy and there are many questions that employers have regarding redundancy including the instances when redundancy would be justified in Kenya.

This article discusses the various instances when redundancy would be justified which have been developed by courts in Kenya over the years.

A. WHAT IS REDUNDANCY?

Redundancy, also known as retrenchment, layoffs or downsizing, is the loss of employment, occupation, job or career by involuntary means through no fault of the employee. It involves the termination of employment as an initiative by the employer where the services of an employee are no longer needed because of various reasons.

Redundancy does not always mean that a position has to be abolished. Downgrading or upgrading a position even without changing the title may also make the current holder of the office redundant and redundancy can be declared on this basis.

B. JUSTIFIABLE REASONS FOR REDUNDANCY

The following reasons have been found to be valid reasons for redundancy by various courts in Kenya:

 1. Corporate Restructuring

Generally, courts have held that an employer has a right to restructure its business to improve its profitability, incorporate modern technology, improve its efficiency, among other reasons. In this case, employers are allowed to declare positions redundant to facilitate the restructure.
The Court in Kungu George Kairu & 35 Others v KK Security Limited [2016] eKLR held that it was trite law that every employer has the right to determine the structures of its business and to redesign its organizational structures to suit the requirements of profit making.  In the International Labour Organization’s Recommendations No. 166 – Termination of Employment of 1982, it was highlighted that redundancy must only be a commercial decision taken to ensure the ongoing viability of an employer and that redundancy can be declared if the employer decides to reorganize his business and run it more efficiently and profitably.

In another case, Kenya Airways Limited v. Aviation & Allied Workers Union Kenya & others [2014] eKLR (KQ Case), the court held that besides economic distress, an employee could restructure the business to be in tandem with the modern technologies in order to enhance efficiency.

A further decision by the court in Kenya Airways Corporation Ltd v. Tobias Oganya Auma & 5 others found that the court had no jurisdiction to prevent an employer from restructuring or adopting modern technology so long as it observed all relevant regulations.

2. Operational Reasons

Employers are allowed to declare redundancy for operational reasons including declining revenue, high operating costs and salary adjustments.

For example, the court in the case of Kenya Airways Limited v. Aviation & Allied Workers Union Kenya & others [2014] eKLR noted that in proving redundancy, it was upon the employer to prove that the services of the employee had been rendered superfluous or that redundancy has resulted as a consequence of abolition of offices, jobs or loss of employment.  The employer in this case noted that some of the operational reasons that had called for redundancy included: declining revenue which had been occasioned by economic difficulties in the markets, extremely high operating costs, salary increment and adjustments and unsustainable employee costs owing to large increase in head count. The court held that these were justifiable reasons for redundancy.

3. Change of Job Description/Requirements of a Role

Where the job description of a certain role or the skill set of a certain role changes by law or other reasons, it is possible to declare the holder of that position redundant if they do not meet the new skill set or cannot perform the new job description.

However, the employer must demonstrate that there is a legitimate change in the job description or skills requirement. A change in the job title only will not qualify as a legitimate reason for declaring redundancy.

4. Mergers & Acquisitions

A merger/acquisition is a valid reason for an employer to declare a redundancy if previous roles of its employees are affected by it. The fate of employees in this case is usually determined by the contractual agreements between the entities in the merger/acquisition. Sometimes, employees are absorbed in the new entity (if they consent) in which case redundancy will not be necessary and they would ordinarily waive claim for redundancy.

However, if the employer chooses to declare any employees redundant, they must follow the all the redundancy processes.

C. CONCLUSION

In summary, there are several justifiable reasons for declaring redundancy which have been upheld by courts in Kenya. However, employers should not undertake any redundancy unless their reasons are legitimate and capable of being proven in court. Further, employers should apprise themselves with the procedures that must be followed when undertaking a redundancy. It is not enough for the reason for redundancy to be legitimate and justifiable, the processes taken to effect the redundancy must also be fair and in line with the Employment Act 2007.


Article by Ivyn Makena, Brian Omuganda and Emily Ogonyo.

Published on 24th January 2024

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.    

A. INTRODUCTION

The sectional titles regime is based on the principle that a unit in a building is deemed separate and independent from the other units in the same building. It is possible to acquire the unit and obtain an independent title deed with respect to that specific unit, unlike for a lease where the interest of the owner is registered against the main title over the land on which the unit is built.

The former Sectional Properties Act of 1987 (“the repealed SPA”) was replaced by the Sectional Properties Act, 2020 (“the current SPA”) because it was unresponsive to the current needs and emerging challenges in the real estate industry. It was difficult to implement which delayed and/or impeded the completion of transactions. Some of the challenges faced under the repealed SPA included:

  1. It only applied to properties registered under the repealed Registered Land Act (RLA) – Therefore, any property registered under a different regime had to be converted to the RLA regime first before the registration under the repealed SPA could be processed. This made transactions lengthy and complex.
  1. Payment of land rent and rates by unit owners was made corporately through the holder of the main title thus leading to delays in dealings in the specific units.
  1. The corporate status of the Corporation was not clearly defined – The Corporation is the entity responsible for managing and maintaining the common property where the building lies. The repealed Act referred to the Corporation but did not provide for its establishment or management.

Therefore, the current SPA was passed to address the challenges brought by the repealed SPA and to align the law on sectional properties to the current land laws and the Constitution of Kenya. It is intended to ease the registration and the management of the sectional properties and consequently encourage investment in sectional properties in Kenya.

B. SALIENT FEATURES OF THE CURRENT SPA

The salient features of the current SPA include:

  1. Application of the Current SPA

The provisions of the Act apply in respect of land held on freehold title or land held on a leasehold title where the unexpired residue of the term is not less that twenty-one years, and there is an intention to confer ownership.

  1. Registration of Sectional Plans

All sectional units must have a Registered Sectional Plan which has been prepared by a surveyor and authenticated by the Authority responsible for survey. Before preparation of the sectional plan, a surveyor must be presented with proof of ownership of the parcel or unit to which the Sectional Plan shall apply. The Sectional Plan itself must describe two or more units in it and be presented for registration in quadruplicate at the Lands Registry. Registration of the sectional unit follows thereafter.

  1. Termination of the Sectional Property Status of a Building

The Sectional Status of a building may be terminated by:

  1. Unanimous resolution of the owners of the units;
  2. Substantial or total damage to the building; or
  3. Compulsory acquisition by the Government.

On termination of Sectional status of a building, the Registrar shall make a notification on the Sectional Plan to that effect, after which the owners of the units in the Plan shall be entitled to the parcel as tenants in common in shares proportional to the unit factors of their respective units.

  1. Liability of Rates, Land Rent and Taxes

The owner of a unit shall be liable for any rates, ground rent, charge or tax levied by a rating authority on the unit. The Corporation is not liable in relation to the parcel of any rates, ground rent, charge or tax levied by a rating authority.

  1. Treatment of Existing Long-Term Leases

All long-term leases/sub-leases that confer ownership over apartments, flats, maisonettes, townhouses or offices, registered before 28th December 2020, are required to be reviewed to ensure that they conform to Section 54(5) of the Land Registration Act.

This section of the Land Registration Act requires the following to be met before long-term leases are registered:

  1. Proper geo-referencing of the property; and
  2. Approval of the geo-referencing by the Survey of Kenya.

All the long-term leases that were registered without meeting the two requirements above will need to be reviewed by 28th December 2022. The persons responsible for initiating the review of such long-term leases are the developer, a management company or an owner of the unit.

If the review is not undertaken, the Lands Registrar can register a restriction against the main title of the parcel to prevent any further dealings in the land for lack of compliance.  Further, pursuant to a notice dated 7th May 2021, the Ministry of Lands notified the public that long-term leases prepared on the basis of architectural plans will no longer be registered with effect from 10th May 2021. It is therefore crucial that owners of residential or commercial properties whose leases are not compliant undertake the review as required under the current SPA.

  1. Establishment of the Corporation

The current SPA provides for the establishment of the Corporation on the registration of a sectional plan. The Corporation shall be registered by the Lands Registrar who will issue a certificate of registration. A Corporation registered under the current SPA will be able to, inter alia, enter into contracts in its own name, sue and be sued in its own name and open bank accounts. These provisions on the establishment of the Corporation have addressed the gap that was in the repealed SPA by clarifying the corporate status of the Corporation, the regime of its registration and the procedures for its establishment.

  1. Duties of the Corporation

The Corporation shall be responsible for the following, among others:

  1. Maintaining the common property;
  2. Insuring the building against fire, unless otherwise agreed by the owners of the units;
  3. Paying premiums of any insurance it is responsible for;
  4. Engaging the services of a property manager or other necessary professionals to ensure proper management of the common areas;
  5. Ensuring the enforcement of any lease or licence under which the land (where the building lies) is held;
  6. Carrying out any duties imposed on it by its by-laws.

   8. Investment of Corporation Funds

The Corporation may invest any funds it holds that are not immediately required by it. However, it can only invest in the investments which a trustee may invest in under the Trustee Act, Cap. 167, such as any shares of a building society, any security issued by Kenya Railways, any security issued by or on any loan to the Industrial Development Bank Limited, among others. A Corporation may also invest in funds which are endorsed by a special resolution of the owners of the units.

  1. Dispute Resolution

The Corporation has powers to constitute an Internal Dispute Resolution Committee to hear and determine disputes arising between unit owners in relation to the sectional property.

C. CONCLUSION

The current SPA has definitely given the regulatory framework governing sectional properties a much-needed face-lift. It has dealt with the challenges that were being experienced under the repealed SPA and it is now aligned with the provisions of the other Land Laws and the Constitution of Kenya. It has also enhanced compliance in the registration of long-term leases by requiring that the properties comprised in the leases are properly georeferenced and uniquely identified.

However, it is yet to be observed whether the new provisions will remedy the delays in the registration of units under the sectional properties’ regime. Further, the requirement that all long-term leases should be reviewed and eventually converted to sectional properties is expected to inconvenience many owners of property and developers of ongoing projects where reversionary interest is yet to be transferred to estate management companies.

To operationalize the provisions of the current SPA, the Sectional Properties Regulations, 2021 were developed and gazetted by the Ministry of Lands and Physical Planning. The Regulations deal with two key elements, that is, the registration of sectional plans for developments where no long-term leases are registered and the conversion of registered long-term leases to sectional properties. They provide for the requirements and procedures of effecting the provisions of the current SPA. 


Article by June Njoroge-Ngwele & Ann Yvonne Muriithi

Published on 2nd March 2022

 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Introduction

The world is going digital. The advances in technology have revolutionized how things are done around the world. Nowadays, most communications between parties, such as exchange of documents, are done electronically. This is especially very convenient in cross-border transactions. 

Recently, the President of the Republic of Kenya assented to the Business Laws (Amendment) Act, 2020 (the “Act”). The Act amended several statutes with the aim of facilitating the ease of doing business in Kenya. A number of amendments introduced by the Act have now reinforced the use of digital and electronic signatures in legal transactions. The amendments are timely in the wake of the surging COVID-19 pandemic. We comprehensively discussed the key amendments introduced by the Act in our previous article

This article delves deeper into the law on electronic and digital signatures in Kenya.

  • Electronic vs. Advanced Electronic (digital) signatures

It is worth noting that while electronic and digital signatures are often used to mean the same thing, the two are different. The Kenya Information and Communications Act (KICA) defines an electronic signature as data in electronic form affixed to or logically associated with other electronic data which may be used to identify a signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message. 

Advance electronic signature (digital signature) on the other hand is defined by KICA as a type of electronic signature which meets the following requirements:

  1. must be uniquely linked to the signatory; 
  2. is capable of identifying the signatory; 
  3. is created using means that the signatory can maintain under his sole control; and 
  4. is linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.

Therefore, electronic signatures can range from a simple electronic signature represented in a form of a scanned signature of a person as an indication of a name of a sender (not encrypted) to a digital signature that is based on cryptographic authentication of a sender by technological means in a form of a coded message or an encrypted data. This means that while digital signatures are a form of electronic signature, not all electronic signatures are digital signatures. 

Legal recognition of electronic signatures

In Kenya, the law recognizes the use and validity of advance electronic signatures. Section 83P of KICA provides that where any law provides that information or any other matter shall be authenticated by affixing a signature or that any document shall be signed or bear the signature of any person, then such requirement shall be deemed to have been satisfied if such information is authenticated by means of advanced electronic signature affixed. 

The Act further provides that Understanding the Use of Electronic Signatures in Kenyafor an advance electronic signature to be reliable, the following conditions must be met in addition to the ones discussed above:

 

  1. it must be generated through a signature creation device;  
  2. the signature creation data must be linked to the signatory and to no other person; 
  3. the signature creation data were under the control of the signatory at the time of signing; 
  4. any alteration to the electronic signature made after the time of signing is detectable; and
  5. where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that information after the time of signing, is detectable. 

Further, in order to reinforce the validity of an electronic signature, parties to a contract may agree to its use by including a provision on the same in the contract. 

In Kenya, advanced electronic signatures/certificates are issued by certification service providers licensed by the Communications Authority of Kenya

 

Proving validity of electronic signatures

The Evidence Act provides that except in the case of a secure signature, if the electronic signature of any subscriber is alleged to have been affixed, then the fact that such an electronic signature is the electronic signature of the subscriber must be proved.

Further, in order to ascertain whether an electronic signature is that of a person by whom it purports to have been affixed, the court may direct that the person or a certification provider to produce the electronic signature or any other person to apply the procedure listed on the electronic signature certificate and verify the electronic signature purported to have been affixed by that person.

Conclusion

Parties should embrace the use of electronic signatures as it enhances speed and efficacy of legal and commercial transactions. However, to avoid risks associated with electronic signatures such as forgery, it is important for parties to create measures to properly secure their electronic signatures to avoid misuse. 


By Audrey Seur


This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

The Privatization Act, 2023 (“the Act”) was signed into law on October 9, 2023, ushering in a new era in the government’s attempts to privatize state owned enterprises from public ownership to private ownership.

The Act was largely necessitated by the need to improve efficiency and general competitiveness of state-owned entities that have been bedeviled by inefficiencies and a long streak of loss-making years. Further, the Act was aimed at repealing the Privatization Act, 2005 (“the Repealed Act”), which was considered by many to be too restrictive. The Repealed Act was viewed as having many onerous requirements for obtaining approvals as well as long processes to get results which impeded the privatization process.

The rationale underlying the enactment of the Act is: to enhance private participation in the economy; to improve the infrastructure and service delivery; to lessen the need for government resources; to increase government revenue through compensation for privatizations; to enhance economic regulation in the country; and to expand the base of ownership in the Kenyan economy by promoting private enterprise ownership, among others. Additionally, the Act is aimed at removing some of the legal and regulatory bottlenecks that were apparent in the Repealed Act.

This Article outlines the key changes introduced by the Privatization Act, 2023 and the general impact of the new Act on the privatization process.

  1. Change in Corporate Structure and Management

One of the most notable changes introduced by the Act is the establishment of the Privatization Authority to replace the Privatization Commission. Unlike the Privatization Commission, the Privatization Authority is established as a body corporate with a separate corporate personality which is capable of suing and being sued, entering into contracts, acquiring and owning property, and all other things as are capable of being done by a body corporate. Unlike the previous Privatization Composition, the composition of the Privatization Authority will include: the chairperson appointed by the President; Principal Secretary to the Treasury; the Attorney General; the Secretary to the State Corporations Advisory Committee; Managing Director of the Authority; and four persons appointed by Cabinet Secretary, National Treasury. Notably, the Act has removed the requirement of obtaining the approval of the National Assembly for the members of the Privatization Authority who are appointed by the Cabinet Secretary.

  1. Establishment of the Privatization Authority

The Privatization Authority is one of the key stakeholders under the Act mandated with the overall obligation of advising the government on all aspects of privatization. Other key roles of the Privatization Authority include: implementing the Privatization Programme once ratified by the National Assembly; facilitating in the implementation of government’s privatization policies; preparing and implementing specific proposals on privatization; preparing long-term divestiture sequence plan; monitoring implementation of privatization programmes etc.

  1. Privatization Programme

The Cabinet Secretary of the National Treasury is now mandated to formulate a Privatization Programme, a role previously undertaken by the Privatization Commission under the Repealed Act. In formulating the Privatization Programme, the Cabinet Secretary is required to consult experts and individuals/entities likely to be affected by the Privatization Programme after identifying the entities proposed to be privatized. The Privatization Programme must be submitted to the National Assembly for ratification.

To forestall delays in the National Assembly’s processes, the Act mandates the National Assembly to consider a Privatization Programme within 60 days of receipt of the same from the Cabinet Secretary. In the event the National Assembly fails to ratify the Privatization programme within the stipulated timelines, the programme will be automatically ratified after 90 days. Once ratified, the Privatization Programme remains valid for a period of 5 years which can be extended by a further 12 months.

This amendment is critical in addressing the Repealed Act ambiguity on timelines thus streamlining the ratification process.

  1. Privatization Proposal

The Act requires the Authority to prepare a privatization proposal for each entity that has been identified for privatization and the same to be included in the Privatization Programmme and submitted to the Cabinet Secretary for the National Treasury. The Privatization proposal must be approved by the Cabinet Secretary before implementation. 

  1. Methods of privatization

Some of the methods of privatization in the Act include: initial public offer of shares; sale of shares by public tender; sale resulting from the exercise of pre-emptive rights; or such other method as the Cabinet Secretary determines. Sale of Assets including Liquidation is no longer considered a method of privatization.

  1. Miscellaneous

Other key changes introduced under the Act include:

  1. Monopoly

In recognition of potential monopoly brought about by privatization, the Act provides that where a proposed privatisation results in unregulated monopoly, the Privatization Authority can ensure that the principal Agreement for the privatization provides for the regulation of the monopoly, subject to the Competition Act. Where a privatization is likely to result in a monopoly, the approval of the Cabinet Secretary must be sought.  

    b. Proceeds of Privatization

Where there is a sale of a direct National Government shareholding, the Act provides that the proceeds of such privatization should be channeled into the Consolidated Fund. In the case of the sale of a state corporation’ shareholding, the Act provides that proceeds from such privatization should be deposited in a special interest-bearing account established for that state corporation in order to safeguard the erosion of the balance sheet of the state corporation.

  1. Conclusion

In conclusion, it is envisaged that the progressive amendments introduced by the Privatization Act, 2023 will play a key role in improving the efficiency and profitability of state-owned enterprises with regards to fiscal benefits, effective control and governance, improved service delivery, and maximization of performance of public entities.

Further, it is anticipated that the benefits arising from privatization will lead to the development of capital markets as more individuals are more likely to invest in shares and bonds issued by the privatized entities. However, there remains concerns on the potential abuse of powers by the Cabinet Secretary of the National Treasury who has now assumed a dominant role in privatization with little parliamentary oversight.


Article by Thiong’o Karuga and Emily Ogonyo

Published on 24th November 2023

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.   

 

  • A.   INTRODUCTION

The Guidelines to assist Public and Private Entities in the Preparation of Procedures for the prevention of Bribery and Corruption (“the Guidelines”) were published by the Office of the Attorney General, following the enactment of the Bribery Act, 2016 (“the Act”). The Act mandates the Cabinet Secretary for matters justice, in consultation with the Ethics and Anti-Corruption Commission (“the Commission”), to publish the said Guidelines. The Act widened the scope of the fight against bribery and prevention of corruption by extending the fight to the private sector. Before April 2016, the law against corruption only targeted public entities and state organs.

Corruption has been defined in the Anti-Corruption and Economic Crimes Act, 2003 as “any act of bribery, fraud, embezzlement or misappropriation of public funds, abuse of office, breach of trust and an offence involving dishonesty in connection with any tax, rate or levy imposed by any written Act or Law”.

  • B.   ABOUT THE BRIBERY ACT, 2016 (“THE ACT”)

The Act provides a framework for the prevention, investigation and punishment of acts of bribery. Bribery was previously considered a form of corruption under the Anti-Corruption and Economic Crimes Act 2003.  Further, and as mentioned above, unlike the Anti-Corruption and Economic Crimes Act 2003, the Act contains provisions that apply to the private sector.

The Act attempts to involve private citizens in the fight against bribery and corruption by imposing an obligation on them to report instances of corruption. It imposes an obligation on a person in a position of authority in a public or private sector to report any acts of corruption to the Commission. Failure to do so is an offence that attracts imprisonment of up to ten years or a fine not exceeding five million shillings. The Act mandates private entities to put in place adequate procedures to prevent and counter corruption within their operations.

  • C.   THE GUIDELINES

The Guidelines were published for purposes of assisting public and private entities, or any other person, to prepare procedures for the prevention of bribery and corruption. Failure by an entity to establish these procedures amounts to an offence. Indeed, the Guidelines are part of the Act and should be read together with it.

We highlight some of the obligations prescribed by the Guidelines below:

  1. Obligations imposed on Private and Public Entities
  •       a. Reporting

The Guidelines require each State officer, public officer or person holding a position of authority in a private entity to report knowledge or suspicion of an act of bribery or corruption to the Commission within 24 hours of such knowledge, failure to which amounts to an offence. For such an offence, the private entity or its directors, senior officer(s) or other responsible person shall be liable, on conviction, to a fine not exceeding one million shillings or imprisonment for a term not exceeding ten years, or both.

  •       b. Protection of Whistle-Blowers

All informants, witnesses and whistle-blowers must be protected from harassment or intimidation upon giving evidence in court or reporting acts of corruption within an entity. Entities are obligated to put in place protection mechanisms for such persons.

Acts such as demotion, admonition, dismissal, transfer to unfavorable working areas, harassment or intimidation of a whistle-blower, informant or witness is an offence that carries a fine not exceeding one million shillings or imprisonment for a term not exceeding one year or both, on conviction.

  •       c. Establishment of procedures for the prevention of bribery and corruption

The Act requires all entities to have in place procedures for the prevention of bribery and corruption. These procedures must take into account the size, scale and nature of operations of the entity concerned.

The Guidelines are in place to assist in the preparation of those procedures. According to the Guidelines, an entity may seek the Commission’s advice in the development and implementation of its procedures.

  1. Procedures for Prevention of Bribery and Corruption

The Guidelines provide the following principles to be considered by entities when developing their procedures for the prevention of bribery and corruption:

  •       a. Language

The procedures should be conducted in writing and in Kenya’s official languages. However, an entity may translate the procedures into any other language as may be dictated by the circumstances presented before it.

  •       b. Assessment of the risk of bribery and corruption within an Entity

An entity is required to map out bribery and corruption risk during the development of the procedures and develop a plan to mitigate those risks, if any.

  •       c. Implementation structure

The procedures should have an implementation structure which shall take into account the size, scale and nature of operations of the entity and any identified risks.

Additionally, the implementation structure should ensure commitment from the entity’s leadership and involvement of all its employees. The implementation should be supervised by a senior officer or any other person in such capacity.

The procedures may also incorporate external stakeholders of the entity and ensure that necessary resources for implementation are availed.

  •       d. Reporting Mechanism

The procedure should provide for sufficient reporting mechanisms to facilitate efficient and effective reporting of bribery and corruption within an entity. The mechanisms should facilitate timely reporting and receiving of feedback, access to reporting channels, prompt action and should ensure confidentiality and protection of the whistle-blowers, informants and witnesses.

  •       e. Reports

The procedures should provide for receiving, recording, processing and the dissemination of reports for appropriate action and feedback and should take into account fair administrative action.

  •       f. Protection

Procedures should ensure that the identity and details of informants, witnesses and whistle-blowers are kept confidential. The procedures should establish reporting channels, protection measures and should take appropriate action on reports of retribution, victimization or intimidation of informants, witnesses and whistle-blowers.

  •       g. Sensitization and enforcement structure

The procedures should provide for effective communication, training, awareness-creation and dissemination to internal and external stakeholders. They should also designate a person(s) in authority to set up an enforcement structure that will take into account the scale, size and nature of the operations of the entity.

  •       h. Monitoring and evaluation

The procedures should put in place measures for monitoring, evaluating and reviewing the effectiveness of the procedures, identification of emerging risks and improvements of the procedures.

  •       i. Collaboration

The procedures may provide for co-operation with other agencies within the sector or industry which may be in joint planning, sharing of information and best practice as well as mutual cooperation, peer review and capacity building.

  • D.   CONCLUSION

Since commencement of the Act on 13th January 2017, the number of people who pay out bribes to obtain government services have continued to rise. Informants, witnesses and whistle-blowers continue to fear potential harassment despite the specific provisions on their protection in the Act. In a Survey conducted by the Commission (National Ethics and Corruption Survey, 2017), over 63% of the respondents sought government services in 2016; out of these, 38.9% of the service seekers experienced some form of corruption either directly (27%), indirectly (9.8%) or as voluntarily participants (2.1%).Those who paid bribes to obtain services in public offices increased to 62.2% from 46% posted in the 2016 Survey.

There is no data that shows the impact of the Act in the fight against bribery and corruption. It is therefore hard to assess the level of implementation of this Act. We are hopeful that the Guidelines will increase the level of implementation of the Act and will aid in the fight against bribery and corruption in the public and private sectors.


Article by Ann Yvonne Muriithi

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

The Tax Laws (Amendment) Act, 2020 was assented to on 25th April 2020. The Act was enacted to shield Kenyans from the economic and financial effects arising from the Covid-19 pandemic and makes changes to various tax laws in Kenya. In this write-up we set out specific amendments made to the Income Tax Act (“ITA”).

Reduced Corporate Income Tax Rate: Corporate income tax rate for resident companies was reduced from 30% to 25%. This will apply from the 2020 year of income. Instructive to note, the reduced rate does not apply to Non-resident companies which rate remains at 37.5%.

Preferential Tax Rates for Newly Listed Companies: The preferential tax rates which applied to newly listed companies on the Nairobi Securities Exchange (NSE) for a defined period of time have been repealed. The rates ranged from 20% to 27%. This could be as a result of the reduced corporate income tax rate as discussed above.  

Companies Operating as Plastics Recycling Plant: These companies were subject to a lower corporation tax rate of 15% for the first five years from the date of operation. The rate has now been increased to 25%.

Turnover tax: Turn over tax as initially introduced was simply a tax payable by small businesses whose gross sales does not exceed or is not expected to exceed Kshs. 5 million per year. The changes introduced in respect to turnover tax include:

  1.  Alteration of the annual income threshold for turnover tax to between Kshs.1 million and Kshs.50 million;
  2. Application of turnover tax to incorporated companies (previously, it was only payable by unincorporated persons); and
  3. Reduction of turnover tax rate from 3% to 1% with an attendant reduction of the penalties for late payment. 

 

The amendments are aimed at addressing cash flow challenges experienced by small and medium enterprises during the period of the pandemic. The inclusion of incorporated entities is a positive development as most small and medium enterprises are now trading in various registered entities for their legal and financial purposes. 

 Presumptive Tax: Presumptive tax is a simplified tax regime for small and micro enterprises based on the value of single business permit or a trade license issued/renewed by County Government. The tax which was previously payable at the rate of 15% has been repealed.

Withholding Tax. Among other changes, the Act has extended the application of WHT to payments made to a non-resident person on account of sales, promotion, advertising and marketing services (at 20%); transportation of goods excluding air and shipping transportation services (at 20%) and reinsurance premiums except for reinsurance premiums in respect of aircraft (at 5%). In addition, the WHT for dividends paid to a non-resident person has been increased from 10% to 15%. These changes seek to tax income that was previously untaxed hence increasing government revenue. Notably, this is a short-term measure which can help the government raise revenues especially in this period. However, the government may need to review it in future as it may discourage non-resident investors which could result in reduced revenue for the government.

 Deductibility of Expenses: The 30% electricity rebate that was introduced by Finance Act, 2018 effective January 2019 has been repealed. This was an incentive to manufacturing companies which have had to contend with high cost of power over the years. It is a blow that this has been repealed at a time when the government is seeking to improve the contribution of the manufacturing sector to the overall Gross Domestic Product.

 Exemptions from Payment of Income Taxes: The Act has removed a number of exemptions previously granted under the ITA for incomes of several Government parastatals, certain diplomats, as well as on other sources. The exemptions include on compensating tax accruing to a power producer under a power purchase agreement, interest earned on contributions paid into the deposit protection fund established under the Banking Act, dividends paid by a Special Economic Zone (SEZ) enterprise, developer or operator to a nonresident person, gains arising from trade in shares of a venture company earned by a registered venture capital company among others.

 Pay as You Earn (PAYE)

 Individual tax rates- The individual tax rates bands have been expanded with a 100% relief for persons earning gross monthly income of up to Ksh. 28,000 and the amendment of the individual income tax rates with the highest rate of tax rate being reduced from 30% to 25%. In addition, the Act increased the individual tax relief from Kshs 16,896 pa. (Kshs 1,408 pm.) to Kshs 28,800 pa (Kshs 2,400 pm.). The amendments are aimed at translating into increased disposable income at this period of the pandemic. 

Pension withdrawal tax rates: The Act has reduced the highest tax band on pension withdrawals from registered retirement funds to 25%, for amounts exceeding Kshs.1, 200,000 per annum. The Act has also widened the tax bands on income withdrawals from retirement funds before the expiration of 15 years in line with the individual tax rates for PAYE as discussed above. These amendments will help in increasing the disposable income available to retirees in an effort to alleviate financial hardships occasioned by the pandemic.

Conclusion

Although the National Assembly approved the reduction of income tax, it rejected some revenue-raising proposals earlier included in the bill. The reduced tax rates like PAYE and the corporation tax means reduced revenue to the government and the government may be forced to find other ways to recover the lost revenue and the Finance Bill, 2020 seems to contain some of these ways. A separate write up on the Bill will follow. 


Article by Hillary Kariuki

Disclaimer

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

SEZs have numerous advantages, all aimed at creating a favorable environment for investors to flourish. This article highlights the tax advantages that investors and establishments in SEZs benefit from.

The SEZs Act exempts all SEZ enterprises, developers & and operators from taxes and duties payable under the Excise Duty Act, Income Tax Act, EAC Customs Management Act, and Value Added Tax Act on all SEZ transactions. They are exempted from:

  1. Stamp duty on the execution of any instrument that relates to the business activities of SEZ enterprise, developer, or operator;
  2. Provisions of the Foreign Investments & Protection Act relating to certificates for approved enterprises;
  3. Provisions of the Statistics Act No. 4 of 2006;
  4. The payment of advertisement fees and business service permit fees levied by the respective county governments’ finance acts;
  5. General liquor Licence & hotel liquor Licence under the Alcoholic Drinks Control Act, 2010;
  6. Manufacturing Licence under the Tea Act;
  7. Licence to trade in unwrought precious metals under the Trading in Unwrought Precious Metals Act;
  8. Filming Licence under the Films & Stage Plays Act, Cap 222;
  9. Rent or tenancy controls under the Landlord & Tenant (Shops, Hotels & Catering Establishments) Act; and
  10. Any other exemption that may be granted under the Act by notice in the gazette.

Tax Exemptions Under the Income Tax Act

The Income Tax Act exempts anybody licensed under the SEZs Act from payment of Minimum tax. Dividends paid by SEZ enterprises, operators, and developers are also exempt from tax and so are dividends paid by SEZ enterprises, operators, and developers to any non-resident person. There is also a 100% investment deduction where a person has incurred investment in a SEZ. With regards to tax rates, in a special economic zone enterprise, whether the enterprise sells its products to markets within or outside Kenya, a 10% tax rate is applied for the first ten years from the date of the first operation and thereafter 15% tax rate for another ten years.

The non–resident tax rate, applicable to (i) any payments made by Special Economic Zone Enterprise, Developer, or Operator to a non-resident person is 5% of the gross amount payable: (ii) any royalty paid by any Special Economic Zone Enterprise, Developer, or Operator to a non-resident person is 5% of the gross amount payable: (iii) interest paid by any Special Economic Zone Enterprise, Developer, or Operator to a non-resident person, is 5% of the gross amount payable: (iv) a special economic zones enterprise, developer, and operator in respect of payments other than dividends made to non-residents is applied at the rate of ten percent (10%).

Exemptions Under The Value-Added Tax Act

The Value Added Tax Zero-rated the supply of goods or taxable services to a special economic zone enterprise.

Exemptions Under The Finance Act, 2023

Section 24 of the Finance Act 2023 exempted from tax under the Income Tax Act: (i) Gains on transfer of property within a special economic zone by an SEZ enterprise, developer, and operator; (ii) Royalties, interest, management fees, professional fees, training fees, consultancy fee, agency or contractual fees paid to a non-resident person by a special economic zone developer, operator or enterprise, in the first ten years of its establishment.


Article by CG Mbugua & Yvonne Muriithi

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. /This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

 

Overview

For some time now, tax authorities from around the world have been seeking to tap from the expansive digital economy. They have grappled with trying to tax companies that provide digital services across the cyberspace while being physically located in other countries. The emerging trend has been through the introduction of a tax known as the Digital Service Tax (“DST”). The tax, which has been introduced by the UK government, the EU, and other countries worldwide is a tax that is applied to companies in the digital service industry. The introduction of the tax has faced major opposition, especially from the US, which is home to the largest companies in the digital economy. The Organisation for Economic Co-operation and Development (OECD) and G20 countries began negotiations in 2013 to address tax matters related to the digitalization of the economy as part of a broader review of international tax rules. Though these negotiations are still ongoing, more countries from both the OECD and beyond have proceeded to introduce the tax. As of March, 2021, Austria, France, Hungary, Poland, Spain, Turkey and UK implemented a DST in their national tax regimes

This move has been fueled in part by the events of the recent past. The last two years have seen a rise in the provision of services and products over social media platforms especially due to the covid-19 pandemic which necessitated some stringent measures including issuance of travel bans and imposition of lockdowns in many regions globally. Yet, transactions had to continue as well as other business, an alternative to this was then the digital marketplace.

DST was first introduced in Kenya through the Finance Act, 2019 and implemented by the Finance Act 2021 and the Income Tax (Digital Service Tax) Regulations, 2020 (“Regulations”) which came into force on 2nd January, 2021. Application of DST became effective on 1st July 2021.

Under the Kenyan regime, DST is a tax on income accruing from a business carried out over the internet or an electronic network, including through a digital marketplace. In essence, any income accrued in or derived from Kenya by a non-resident person in relation to services provided over the digital marketplace is subject to DST. The Finance Act, 2021 has defined a Digital Marketplace (“DMP”) to mean an online or electronic platform which enables users to sell or provide services, goods or other property to other users.

Salient provisions of the legal regime on DST

   i. Who is liable to pay?

DST is payable by Non-Residents. It applies to the income of a non-resident person that is derived from or that accrues in Kenya from the provision of services through a digital marketplace and is paid in Kenyan currency into the KRA account. A digital service provider is liable to payment of DST if the digital service is provided to a user located in Kenya.

DST is not chargeable on income that is derived from Kenya by non-resident persons who carry on the business of transmitting messages by cable, radio, optical fibre, etc. It is also not chargeable on income that is subject to the withholding tax regime.

   ii. What is the DST rate?

DST is chargeable at a rate of 1.5% of the Gross Transaction Value (GTV). In provision of digital services, the GTV is the payment received as consideration for the services and in the case of a digital market place, GVT is the commission or fee paid to the digital marketplace provider for the use of the platform. This GVT is exclusive of Value Added Tax chargeable for the services. DST is paid on or before the 20th day of the following month in which the digital service was offered.

  •    iii. Registration

A non-Resident person without a permanent establishment in Kenya and who provides a digital service in Kenya is required to register under the simplified registration Framework while a non-Resident with a permanent establishment in Kenya providing digital services in Kenya is required to apply to the Commissioner for DST for registration.

   iv. Sanctions for non-compliance

The applicable regime provides for various penalties for non-compliance with the provisions of the Act and the Regulations, including for failure to keep proper records, as required under the tax laws.

Conclusion

DST comes at a time when most economies if not all are struggling, amidst budget pressure and the heavy cloud of government borrowing and feeling the weight of the pandemic. Governments are looking into different ways of raising and increasing national revenue including imposing a tax on online transactions via digital marketplace by digital service providers and digital marketplace providers. A few gaps have been noted with respect to the DST regime in Kenya. Notably, neither the substantive Act nor the Regulations set a minimum threshold for applicability of this tax. This seems to be a departure from the practice in other countries like France, Italy, and United Kingdom, that have set both global and domestic revenue threshold. This means that in Kenya, DST is payable by all persons liable, regardless of their turnover and profitability. Despite this and other administrative gaps, Kenya seems determined in implementing the DST. The government is particularly hopeful that the tax will help increase its revenue collections and aid in its development programs. Observers are keen to see whether pressure from the US would lead to the government backtracking on this tax, especially in light of the ongoing negotiations for a bilateral trade agreement.


Article by Ann Yvonne Muriithi

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction

In our previous article Ten Notable Changes to the Income Tax Act, we highlighted the salient amendments introduced by the Tax Laws (Amendment) Act, 2020 to the Income Tax Act, Cap 470. In this article, we have put together a comprehensive overview of some key amendments to the Value Added Tax Act, No. 35 of 2013, the Excise Duty Act, 2015, the Tax Procedures Act, 2015, the Miscellaneous Fees and Levies Act, 2016, and the Retirement Benefits Act, 1997.Value Added

Tax Act, No. 35 of 2013. The following changes are notable.

  1. Rate of VAT - The VAT rate was reduced from 16% to 14% with effect from 1st April 2020 through Legal Notice No. 35 of 26 March 2020 and was subsequently approved by Parliament on 14th April 2020.
  2. VAT on petroleum products under Section B, Part I of the 1st Schedule. Previously, the taxable value of the said petroleum products did not include excise duty fees and other charges. With the amendment, these charges shall be included in determining the taxable value of these products. It is expected that the increase in the taxable value of petroleum products will result in an increase to the final price charged to consumers.
  3. Issuance of credit notes - Prior to the amendment, the law required credit notes to be issued within 6 months after the issue of the relevant tax invoice. With the amendment, credit notes may now be issued either within 6 months after the issue of the tax invoice or within 30 days after the determination of the matter where there is a commercial dispute in court with regard to the price payable.
  4. Application for refund of tax on bad debts. The period for application of refund of tax for bad debts has been reduced to 4 years from the date of the supply. 
  5. Keeping of records. Prior to the passage of the Act, the law required every registered person to keep a full and true written record of every transaction for a period of 5 years from the date of the last entry made. This requirement now applies to every person whether registered or not.
  6. Changes in VAT treatment. Several amendments have been to the Value Added Tax Act including standard rating a number of goods and services that were previously either zero-rated or exempt and also exempting a number of items that were previously zero - rated. Some of the goods that are now exempt from VAT include personal protective equipment used by medical personnel or the members of the public in case of a pandemic or a notifiable infection disease and vaccines for human and veterinary medicine and medicaments. The exemption of medicaments and vaccines may lead to increase in prices of these products as the pharmaceutical manufacturers will be unable claim input VAT incurred on their operations. Services such as insurance agency, insurance brokerage, securities brokerage services and asset transfers and other transactions related to the transfer of assets into real estate investment trusts and asset backed securities that were previously exempt from VAT are now subject VAT at the standard rate.
  • Excise Duty Act, 2015

The Excise Duty Act has been amended by applying excise duty on some excisable supplies. These include goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the government, one personal motor vehicle (excluding buses and minibuses of seating capacity of more than eight seats) imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his or her spouse and which is not otherwise exempted from excise duty under item 6 of Part A of the Second Schedule. These were previously exempt from excise duty.  

The Miscellaneous Fees and Levies Act, 2016. Two amendments to this Act are noteworthy. First, the Act introduces a processing fee of Kshs. 10,000/= on all motor vehicles excluding motorcycles imported or purchased duty free prior to clearance through customs under the relevant provisions of the East African Community Customs Management Act, 2004. It also imposes an Import Declaration Fee on gifts or donations (excluding motor vehicles) sent by foreign residents to their relatives in Kenya for their personal use, raw materials for direct and exclusive use in construction by developers or investors in industrial parks of 100 acres or more located outside Nairobi and Mombasa and goods imported for the construction of LP gas storage facilities.

Retirement Benefits Act, 1997

The Act generally prohibited the use of scheme funds to make loans to any person but allowed the use of a proportion of the benefits accruing to a member for securing a mortgage loan. In the new amendment, members of retirement schemes have now been allowed to access a portion of their benefits for purchase of residential houses. The draft Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 have now been formulated to specify the requirements and procedures that one would need to follow in order to access the benefits for house purchase. The amendment seeks to provide an avenue for financing the purchase of homes by using savings in retirement benefit schemes.

Conclusion

It is anticipated that the amendments will have a significant impact on doing business in the country. For instance, amendments to the Value Added Tax Act such as removal of exemptions may affect ongoing projects (such as power generation plants and oil exploration companies) that had already been granted VAT exemption. As explained above, other amendments may lead to an increase in cost to consumers. Further, the imposition of VAT on transfer of business as going concern may discourage commercial transactions and internal reorganizations due to the anticipated increased cost of acquisition and restructuring. 


By Audrey Seur

 

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Recently, the Office of the Data Protection Commissioner issued three penalty notices amounting to Kshs. 9,375,000/= to Mulla Pride Ltd, Casa Vera Lounge and Roma School. These companies were found liable for committing the following offences:

  1. Using the information of the data subjects beyond the scope of their consent;
  2. Posting an image of a data subject on their social media platform without the data subject’s consent;
  3. Posting minors’ pictures without parental consent.

The main issue was the failure by the companies who are data processors/controllers to obtain consent from data subjects prior to using their personal data. It is evident that the issue of consent is a hurdle that must be overcome and carefully considered before any personal data is collected and used.

This article will delve into the issue of consent including what it entails, how consent should be obtained for commercial use and how consent should be obtained where the data subjects are minors.

  1. What is Consent in Data Protection?

Data Protection in Kenya is governed by the Data Protection Act, 2019 (“the Act”). Section 30 of the Act prohibits a data controller or processor from collecting or processing personal data without the consent of data subjects.

So, what is consent? Consent is defined under Section 2 of the Act to mean any representation of the data subject’s expressunambiguousfreeinformed declaration of their desires through a statement or by an apparent affirmative actionsignaling authorization to the processing of their personal data. 

Thus, for consent to be deemed to have been legally obtained from a data subject, it must meet the following essential legal requirements:

  1.  Express – This means a clear and direct verbal or written agreement given willingly and knowingly by an individual. It is when someone explicitly           communicates their agreement or permission for something without any ambiguity or misunderstanding; 
  2. Unequivocal – This means that the consent is clear, unambiguous and leaves no room for doubt or misinterpretation as the person has given a definite and unmistakable agreement or permission. Consent cannot be assumed as was held by the High Court of Kenya in the case of Ondieki v Maeda (Petition E153 of 2022) [2023] KEHC 18290(KLR) where the court held that the installation of CCTV cameras in a residential area that could access, monitor or spy on a neighbour without their express and unequivocal consent amounted to breach of the neighbour’s constitutional right to privacy under Article 31 of the Constitution of Kenya. The Court noted that consent cannot be assumed and that the Respondent was under and obligation to receive an express and unequivocal consent from the Petitioner in view of his right to privacy;
  3. Free– This means that the person willingly and without any form of coercion or undue pressure agrees to something. It implies that the individual has the autonomy to make a decision without feeling coerced, threatened or manipulated into giving consent. The Act provides that in determining whether consent was freely given, an account should be taken of whether consent was requested as a precondition for the performance of a contract even though the same was not necessary for the said performance of contract. In such a scenario, the consent will be deemed conditional hence failing the ‘free’ test specified under section 2 of the Act;
  4. Specific – This means that the consent provided is clear and explicit for a particular action or purpose leaving no room for misunderstanding. For example, if someone consents to their personal data being used for a specific reason, it means that they have agreed to that specific reason and not something else;and 
  5. Informed– This means that a person has been provided with all relevant information, in a clear and understandable way about the particular action they are consenting to. This ensures that they have a full understanding of the potential risks, benefits and consequences before giving their consent.

It is important to note that the burden of proof is on the data collector/processor to demonstrate that the data subject consented to the collection and processing of their personal data for a specific purpose. We therefore recommend that entities maintain records to demonstrate that the consent of a data subject was obtained prior to the collection and processing of their personal data.

Can a data subject withdraw their consent? Yes, the data subject has the power to withdraw their consent at any time and the data processor/controller should avail this option at all times. However, this does not invalidate the collection or processing of the data subject’s personal data prior to the consent being withdrawn.

  1. Consent for Commercial Use of Personal Data 

Section 37 of the Act provides that commercial use of personal data such as in marketing, direct marketing and/or advertisement can only be undertaken where consent has been specifically acquired for commercial use. This means that the data subject should be aware that their personal data will be used for commercial purposes.

This position was affirmed by the court in the case of Rukia Idris Barri v. Mada Hotels Ltd [2013] where the court held that the Plaintiff’s consent had neither been sought nor obtained before Mada Hotels used her image for commercial purposes. The court held that even though the photograph in itself was not offensive, it was an unacceptable exploitation of one’s photograph or likeness for commercial purposes without their consent and that the same amounted to an invasion of her right to privacy and human dignity 

  1. Consent for Personal Data Relating to Children 

Under the Act, children do not have capacity to give consent for the processing of their personal data. This means that the consent of the parent or guardian of a child must be obtained before any personal data of a child is collected or processed. Additionally, the Act provides that the collection and processing of personal data of a child should be done in a manner that protects and advances the rights and best interests of the child.

The incapacity of children to give consent was emphasized by the court in the case of N W R & another v. Green Sports Africa Ltd & 4 others [2017] eKLR where the court held that the data processor failed to demonstrate that the consent of the parents of the children was obtained before the photographs of the children were used. The Court stated that the children could not be said to have consented by voluntarily posing for the photographs for the simple reason that they lacked the requisite capacity to grant the consent.

  1. Conclusion

The importance of obtaining valid consent before collecting or processing personal data cannot be overstated. It behooves entities or individuals undertaking collection and/or processing of personal data of whatever nature to establish processes and procedures to ensure that consent is acquired from data subjects and that the consent is express, unequivocal, free, specific, and informed.

Data Processors and Controllers should note that failure to comply with the requirements of the Act regarding consent attracts regulatory sanctions including enforcement notices, penalty notices and administrative fines by the Data Commissioner up to five million shillings. The Act also provides that a person who contravenes the Act could be imprisoned for a term not exceeding 10 years. It is therefore crucial for all data controllers and data processors to comply with the provisions of the Act.


Article by Ivyn Makena, James Karuga and Emily Ogonyo

Published on 2nd November 2023

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.

A. Introduction

The Finance Act 2021 dated 30th June 2021 (“the Act”) has amended various tax-related laws including the Income Tax Act and the Stamp Duty Act. One of the major changes introduced in these Acts is the tax reliefs for registered family trusts, which is seen as a move to promote the use of family trusts particularly as a mode of estate planning.

  • B. Amendments to the Income Tax Act and Stamp Duty Act
          •    1. Income Tax Act, Cap. 470

The changes introduced by the Act in relation to registered family trusts are as follows:

  •       a. Certain income received by beneficiaries of a registered trust exempt from income tax

Previously, any income received by a beneficiary from a trustee was deemed as the income of the beneficiary and was subject to tax. The amendment excludes from income tax the following income received by a beneficiary or paid out on behalf of a beneficiary from a registered trust:

  1. Any amount paid out of the trust income on behalf of any beneficiary that is used exclusively for the purpose of education, medical treatment or early adulthood housing;
  2. Income paid to any beneficiary which is collectively below ten million shillings in the year of income;
  3. Any other amount that the Commissioner may prescribe from time to time.

It is important to note that the amendment refers to a ‘registered trust’ not a ‘registered family trust’. This is a broader term and, if strictly interpreted, it increases the base of persons who can benefit from the tax relief.

  •       b. Inclusion of ‘registered family trust’ in the definition of ‘settlement’ under Sections 25 and 26 of the Income Tax Act

Section 25 provides how income from a settlement paid to the child of a settlor should be treated in tax. It states that income from any settlement paid to or for the benefit of the child (under 18 years) of a settlor during the life of a settlor is deemed as the income of the settlor for purposes of tax. The Act amends section 25 (7) by introducing ‘registered family trust’ in the definition of settlement. This effectively makes the income derived from the transfer of assets through a registered family trust the income of the settlor under the section and therefore subject to income tax.

Section 26, on the other hand, discusses how income from a settlement paid to persons other than the child of a settlor should be treated in tax. Such income, similar to Section 25, will be deemed as the income of the settlor for income tax purposes. Section 26(5) is amended by excluding a registered family trust from the definition of a settlement. The effect of this is that the income from a registered family trust is excluded from being deemed an income of the settlor and is therefore not subject to income tax when paid to persons other than the child of a settlor, as provided under this section.

  •       c. Exemption of income from registered family trusts from tax

The First Schedule of the Income Tax Act lists the various forms of income that are exempt from income tax. The Act has amended Paragraph 36 of the First Schedule and has introduced Paragraphs 57 and 58 in the First Schedule.

The effect of these amendments is that the following are now exempt from income tax:

  1. Property, including investment shares, which is transferred or sold for the purpose of transferring title or the proceeds into a registered family trust;
  2. Income or principal sum of a registered family trust; and
  3. Any capital gains relating to the transfer of title of immovable property to a family trust.

   2. Stamp Duty Act, Cap. 480

Section 52 of Stamp Duty Act provides that stamp duty is payable for any transfer of property made as a gift during the life of the owner of the property, except for the transactions provided under Section 52(2). The Act has amended Section 52(2) of the Stamp Duty Act to include any transfer of property to a registered family trust. Therefore, any transfer made to a registered family trust as a gift under this section will be exempt from stamp duty.

A further amendment is introduced in section 117 of the Stamp Duty Act which contains a list of transactions/documents that are exempt from stamp duty. Section 117 (1) (h) is amended by the Act by introducing a registered family trust as an exemption to stamp duty in addition to a will, codicil or other testamentary disposition. It is our interpretation that the intention of this amendment is to exempt the trust deed of a registered family trust from stamp duty payment.

  • C. Our View on the Amendments

While the tax reliefs discussed above are welcome, and indeed a pleasant surprise, it may prove difficult for Kenyans to access them because of various gaps in the law, including:

  1. Lack of a definition of the term ‘Family Trusts’ – It is unclear what qualifies as a family trust in Kenya from the provisions of the amended Acts and the current laws on trusts and perpetual succession;
  2. It is not clear how a family trust should be registered – The tax reliefs only apply to registered family trusts yet it is not clear how a family trust should be registered. For instance, is it enough for the Trust Deed to be registered under the Registration of Documents Act or should the Trustees be incorporated for the Trust to be considered registered?
  3. It is also not clear how registered family trusts will access the tax reliefs – Is it automatic or must they make an application and obtain a tax exemption certificate?

Nonetheless, the tax reliefs are a step in the right direction and the gaps in law can be cured by further amendments to the existing laws on trusts and succession and the development of respective regulations. For example, the Trustees (Perpetual Succession) (Amendment) Bill 2021 that is currently under review in Parliament will shed more light on the concept of family trusts, if passed into law.

D. About ‘Family Trusts’

As seen above, no definition of ‘family trust’ or ‘registered family trust’ has been provided by the Act.

However, the Trustees (Perpetual Succession) (Amendment) Bill 2021 proposes a definition of ‘family trust’. According to this Bill, a family trust is “a trust whether living or testamentary, partly charitable or non-charitable, that is registered or incorporated by any person or persons, whether jointly or as an individual, for the purposes of planning or managing their personal estate”. The Bill also provides that a family trust shall be:

  1. made in contemplation of other beneficiaries other than the settlor, whether such intended beneficiaries are directly related to the settlor or not, or are living or not;
  2. made for the purpose of preservation or creation of wealth for multiple generations; and
  3. a non-trading entity.

The Perpetuities and Accumulations (Amendment) Bill 2021 also has a provision regarding a family trust. It proposes that any reference to perpetuity period will not apply to family trusts. Currently, the maximum period for which a trust can last is 80 years. If this Bill is passed, the amendment would remove restrictions on the period of a family trust which can therefore run for as long as the settlor wants it too.

The two Bills are under review in Parliament. Therefore, the proposed amendments, including the definition family trust, are not yet in force which means that the gaps in law regarding family trusts will remain until the Bills are passed into law.

  • E. Conclusion

In conclusion, despite the gaps in law that have been identified, the tax reliefs introduced for registered family trusts will encourage and promote estate planning in Kenya through the use of family trusts. There is however need for regulations and further amendments to the law to clarify family trusts, their registration and how they can access the available tax reliefs.


Article by Ivyn Makena and Lovin Olang

Published on 10th August 2021

 

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.    

As part of the Government’s efforts to enhance the ease of doing business, the Ministry of Lands and Physical Planning formulated the Land Registration (Electronic Transactions) Regulations, 2020 (“the Regulations”) early this year to provide an enabling framework for the roll out of a system for carrying out of electronic land transactions. The Regulations were gazetted on 14th July 2020 and apply to the Nairobi Land Registry. 

The electronic land registry

The Regulations require the Chief Land Registrar to maintain an electronic land register which will enable land transactions to be carried out through the system. The Registrar may through the system:

  1. issue a notice, certificate or any document which is required to be issued by the Registrar under the Act;
  2. certify a form, document or extract of a document required to be certified by the Registrar under the Act; or
  3. send any document issued or certified by the Registrar to the electronic addresses provided by a user for that purpose.

Registration 

To access any service on the Land Information Management System (LIMS), one must register, whether as a natural or legal person or community. The registration requirements differ for various categories of users. A user can access the system in their individual capacity or through an authorized representative or user, who must be a qualified advocate. An advocate may be an authorized user upon providing additional information including their advocates Number on the system. What is not clear is whether other persons such as guardians, persons holding powers of attorneys may be deemed as authorized users under the system. 

Upon registration, a One Time Password (OTP) in the form of a text message shall be sent to the user’s telephone number to authenticate every log-in. Registration also makes one subject to various obligations of the users, meant to ensure safety and accuracy of the information provided or submitted when using the system. 

Conduct of Searches and Valuation 

A registered user may conduct official searches on the system after paying the requisite fees. He or she may also conduct a historical search over the property which will provide a list of all transactions in a chronological order together with the status and date of each entry. Valuation of documents for payment of stamp duty may also be done electronically. Once valuation is concluded, the amount of stamp duty payable shall be communicated via text message or email notification or other electronic means. The rules in the Land Registration Act as regards indemnity that apply to the physical Land Registry also apply to the Electronic Land Registry.

Registration process

Users seeking to register interests in land will be required to submit the application, instruments or documents for registration in the system and pay the prescribed fee, where applicable. The regulations provide that the usual forms prescribed under the Land Registration Regulations will be used subject to such modifications as the Chief Land Registrar may make, to enable their use electronically.

Notably, the instrument presented for registration may be executed by use of advanced electronic  signature of parties. Advanced electronic signatures range from a simple electronic signature represented in the form of a scanned signature of the person as an indication of a name of a sender (not encrypted), to a digital signature that is based on cryptographic authentication of a sender by technological means in the form of a coded message or an encrypted data.

Where it is not possible to execute the instruments or documents by way of an advanced electronic signature, the user may enter the required information in the applicable electronic form, print the duly filled form for execution and attestation, scan and upload the duly executed and attested form onto the system and attach the relevant supporting documents as may be required. Where it is an Advocate undertaking the registration process, they must first submit the client’s instructions through the relevant form which requires each client to sign the said form, personally.

  • Tracking Numbers in the Registration process 

The Regulations prescribe use of tracking numbers similar to booking numbers in manual registrations. The tracking number determines the priority of registration of the instrument. An instrument or document shall be deemed to be received for registration when the system generates a notice of electronic filing with a tracking number for the electronically filed application, instrument or document. 

The Registrar may reject applications if they are substantially defective, or submitted without the relevant supporting documents. One can lodge afresh after making the necessary corrections or appeal the rejection as provided in the Regulations. The Registrar shall, for the purposes of processing the applications, rely on the documentation and data available within the system and may, where necessary, refer to the backup of manual records. The authorized user may also be called upon to present a document manually where production of an original is required.

Registration is completed upon the approval of the transaction and the making of corresponding entries into the register by the Registrar. Upon registration, there shall be an electronically generated notice to the effect that the document has been registered. The Registrar shall then issue an electronic certificate of title or lease in accordance with which shall contain unique serial numbers and security features which can be used to verify the authenticity of the certificate. The registered instruments and documents shall be made available for download by the authorized user or any person conducting a search electronically.

Conclusion 

The publication of the enabling Regulations is just a step towards the welcome rolling up out of an electronic land registration system. It is hoped that with the enabling legal framework in place, steps towards the complete operationalization of the electronic system will be hastened to enhance the ease of doing business. It is also commendable that the Regulations have recognized the teething problems associated with transition to online platforms. In this regard, they have given room for transactions to be conducted manually where the electronic registration system cannot be used or through such other means as the Chief Land Registrar may determine. This would go a long way in easing the transition from the manual system to the electronic system.


By June Njoroge and Pauline Njau

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

A. Introduction

The National Land Commission (Amendment) Bill, 2023 (“The Bill”) proposes to amend the National Land Commission Act, 2012 (“NLC Act”) which provides for the powers and functions of the National Land Commission (“NLC”), qualifications for appointments, and the implementation of devolved land governance principles and objects. The Bill seeks to address crucial issues related to the review of public land grants, historical land injustices claims, and the legal requirements for validating land titles in Kenya. It proposes to amend the following Sections of the NLC Act:

  1. Amending Section 14 (1) by deleting the words ‘within five years of the commencement of this Act’ and by deleting the entirety of subsection (9) – These provisions limit the period within which NLC could exercise its power to review grants and dispositions of public land to 5 years from the commencement of the NLC Act. The period has since lapsed.
  1. Deleting Section 15 (3) (e) – The section provides that historical land claims can only be admitted, registered and processed by the NLC if brought within 5 years of the commencement of the NLC Act. The 5-year period has lapsed.
  2. Deleting Section 15 (11) – This section provides that all the provisions on historical land injustices in the NLC Act would be repealed within 10 years which period has already lapsed.

In this article, we will explore the implications of this bill on land governance in Kenya.

  • B. Implications of the National Land Commission (Amendment) Bill, 2023 on land governance

     1. Restoring the National Land Commission's Power to Review Public Land Grants

One of the principal objectives of the National Land Commission (Amendment) Bill 2023 is to reinstate the authority of the National Land Commission (NLC) to review all grants or dispositions of public land. This power had lapsed with the expiration of Section 14 of the original Act. Currently, the Commission is unable to address complaints or rectify instances of illegality in public land dispositions, even when there are clear and apparent violations of land laws.

The proposed amendment would empower the NLC once again to scrutinize public land transactions to determine their propriety and legality. This is a crucial step in ensuring transparency, accountability, and fairness in the allocation and use of public land resources.

     2. Extending the Window for Historical Land Injustices Claims

Another significant aspect of the National Land Commission (Amendment) Bill 2023 is its extension of the timeline for filing historical land injustices claims. Under the National Land Commission Act 2012, historical land claims can only be brought within five years from the date of the NLC Act's commencement. This restriction limits the ability of many victims of historical land injustices to seek redress. The proposed amendment eliminates this time constraint, offering a renewed opportunity for those who have suffered from historical land injustices to come forward with their claims.

The recent Supreme Court decisions, particularly in the cases of Dina Management Limited v County Government of Mombasa & 5 Others(2021)[2023] and Torino Enterprises Limited v Attorney General [2023], have highlighted the importance of addressing land title irregularities and the insufficiency of title documents in cases where the origins of those titles are disputed. The rulings emphasize the need to go beyond the title instrument itself and establish the legality of land acquisition from its inception.

In light of these legal precedents, the National Land Commission (Amendment) Bill 2023 aligns with the evolving jurisprudence. By removing the time limit for historical land claims and allowing for a more comprehensive examination of land ownership, this amendment supports the principle that land titles should be based on legitimate and just land allocation processes.

C. Conclusion

The proposed amendments in the National Land Commission (Amendment) Bill 2023 represent significant steps towards rectifying historical land injustices, improving land governance, and ensuring fairness and transparency in public land management in Kenya. If passed into law, it will align the law with the current judicial pronouncements and it will respond to the pressing need for justice and accountability in land matters.


Article by Grace Andati, Joseph Barasa and Emmanuel Kimeu

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it.    

  • A. Background

The Ministry of Lands and Physical Planning announced the conversion of various land titles in Nairobi via special issue Gazette Notices on 31st December 2020, 26th January 2021 and 23rd February 2021. The Gazette Notices listed all the properties to be affected by the conversion process by specifying the ‘old’ Land Reference Numbers, the new Parcel Numbers and the size of the properties. The Gazette Notices also gave owners of the affected properties 90 days to lodge any complaints regarding the conversion of the affected properties with the Land Registrar. The last period for lodging complaints under the published Gazette Notices lapsed on 28th May 2021. However, if another Gazette Notice is issued, the owners of the properties listed on the Gazette Notice will have a similar 90 days to lodge any complaint.

  • B. Introduction

Conversion is the statutory process of migrating all parcels of land from repealed land registration statutes to a unitary regime under the current Land Registration Act, No. 3 of 2012. The titles issued under the repealed statutes will be cancelled and replaced with titles under the new regime. However, the ownership of the properties, the parcel size and the interest conferred should not be affected by this conversion process.

The process is guided by various statutes including the Constitution of Kenya 2010, the Land Registration Act No. 3 of 2012, the Land Registration (Registration Units) Order 2017, Land Registration (Electronic Transactions) Regulations 2020, the Sectional Properties Act 2020, the Survey (Electronic Cadastre Transactions) Regulations 2020, the Physical and Land Use Planning Act 2019 and the Land Registration (General) Regulations 2017.

Ideally, titles issued after the enactment of the statues mentioned above should have been registered in accordance with the new regime. However, land registries in Kenya continued to operate under the transitional provisions of the Land Registration Act including issuing titles under statutes that were repealed by the same Land Registration Act. This, together with the titles issued before the enactment of the new statutes, is what prompted the conversion of titles. Land registries are now seeking to have all titles registered under the new statutes, and the process has begun with properties located in Nairobi.

It is important to note that titles which are subject to encumbrances will also undergo the conversion process if the titles were issued under the old regime. It is not clear how such titles will be converted. The process of conversion will need to be revised to clarify on the issue of existing encumbrances and how they will be treated once the old titles are replaced.

  • C. The Process of Conversion of Titles

The process of conversion of titles is as follows:

  1. The survey department provides the cadastral maps together with a conversion list indicating the old land reference numbers, new parcel numbers and the parcel sizes for parcels of land subject to conversion;
  1. The Cabinet Secretary for the Ministry of Lands and Physical Planning publishes the conversion list and the cadastral maps of the affected properties in the Kenya Gazette and two national daily newspapers;
  1. Owners of the affected properties are given ninety (90) days to view the list and make complaints to the Land Registrar regarding the conversion, should they have any complaints;
  1. In case any complaint is lodged, the Land Registrar is required to register a caution on the affected property pending the resolution of the complaint;
  1. Once the 90-day period expires, and no complaint is lodged, the registers of the affected properties maintained under the repealed statutes are closed and a new register under the Land Registration Act is opened for the affected properties;
  1. Thereafter, the Land Registrar issues a notice to the public inviting the owners of the affected properties to apply for the replacement of titles. This notice should be published in two national daily newspapers and announced on radio stations of nation-wide coverage;
  1. Land owners then submit applications for replacement of title in accordance with the notice from the Land Registrar. The application would be accompanied by the original title and would need to be submitted within the timelines stated in the notice by the Land Registrar;
  1. Within 7 days of receiving applications for the replacement of titles, the Land Registrar is required to issue new titles under the Land Registration Act to the owners of the affected properties; and
  1. Finally, the replaced titles will be cancelled and kept in safe custody in the new registers.
  • D. Replacement of Deed Plans with Registry Index Maps

The conversion process also involves the replacement of Deed Plans with Registry Index Maps (RIMs) as instruments of registration. This is aimed at reducing incidences of fraud because RIMs capture a wider area of land parcels in a designated area as opposed to Deed Plans which focus only on a specific land parcel in isolation.  

Boundaries of land will also not be affected because RIMs are generated from the existing survey plans.

Additionally, sectional units will no longer be registered on the basis of architectural plans. Instead, respective sectional plans will be georeferenced and registered on the basis of sectional plans prepared by the Director of Survey.

Cadastral and RIMs maps can be viewed and purchased at the Survey of Kenya head office located in Ruaraka.

  • E. Procedure of Lodging Complaints with the Lands Registrar

Any complaint in respect of the conversion list or the cadastral map is required to be submitted, in writing to the Lands Registrar in the prescribed form within ninety (90) days from the date of the Gazette Notice. The complaint should include:

  1. the name, address and telephone number of the complainant;
  2. nature of the complaint; and
  3. the grounds of the objection.

A complaint number will then be assigned to a complaint in order to facilitate further follow up and resolution. The law requires a Registrar to resolve the complaints submitted within ninety (90) days of their submission.

A complainant may apply to the Land Registrar for the registration of a caution pending the clarification or resolution of any complaint. The Land Registrar may also register a restriction to prevent any fraud or improper dealing in the land.

Once the complaint is resolved, the Land Registrar will order the removal or variation of the caution or restriction.

A person aggrieved by the decision of the Registrar can lodge an appeal in court within 30 days.

  • F. Conclusion

The process of conversion is set to be carried out in phases, with a pilot programme currently underway in Nairobi. In this regard, the Ministry of Lands has already issued a number of Gazette Notices containing various parcels of land marked for conversion and is likely to issue more Notices. Land owners are encouraged to confirm whether their property is affected, and lodge complaints if any, within the prescribed timeline.


Article by Julia Kuria and Pauline Njau

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

The outbreak of coronavirus (COVID-19) has been declared a global pandemic by the World Health Organization (WHO) and its impacts are being felt in many sectors, including the transport, manufacturing, sports, tourism and gaming industries.

SEZ is an area in a country that is designed to generate positive economic growth and usually has more favourable economic regulations compared to other regions in the country, to create an enabling environment for investors to flourish through the development of integrated infrastructure facilities and government incentives and support to eliminate impediments to economic & business activities in SEZs.

SEZs are regulated by the SEZs Authority (Established in 2015 via the SEZs Act, No.16 of 2015) (hereinafter referred to as “SEZA”) which was established to attract, facilitate, and retain domestic and FDIs in SEZs. SEZs Authority regulates both private and public SEZs in Kenya.

Section 4(4) of the SEZs Act (“the Act”) was amended by the Finance Act 2023 (Sec. 100) to define SEZ as a designated geographical area that may include both customs controlled area and noncustoms controlled area where business enabling policies, integrated land uses and sectorappropriate onsite and off-site infrastructure and utilities shall be provided, or which has the potential to be developed, whether on a public, private or public-private partnership basis, where development of zone infrastructure and goods introduced in customs-controlled area are exempted from customs duties in accordance with customs laws.

Activities carried out in SEZs

Sec. 4(6) of the Act outlines some of the sectors that can operate in SEZ including free trade Zones, industrial parks, free ports, information communication technology parks, science and technology parks, agricultural zones, tourist and recreational zones, business service parks, livestock zones, and convention and conference facilities. Some of the firms/companies that are established in SEZs include technology firms, SMEs and private equity firms, investment companies, industrial, financial services, tourism, and hospitality companies.

Licensing of SEZs

To operate in SEZ, an operator or developer must: be a company incorporated in Kenya; have financial, technical, and managerial expertise in developments or operational projects required for SEZ; and own or lease land/premises within SEZ.

A business enterprise is granted a Licence to operate in SEZ if: It is incorporated in Kenya; proposes to engage in activities eligible for SEZ; and proposed activities do not have a negative impact on the environment, are not a threat to security, and do not present a health hazard.

SEZA is required to give notice to KRA of every SEZ developer, operator, or enterprise specifying the activities for which the enterprise is licensed and the conditions attached to the Licence, if any. The licensing process is as follows:

     a) Application by a developer, operator, or enterprise;

     b) Payment of the prescribed fee;

     c) Evaluation of the application by SEZA; and

     d) Issuance of a Licence by SEZA.

The Licence must be in the prescribed form, authorize the licensee to conduct business in SEZ as a developer, operator, or enterprise, be valid for a period of one year with an option of renewal subject to meeting the conditions set by SEZA for renewal and may contain other conditions, if necessary.

SEZA may amend the Licence or revoke it for want of compliance. All approved applications for establishment in SEZ are gazette in the Kenya Gazette. Licensed SEZ enterprises, developers, and operators are entitled to work permits for up to 20% of their full-time employees.


Article by CG Mbugua & Yvonne Muriithi

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it.

What is an FTA?

A Free Trade Agreement (FTA) is an agreement between two or more countries (“partner countries”) to facilitate trade and eliminate trade barriers. It typically removes or significantly reduces impediments to the flow of goods and services between the partner countries. For this purpose, modern FTAs go beyond the mere reduction of tariffs for traded goods, and address various regulatory principles. Generally, FTAs help create an open and competitive international marketplace.

Background to the Kenya - USA FTA

On 6th February 2020, the U.S. and the Republic of Kenya announced the launch of negotiations to conclude a comprehensive and reciprocal FTA that would be the first of its kind between the U.S.  and a sub-Saharan African country. If successful, the negotiations would be seen to represent the most significant innovation in U.S.-African trade relations since the enactment of the African Growth and Opportunity Act (AGOA) trade preference program in the U.S. in the year 2000.

By adopting a reciprocal approach toward market access and other trade issues, the negotiation of a bilateral FTA between the U.S. and Kenya will have important ramifications for unilateral programs like AGOA. AGOA was in fact intended to be a stepping-stone to a more mature trade relationship between the U.S. and African countries when it was developed over 20 years ago. AGOA is set to expire in 2025.  

The proposed bilateral trade agreement also coincides with the launch, by members of the African Union, of efforts to implement the African Continental Free Trade Area (AfCFTA), following its enforcement on May 30, 2019. AfCFTA was signed by 44 of the 55 African countries in Kigali, Rwanda on 21st March 2018, at the 10th Extraordinary Summit of the African Union.

Negotiation principles

The Kenyan Ministry of Industrialization, Trade and Enterprise Development, having consulted and heard from various stakeholders, developed and published Negotiating Objectives and Principles to guide the negotiations of the FTA.

The principles include ensuring that the FTA is compatible to the WTO principles and allows for application of the ‘Special and Differential Treatment’. They also include ensuring that it is an instrument for economic and trade development, and that it respects the commitments that Kenya has taken at multilateral (WTO), continental (AfCFTA), regional (EAC, COMESA, TFTA) and bilateral levels. Further, they include allowing any EAC partner state that did not participate in the negotiations to join the negotiations, subject to terms and conditions already agreed or accede to the concluded FTA.

Negotiating Objectives

The specific objectives of the FTA include ensuring that there is no disruption of Kenya’s market access into the USA after AGOA expires, and securing a predictable trade regime with the U.S.  that is AGOA Plus. They also include enhancing and diversifying exports of goods and services into the U.S. under predictable and preferential terms, and stimulating industrial, agricultural and service industry development through targeted production of goods and services that are aligned to market opportunities in the U.S.

The FTA will also support development of value chains, especially in production and value addition, and creation of demonstrable economic benefits to the Kenyan economy especially creation of decent jobs and sustainable livelihoods. Further, it will strengthen and promote Kenya’s regional, continental and global market access through revamped production and supply capacity arising from U.S.  investments triggered by the FTA.

Scope of the FTA

The FTA will cover the following areas:

  1. Goods Market Access

The FTA will aim at progressively eliminating tariff and non-tariff barriers on substantially all trade in goods in order to establish a free trade area among the parties. The scheduling of tariff commitments will seek to maximize the benefits of regional economic integration, and priority will be attached to early tariff elimination on products of interest to Kenya.

  1. Technical Barriers to Trade (TBT)

The FTA will ensure unconditional national treatment of conformity assessment bodies and encourage the use of international conformity assessment systems, including mutual recognition arrangements.

  1. Customs Procedures, Rules of Origin and Trade Remedies

The FTA will develop simple and easy to implement rules of origin which ensure that the benefits of the Agreement go to products genuinely made in Kenya, building on AGOA Rules of Origin. The rules are also intended to encourage regional value chain by allowing cumulation across the existing regional blocs; and incentivising development of the nascent agricultural and industrial sector in Kenya.

  1. Services, Digital Trade, and Investment

The FTA will support Kenya in strengthening e-commerce and digital platforms for trade in goods and services. It will also provide a framework to strengthen the Kenyan innovation and entrepreneurship ecosystem, including the upgrading of innovation start-ups.

  1. Intellectual Property (IP)

The FTA shall aim to reduce IP-related barriers to trade and investment by promoting economic integration and cooperation in the utilisation, protection and enforcement of intellectual property rights.

  1. Economic and Technical Cooperation

Economic development and technical cooperation under the FTA will aim at enhancing development in various value chains of export interest to Kenya, and maximising benefits from its implementation.

  1. State Owned and Controlled Enterprises (SOEs)

The FTA will recognise the importance of SOEs in the development of the Kenyan economy. Consequently, it will ensure asymmetry, especially for strategic SOEs where Kenya will need to be granted the flexibility required in shielding such SOEs from the FTA commitments.

  1. Environment

The FTA will recognise the importance of the environment and support the Multilateral Environmental Agreements (MEAs) that each country is party to, in which fora they will continue working closely.

  1. Government Procurement

The negotiations are aimed at ensuring cooperation and exchange of information on enhancing capacity and transparency of government procurement. They will also ensure Kenya’s participation in the USA government procurement process and the application of the principle of asymmetry geared towards non reciprocity in government procurement.

The FTA will also cover food and agriculture, Sanitary & Phytosanitary (SPS) measures, textile and apparel, labour, and transparency and legal issues, including the ratification of any treaties which may have an impact on the agreement, and anti-corruption provisions.

Criticism

While Kenya has maintained that the unilateral pursuit of an FTA will bring predictability in trading with the U.S., and that it serves as a model for other sub-Saharan Africa countries, concerns have been raised that opening the Kenyan market to U.S. goods will kill local sectors like agriculture and manufacturing.  The FTA has also been criticised as part of Kenya’s tendency to undermine the East Africa Community, of which Kenya is a member and whose treaty requires negotiating trade agreements as a bloc and not as individual member states.

Conclusion

Once finalised, it is hoped that the FTA will significantly economically benefit Kenya in the various areas outlined above, including trade, agriculture, industry, and intellectual property. While the conclusion of such an agreement will certainly present challenges, prior trade practice of the U.S. suggests that substantial flexibility may be incorporated into the agreement to account for the differing levels of development between the U.S. and Kenya. Negotiations have currently stalled, due to the Covid -19 Pandemic, and the U.S. general elections, which have left their fate uncertain, as the U.S. realigns its interests under the new Biden administration.


Article by Pauline Njau

This article is intended for general knowledge only. For substantive legal advice on this, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

The Business Laws (Amendment) Act 2020 (the “Act”) was assented to by the President on March 18, 2020. The Act has amended several laws with the aim of facilitating the ease of doing business in the country.

Not a month goes by without reading about family disputes over inheritance of property. Seemingly close families end up fighting after the death of a patriarch or matriarch. Emotions run high and deep-seated resentments come to the surface. Unfortunately, these fights can drag on for a long time, leading to families losing some of their inheritance to pay for legal fees and often times family relations are severed forever.  

 Why does this happen?

There are a number of reasons.

  • •  Lack of Estate Planning

Not having a sufficient estate plan is one of the biggest causes of family disputes today. If one dies without a Will, the state determines who will administer the estate and how distribution will be done.  An estranged spouse or child can end up having equal share of the inheritance with a child who took care of the family or the business. Also, one may have a Will, but it may not be valid, or it may not have sufficiently catered for dependents, creating more grounds for disputes.

  • •  The Secret Family

Too often, we see the emergence of a secret second family after one’s death. The grieving family now has to deal with a sense of betrayal and how to accommodate the ‘new’ family who also want a share of the estate.

  • •   First-born son syndrome

Then there is the first-born son who believes he’s the rightful person to administer the estate even if he is not the most suitable or responsible, but has a sense of misplaced entitlement. This can end up causing bitter sibling rivalries. It is important to note that a first-born son has the same rights as other children.

  • •   Dads’ new wife

The new wife who receives a good chunk of the estate much to the chagrin of other family members. Resentment and suspicion takes center stage usually with one side of the family claiming that there was undue influence and coercion or outright forgery.

How do we prevent disputes:

  • •   Have a Will-

Having a valid Will allows you to choose your executors and to distribute your property the way you would have wanted to. The more specific the Will, the better.  Ensure your Will is properly drawn up to avoid unnecessary court battles! It must be reviewed regularly to cater for any changes.

  • •   Include Everyone

You MUST include your all children, even those you got out of wedlock and you must include your spouse/s. (Other dependents like parents, siblings etc. may be included if you so wish).  This will save your family a whole lot of heartache.

  • •   Have a Trust

Consider having a trust to protect your assets. A properly drawn up trust can prevent unnecessary disputes as the property is transferred to the trust and is managed by the trustees for the benefit of your beneficiaries. You can protect your assets from creditors, in-laws and errant children. The trust can serve as very useful instrument for preservation of wealth for future generations.

  • •   Be Fair

Be as fair as possible when planning your estate. It does not mean that you have to provide for your dependents equally, but you must be reasonable. For example, a child living with a disability may require more financial care than the others. Everything must be weighed and carefully balanced. Distributions that are done fairly tend to have less disputes than others.

  • •   Communicate

It is important to communicate as much as you can with your family regarding property, your business and your intentions. Open communication will help to manage expectations and enhance family bonding.

  • •   Distribute in your lifetime,

As much as possible, consider giving gifts during your lifetime. This prevents challenges later by someone else and the gift goes directly to the person you had intended to give.

What kind of legacy do want to leave?

We can help - contact our Estate Panning team at This email address is being protected from spambots. You need JavaScript enabled to view it.

‘Changing the narrative in Estate Planning, one family at a time’


  • Article by Gladys Mboya

 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates.

The Companies Act, 2015 and the Insolvency Act, 2015 govern dissolution of companies in Kenya, including the dissolution of dormant companies. Where a registered company no longer wishes to carry on business or has been dormant for a while, it may apply to the Registrar of Companies to strike it off from the companies register in accordance with the Companies Act 2015, or voluntarily liquidate its affairs in accordance with the Insolvency Act, 2015.

We will discuss the two options available to dormant companies in two separate parts of this series. This article is Part I and it sets out in summary the legal requirements and the procedure for striking off a dormant company from the Companies Register.

PART I: Strike Off of Company from the Companies Register

  • Introduction

Strike off is the process where a company that has been inactive for a long time and has few or no obligations is removed from the register of companies. Once removed from the companies register, the company ceases to exist and it can no longer trade in its name.

  • General Legal Requirements

A company may apply to the Registrar to be struck off the companies register and be dissolved only if:

  1. it is a dormant company or is no longer trading and has no assets and liabilities; or
  2. the shareholders decide that they no longer wish to continue with the company and would like it struck off the register.

A company will not be considered dormant if, in the preceding 3 months before its application to be struck off:

  1. it has changed its name;
  2. it has carried on business;
  3. it has sold property for profit in the normal course of carrying on business – however, any property sold to facilitate the strike off will not affect the dormant state of the company;
  4. it has engaged in any activity except one that is:
    1. necessary to make an application for strike off or deciding whether to do so;
    2. necessary or expedient for the purpose of closing down the affairs of the company;
    3. necessary or expedient for the purpose of complying with any statutory requirement;
    4. an order specified by the Cabinet Secretary.

Further, a company cannot apply to be struck off if it is the subject of voluntary arrangement, administration or liquidation proceedings.

Other measures a company should take to ensure a successful strike off include:

  1. Dispose or distribute all its assets before applying for a strike off – any assets that are not disposed of or distributed will vest in the government once the company is dissolved;
  2. Close all its bank accounts;
  3. Notify KRA and any regulatory bodies relevant to the company’s business of the intention to dissolve;
  4. Ensure that employees (if any) are dealt with in accordance with the employment laws;
  5. Pay creditors and distribute the remainder of the assets to the shareholders in accordance with the company’s articles; and
  6. Ensure that it is fully compliant and up-to-date with all statutory requirements including annual returns filings and payment of all due taxes.
  • Procedure for Striking Off a Company from the Companies Register

For a company to be struck off the register, the following process must be complied with:

  1. Passing of resolution by Shareholders - The shareholders of a company are required to pass a resolution to dissolve the company and to specifically authorize the directors of the company to make the application to strike off the company on behalf of the company. This resolution will accompany the application to be made to the Registrar.
  2. Making Application for Strike Off with the Companies Registrar– Once the resolution to strike off a company is passed, the directors should make an application to strike off the company from the companies register.
  3. Notifying Stakeholders of Application to Strike Off - Within 7 days after making the application to strike off, a copy of the application should be shared with: (a) the shareholders; (b) the employees (if any); (c) creditors of the company (if any); (d) directors of the company; or (e) manager or trustee of any pension fund established for the benefit of the of employees of the company.
  4. Publication of the Application to Strike Off in the Kenya Gazette – The Companies Registrar will review the submitted application to strike off and the supporting documents. If satisfied, a notice of the application will be published in the Kenya Gazette, stating that the Registrar may exercise the power to strike off the company and inviting any person to show cause why the name of the company should not be struck off the register.
  5. Actual Striking off of the Company from the Companies Register– If there are no objections to the strike off submitted within 3 months of publication of the notice in the Kenya Gazette, the Registrar may strike off the name of the company from the register.
  6. Publication of Notice of Strike off on the Kenya Gazette – Upon the striking off of the Company, the Registrar will publish a notice on the Kenya Gazette noting that the company has been struck off. Once this notice is published, the company stands dissolved and it may not do anything whatsoever in its name.

Conclusion

From the foregoing, striking off a company is a great option for companies which are dormant and do not have many debts and other obligations to settle. Strike off is also cost-effective as it eliminates the need for insolvency practitioners whose services are usually costly.

It is therefore advisable for companies that have been inactive for a long time and do not have existing obligations to consider strike off as a method of dissolving the company. However, it should be noted that striking off of a company is solely at the Companies Registrar’s discretion but it is unlikely that the Registrar will refuse to strike off the company unless they believe that the company has obligations that it has not settled fully.

While strike off is a good option for dormant companies, those companies with existing obligations such as debts and claims in court that cannot be easily settled would benefit from the services of an insolvency practitioner and should therefore consider voluntary liquidation.

Watch out for Part II of this series to learn about voluntary liquidation of a company by its shareholders.


Article by Patience Laki and Audrey Seur

Published on June 24, 2021

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction

As at April 26, 2020, 355 persons had tested positive for Covid 19 in Kenya. The official figures released by the Government in the past two weeks indicate that the number of infections is growing by the day.

What is a Testamentary Trust

A testamentary trust is trust created under a Last Will and Testament and it is used to protect and preserve property for one’s beneficiaries. The Testator (i.e. the maker of the Will) will appoint Trustees to hold and manage the assets for the benefit of the beneficiaries.

The testamentary trust gives the testator control over how and when the assets will be distributed to their beneficiaries. For instance, the trust can provide that funds will be will be used for the education of minor children or that property can only pass onto their children when they attain the age of 25 years. This will ensure that the chances of misuse of the assets will be minimized.

Unlike a Living Trust, a testamentary trust only comes into effect after the death of the Testator.

The difference between a Testamentary Trust and a Living Trust

Testamentary trusts and living trusts are both made for the protection of assets, however, they are created in different ways and either can be used depending on one’s preference:

 • Whereas a testamentary trust is a trust created in a Will, it only becomes effective after the death of the testator/settlor, whilst a Living Trust is created and managed during the Settlor’s lifetime.

 • A testamentary trust must go through probate (i.e., the court process) to ensure the validity of the Will before it can be effected, and a living trust takes effect upon establishment.

 • Since the Will has go through the  court process, the testamentary trust  therein becomes a public document and the beneficiaries’ entitlements under such trust are in the public domain, whereas in a living trust the contents of the trust remain private.

 • Under a testamentary trust, the transfer of the property is only done after the demise of the testator and until such time the testator has compete control over their assets, whereas in a living trust the property is transferred to the trust during the settlor’s lifetime and the assets  owned by the trust.

 • A testamentary trust is simpler to create and cheaper than a living trust in that it is created in the Will.

Who are the main parties in a Testamentary Trust?

Under a testamentary trust, and indeed most trusts, the following are three main parties;  

The Settlor- this is the person who owns the Assets that will be placed in Trust. In the case of a testamentary trust the settlor will be the one who writes the Will (i.e., the Testator) After the death of the settlor, the assets will be transferred to the Trustee for the benefit of the beneficiaries.

The Trustees – these are the people who hold the legal title to the Trust assets and are appointed by the settlor. The assets are held in trust for the beneficiaries. The trustees should be competent and trustworthy as they have a legal duty to hold and manage the assets in the best interest of the beneficiary and are held to a high standard to account. They have a fiduciary duty to act in utmost good faith and cannot use the assets for their own use.

The Beneficiary – this is any person to whom a gift may be made, and therefore is the person that will benefit from the trust. The Beneficiaries can be family members, friends or even charitable organizations.

 Why Have a Testamentary Trust

 A testamentary trust may be created for several reasons:  for example;

•To hold property on behalf of minor children under the age of 18 years until such time as they come of age and are mature enough to hold and manage the property themselves.

•To hold property on behalf of children and dependent’s living with disabilities. A fund can be set up to meet their needs for their lifetime, if need be, thus providing them with financial security.

•To protect property from financially irresponsible children by ensuring the inheritance is distributed in a controlled manner to prevent them from squandering their inheritance.

•To ensure the property is preserved for use by the family and future generations, for example, preserving the ancestral home for use by family members for a long time to come.

•To provide funds for benefit and maintenance of the beneficiaries.

•To benefit from certain tax advantages such as stamp duty, capital gains tax and income tax exemptions.

 Conclusion

A Testamentary Trust is a great tool used in estate planning it ensures that assets are distributed and protected in accordance with the testator’s wishes. It allows the maker of the trust to continue to have control over their assets while they are still living and the assets only move into the trust once they have passed away.

 Contact us

  • Having a testamentary trust in a will depends on your particular needs, and it is important to always seek legal advice on the best options available to you. For more information on testamentary trusts get in touch with our Estate Planning team at This email address is being protected from spambots. You need JavaScript enabled to view it..

  •  Article by Gladys Mboya

 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates.

Overview

Share buyback refers to the repurchasing of shares by the company that issued them. The repurchase is often made from the company’s existing shareholders, usually at a price near to or higher than the prevailing market price. Upon the conclusion of the buyback transaction, the repurchased shares are either classified as treasury shares or are cancelled.  Where the company’s shares are classified as treasury, that portion of shares of a company are kept in the Company’s own treasury and are not available to the public. As a result, the number of outstanding shares in the market are reduced.

Share buy backs are known to be more prevalent in the US than in other markets, although recent trends show that the concept has been embraced in Europe as well as in Asia, with Japan experiencing a number of share buy-back transactions in recent years. Following a ravaging pandemic that affected the world’s major economies, in the US as in other markets, several companies have announced share buy backs in 2021 and more are projected to follow. A number of multinationals including AMD, Apple and American business magnate Warren Buffett’s Berkshire Hathaway, have recently embarked on large stock buyback transactions.

Companies buy back their own shares for various reasons. Alongside dividend pay-outs, share buybacks are one of the common ways for companies to share their wealth with investors since they not only cause price appreciation, but also increase investors’ ownership stake due to the reduction in the number of outstanding shares. Once bought back, the shares no longer get dividends, voting rights and are not included in calculating earnings per share (EPS). Buybacks are also used to distribute excess cash conveniently to shareholders. In addition, they are used to avoid threats of possible hostile takeovers. Furthermore, share buy backs are resorted to, in order to absorb increases in shares outstanding that has arisen from previous employee stock options or and/or to utilize extra cash by using the repurchases in lieu of special dividends.

Share Buy Back in Kenya

Share buy backs have not been a common phenomenon in Kenya. The first one since the enactment of the Companies Act, 2015 is the ongoing share buyback by Nation Media Group (NMG). In late May, NMG Board of Directors recommended that the firm’s shareholders effect the Share Buyback plan by way of open market purchases through on the Nairobi Securities Exchange. The Company is proposing to buy back up to 10% of the issued shares (about 20,739,652 shares). The transaction is awaiting shareholder approval at the Company’s AGM slated for later this month.

It is anticipated that more companies will be considering share buy backs in the coming future, for various reasons highlighted above. For these companies, one of the questions they may have to deal with is what the legal framework on share buy backs is in Kenya. We address this below.

The law on Share Buy backs in Kenya

The primary law on share buy backs in Kenya is the Companies Act, 2015. Part XVI of the Act contains provisions on acquisition by limited company of its own shares. Salient requirements under that part include the following:

     i. General Restrictions for buy backs by limited companies.

As a general rule, section 424 of the Act provides that a limited company shall not acquire its own shares, whether by purchase or otherwise except as otherwise permitted. Section 447 of the Act permits a limited company having a share capital to purchase its own shares, subject to the law and any restriction or prohibition in the company's articles. Instructively, a limited company may not purchase its own shares if as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares. This means that the company cannot buy all its shares back.  In addition, a limited company may only purchase its own shares if they are fully paid.

     ii. Financing of the Buybacks.

There are restrictions as to the financing of the share buybacks. Under section 449 of the Act, a listed company may only buy back its shares out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose of financing the purchase. Companies are however permitted to pay for the buy backs from capital but upon compliance with very stringent requirements under the Act. Notably, these restrictions as to the financing of the buy-back do not apply to private companies unless their articles of association adopt them.

     iii. Mode of executing the Buy Back.

Under Kenyan law, the company may only purchase its shares through two ways. Firstly, it may purchase through an off-market purchase. This may be effected under a contract approved in advance through a prescribed special resolution of the company. In the alternative, the company may purchase the shares through a market purchase subject to approval of the shareholders through a prescribed resolution.  If the buyback is by way of a market purchase, the purchased shares are required to be held and dealt with as treasury shares under part XXI of the Companies Act. In any other case, the Act requires that the shares are cancelled and the amount of the company's issued share capital is diminished by the nominal value of the shares cancelled.

     iv. What Happens if the Company fails to purchase its shares?

Like the case in many other jurisdictions, companies that announce proposals for share buy backs are not tied down to follow through. Under section 484 of the Act, a company that agrees to purchase its own shares is not liable in damages for failing to redeem or purchase any of the shares.

     v. Filing of returns upon acquisition.

Section 464 of the Act requires that within 14 days after a company purchases shares, it shall lodge with the Registrar for registration a prescribed return. In the case of a public company, the return must specify the aggregate amount paid by the company for the shares and the maximum and minimum prices paid in respect of shares of each class purchased among other details.

CMA Regulation and Approval.

For listed companies, the approval of CMA is required in accordance with the Listing and Disclosure Regulations. CMA has formulated draft guidelines on share buybacks for listed companies but these are yet to come into force. The draft Guidelines require that prior to the making of the proposal for the buyback to shareholders, the company is required to circulate a CMA- approved circular detailing all terms and conditions of the proposed share buyback. In the event of an intended off-market purchase, the draft share buyback contract shall be submitted to CMA accompanying the shareholders’ circular for CMA approval, in line with the requirements of private transactions. Though in draft form, the Guidelines outline CMA’s understanding of the requirements in the Act and they seem to have informed the processes that NMG followed in the buyback proposal.

Conclusion

In this article, we have provided an overview of the concept of share buy backs. We have also outlined, in brief, the applicable law on share buy-backs in Kenya. It is anticipated that more listed companies will consider share buy backs in the coming months and years, given the positive projections of growth of the economy following the resurgence of the markets after the covid-19 pandemic.


Article by Enock Mulongo

Disclaimer

This publication is for information purposes only. For substantive legal advice, do not hesitate to contact us on our official contacts.

Introduction

The 2020 Finance Bill is said to be geared towards unlocking more revenue streams for the Government in the midst of low collections from the economic dip caused by the COVID-19 pandemic.

What is a Testamentary Trust

A testamentary trust is trust created under a Last Will and Testament and it is used to protect and preserve property for one’s beneficiaries. The Testator (i.e. the maker of the Will) will appoint Trustees to hold and manage the assets for the benefit of the beneficiaries.

The testamentary trust gives the testator control over how and when the assets will be distributed to their beneficiaries. For instance, the trust can provide that funds will be will be used for the education of minor children or that property can only pass onto their children when they attain the age of 25 years. This will ensure that the chances of misuse of the assets will be minimized.

Unlike a Living Trust, a testamentary trust only comes into effect after the death of the Testator.

The difference between a Testamentary Trust and a Living Trust

Testamentary trusts and living trusts are both made for the protection of assets, however, they are created in different ways and either can be used depending on one’s preference:

  1. Whereas a testamentary trust is a trust created in a Will, it only becomes effective after the death of the testator/settlor, whilst a Living Trust is created and managed during the Settlor’s lifetime.
  2. A testamentary trust must go through probate (i.e., the court process) to ensure the validity of the Will before it can be effected, and a living trust takes effect upon establishment.
  3. Since the Will has go through the  court process, the testamentary trust  therein becomes a public document and the beneficiaries’ entitlements under such trust are in the public domain, whereas in a living trust the contents of the trust remain private.
  4. Under a testamentary trust, the transfer of the property is only done after the demise of the testator and until such time the testator has compete control over their assets, whereas in a living trust the property is transferred to the trust during the settlor’s lifetime and the assets  owned by the trust.
  5. A testamentary trust is simpler to create and cheaper than a living trust in that it is created in the Will.

Who are the main parties in a Testamentary Trust?

Under a testamentary trust, and indeed most trusts, the following are three main parties;  

The Settlor- this is the person who owns the Assets that will be placed in Trust. In the case of a testamentary trust the settlor will be the one who writes the Will (i.e., the Testator) After the death of the settlor, the assets will be transferred to the Trustee for the benefit of the beneficiaries.

The Trustees – these are the people who hold the legal title to the Trust assets and are appointed by the settlor. The assets are held in trust for the beneficiaries. The trustees should be competent and trustworthy as they have a legal duty to hold and manage the assets in the best interest of the beneficiary and are held to a high standard to account. They have a fiduciary duty to act in utmost good faith and cannot use the assets for their own use.

The Beneficiary – this is any person to whom a gift may be made, and therefore is the person that will benefit from the trust. The Beneficiaries can be family members, friends or even charitable organizations.

 Why Have a Testamentary Trust

 A testamentary trust may be created for several reasons:  for example;

  1. To hold property on behalf of minor children under the age of 18 years until such time as they come of age and are mature enough to hold and manage the property themselves.
  2. To hold property on behalf of children and dependent’s living with disabilities. A fund can be set up to meet their needs for their lifetime, if need be, thus providing them with financial security.
  3. To protect property from financially irresponsible children by ensuring the inheritance is distributed in a controlled manner to prevent them from squandering their inheritance.
  4. To ensure the property is preserved for use by the family and future generations, for example, preserving the ancestral home for use by family members for a long time to come.
  5. To provide funds for benefit and maintenance of the beneficiaries.
  6. To benefit from certain tax advantages such as stamp duty, capital gains tax and income tax exemptions.

 Conclusion

A Testamentary Trust is a great tool used in estate planning it ensures that assets are distributed and protected in accordance with the testator’s wishes. It allows the maker of the trust to continue to have control over their assets while they are still living and the assets only move into the trust once they have passed away.

 Contact us

  • Having a testamentary trust in a will depends on your particular needs, and it is important to always seek legal advice on the best options available to you. For more information on testamentary trusts get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it..

The Finance Bill, 2021 (“the Bill) was published on 5th May 2021. It aims to amend various laws relating to taxes and duties including the Income Tax Act, Value Added Tax Act, Excise Duty Act, Tax Procedures Act, Miscellaneous Fees and Levies Act, Capital Markets Act, Central Depositories Act, Kenya Revenue Act, Insurance Act and the Retirement Benefits Act.

We have highlighted below the major amendments proposed by the Bill:

1.  Income Tax Act, Cap. 470

Some of the amendments proposed to the Income Tax Act include:

     a. Expansion of the application of Digital Service Tax

The Bill proposes to expand the application of income tax to all income accrued from business carried out over the internet or electronic network. The current provision, in comparison, only imposes income tax on income accrued through a digital marketplace.

The Bill also proposes a new definition of digital marketplace to mean an online platform that enables users to sell or provide services or goods to other users. The current definition states that it is a platform that enables buyers and sellers to interact through electronic means, which is ambiguous in interpretation.

If the Bill is passed, the implication of this broadened definition would be to widen the tax base that will be subject to Digital Service Tax.

     b. Digital Service Tax (“DST”) charged on non-resident persons only

Another proposal is for DST to be charged on non-resident persons only. However, DST will not apply to income that is subject to withholding tax or income from non-residents in telecommunication or broadcasting business.

The rationale behind this proposal is that resident persons earning income through online platforms are already subject to income tax and should therefore not be charged DST.

Though the current provision allows residents to offset the DST payable against their income tax, the new proposal simplifies the process of preventing double taxation and will therefore be a welcome relief to many residents running businesses in the digital marketplace.

     c. Removal of time-limit on carry forward of losses

The Bill also proposes to remove the 10-year limit provided for the carry forward of taxable losses. The proposed change would enable taxpayers to offset taxable losses against future profits until they are fully exhausted which will be a great opportunity for many businesses to recover from their losses especially following the negative impact of the COVID-19 pandemic.

     d. Tax Relief on NHIF Contributions

The other major proposal in the Bill is the introduction of tax relief to persons who contribute to the NHIF. The proposed tax relief will be equivalent to 15% of the premium paid with a monthly limit of Kshs. 5,000/=.

This change will benefit all employees in Kenya since NHIF is mandatory. It will also encourage those who are self-employed to make contributions to NHIF.

     e. Expansion of tax relief for apprenticeships

Employers who engage students from technical and vocational education centres for apprenticeship also stand to benefit from the Bill. It proposes that such employers enjoy tax rebates equal to 50% of salaries paid if they hire at least 10 apprentices for a period of 6-12 months Currently, only employers who engage university students enjoy this tax rebate.

     f. Additional Reporting for Multinational Companies

An Ultimate Parent Entity of a Multinational Enterprise Group will be required to submit to KRA the group’s financial returns of its activities in Kenya and in other jurisdictions where the group has a tax presence. The return should be made within 12 months after the last day of the group’s financial year. An Ultimate Parent Entity is defined as an entity that is resident in Kenya for tax purposes, is not controlled by another entity, and owns and controls a multinational enterprise group. If passed, this proposal would enhance transparency and disclosure by companies.

Other amendments proposed by the Bill include new definitions of the words ‘control’, ‘permanent establishment’ and ‘infrastructure bond’.

2.  Value Added Tax Act, 2013 (“VAT Act”)

The proposed amendments to this VAT Act include:

     a. Expansion of the definition of digital services

Similar to the amendment proposed to the Income Tax Act, the Bill proposes to expand the definition of digital services to include supplies made over the internet or electronic network. This will increase the tax base upon which VAT will be charged including supplies made on social media platforms. Currently, only supplies made through a digital marketplace are subject to VAT.

     b. Taxation of Bread

Currently, bread is a zero-rated commodity, meaning that it is not subject to VAT. If this proposal is passed, VAT will be imposed on bread which will result in an increase in the price of bread since the tax will likely be passed on to the consumers.

     c. Further restriction on claiming input VAT

The Bill proposes to create an additional restriction on claiming of input VAT. A registered person will not be allowed to deduct input VAT if it relates to the leasing or hiring of passenger cars or mini buses and the repair and maintenance thereof including spare parts. The current provision only prohibits deduction if it relates to the acquisition of the passenger cars and mini buses.

     d. Acquisition of medical equipment exempt from VAT

The Bill proposes some medical equipment to be exempt from VAT which is likely to reduce the cost of medical care and also improve the provision of healthcare services in the country.

     e. Zero-rated to Exempt Services

The Bill seeks to change the VAT status of exported services and transfer of assets into REITs and Asset-Backed Securities from zero-rated to exempt supplies. This proposal is aimed at reducing the claims for VAT refunds that arise from the zero-rated status of these services.

3.  Excise Duty Act, 2015

The Bill seeks to introduce a provision that allows licenced internet data providers to offset the excise duty paid on the purchase of data in bulk for resale against the excise duty that would be payable on the supply of the internet data services to the final consumer.

Further, the Bill seeks to reintroduce excise duty on betting at a rate of 20% of the amount wagered or staked. This provision had been removed by the Finance Act 2020.

The Bill also proposes to impose excise duty on fees and commissions earned on loans.

4.  Tax Procedures Act, 2015

The following amendments are proposed to the Tax Procedures Act, among others:

     a. Increase in period of record keeping and assessment – The Bill proposes to increase the period of record retention from 5 years to 7 years. This proposal is in line with the provisions of the Companies Act on record keeping. It also proposes to extend the period within which KRA or a person can amend their filed tax return from 5 years to 7 years.

     b. Introduction of Common Reporting Standards (CRS) – The Bill proposes a mandatory requirement for financial institutions, resident in Kenya or with foreign branches in  Kenya, to report to KRA reportable accounts specified by the CRS Regulations that will be developed and published by the Cabinet Secretary, National Treasury. The aim of this proposal is to enhance disclosure and compliance.

     c. Non-resident’s reporting currency – Non-residents carrying out business in a digital marketplace are exempt from maintaining financial records in Kenya Shillings and are allowed to maintain them in convertible foreign currency(ies).

     d. Removal of Withholding VAT exemption – It is proposed that all provisions of the Act that allow KRA to exempt suppliers with VAT credits for at least 2 years from Withholding VAT be deleted.

     e. Digital Service Providers to have KRA PIN - The Bill proposes to impose a requirement for digital service providers to have a KRA PIN. This implies that all digital service providers who have income accrued in Kenya, including non-residents will have to be registered for tax in Kenya.

5.  Capital Markets Act, Cap. 485A

The Bill seeks to introduce a 90-day period within which appeals before the Capital Markets Tribunal should be heard and determined. If passed, this will expediate the resolution of matters before the Tribunal.

6.  Insurance Act, Cap. 487

The Bill proposes a new definition of broker to include foreign reinsurance broker despite the fact that they do not undertake direct insurance business or do not have a place of business in Kenya. This amendment would grant the Insurance Regulatory Authority (“IRA”) power to supervise and regulate foreign reinsurers brokers who are currently not regulated.

The Bill also proposes to introduce a prescribed annual fee for all insurers licenced under the Act. The aim of this amendment is to enable the IRA increase its source of revenue given that insurers are no longer required to renew their registration annually and therefore the IRA no longer receives annual renewal of registration fees.

7.  Retirement Benefits Act, 1997

The main amendment proposed to this Act is the registration and regulation of corporate trustees that provide services to pension schemes by the Retirement Benefits Authority (“RBA”). The proposed amendment is aimed at promoting proper supervision of corporate trustees by the RBA.

8.  Central Depositories Act, 2000

The Bill proposes the following amendments to this Act:

     a. Definition of beneficial owner and legal owner – These definitions are in line with the Companies Act 2015 and the new Regulations on Beneficial Ownership Registers and they will promote the regulation of investors;

     b. Definition of authorized nominee and omnibus account – An authorized nominee is a person appointed by a legal or beneficial owner of securities to open a Central Depository Systems account (“CDS account”) and transact on their behalf. Such authorized nominee can open a CDS account on behalf of two or more legal or beneficial owners in which case the account will be referred to as an omnibus account;

     c. Provisions on the appointment and duties of an authorized nominee.

The Bill went through the First Reading in the National Assembly on 11th May 2021 and has 3 more stages of review in the National Assembly before it is submitted to the President for his assent.


Article by Ivyn Makena and George Ngatiah

Published on June 11, 2021

 

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction

Venture capital may be defined as long-term risk capital typically provided by professional investors to new and expanding businesses which are usually high risk,

INTRODUCTION

 The Finance Act, 2023 (“the Act”) was assented to by President William Ruto on June 26, 2023 with most of its provisions expected to take effect from July 1, 2023 after eliciting rigorous discussions in and out of Parliament.

The Act contains various amendments to Kenyan tax laws and aims at raising additional revenue for the government to enable it to meet its budget of Kshs. 3.68 Trillion for the year 2023/2024.

The following is a highlight of some of the major changes the Act will make in the various Acts of Parliament:

  •    A. INCOME TAX ACT

The Act:

Introduces two new tax bands in the Pay As You Earn (PAYE) tax, for the category of persons earning Kshs. 500,000 and above per month (Kshs 6,000,000 per year). Persons earning between Kshs. 500,000 – Kshs. 800,000 and Kshs. 800,000 and above will be subjected to PAYE at the rate of 32.5% and 35%, respectively (Effective July 1, 2023).

Increases the Turnover Tax rate of businesses from 1% to 3 % while also reducing the band for the same from Kshs. 1 Million – Kshs. 50 Million to Kshs. 1 Million to Kshs. 25 Million (Effective July 1, 2023).

Introduces a Digital Assets Tax at the rate of 3% tax on the income derived from the transfer or exchange of digital assets. The owner of a platform or the person who facilitates the exchange or transfer of a digital asset shall deduct the tax and remit it to the Commissioner within 5 working days after making the deduction together with a return of the amount of the payment and the amount of tax deducted (Effective September 1, 2023).

Reduces the rate of Monthly Rate Income (MRI) tax from 10% to 7.5%. This reduction is aimed at encouraging tax compliance for property owners and to also increase the government's revenue collection (Effective January 1, 2024).

Introduces a 5% withholding tax on earnings from social media content creators (Effective July 1, 2023).

On Capital Gains Tax (Effective July 1, 2023), the Act:

Introduces a Capital Gains Tax where a property is transferred in a transaction not subject to CGT and then sold in a taxable transaction within 5 years. The adjusted cost for the subsequent transfer will be based on the original adjusted cost of the first transfer.

Requires that Capital Gains Tax be due and payable on the earlier of: (i) receipt of full purchase price by the vendor; or (ii) registration of the transfer.

Taxes capital gains from selling shares or similar interests including those in a partnership or trust, if, within 365 days before the sale, more than 20% of their value came from immovable property in Kenya.

  •    B. THE EMPLOYMENT ACT, 2007 (Effective July 1, 2023)

The Act introduces a monthly levy, known as the Affordable Housing Levy, where both employees and employers are both subject to the levy at 1.5% of the employee’s gross salary. The responsibility lies with the employer to deduct and remit this levy within 9 working days following the end of the relevant month. The primary objective of this levy is to provide funding for the government's affordable housing agenda.

  •    C. VALUE ADDED TAX (VAT) ACT, 2013 (Effective July 1, 2023)

The Act doubles the rate of VAT on all petroleum products from 8% to 16% while exempting Liquefied Petroleum Gas (LPG) from VAT. As a result, the cost of fuel is expected to rise from July 1, 2023 where the Energy and Petroleum Regulatory Authority is expected to announce reviewed maximum pump prices.

  •    D.TAX PROCEDURES ACT, 2015 (Effective July 1, 2023)

 The Act increases the timeline allowed for parties to negotiate and potentially settle disputes under the Alternative Dispute Resolution (ADR) framework from 90 days to 120 days. This will give the ADR framework more time to settle disputes.

It also sees to solve the problem of constant delays faced by the National Treasury in refunding verified tax claims by reducing the time taken by the Commissioner from 2 years to 6 months. This means that interest shall begin to accrue after 6 months.

CONCLUSION

Some of the changes introduced by the Act have met a lot of opposition from members of the public particularly the doubling of VAT from 8% to 16% on petroleum products where it is anticipated that this increase shall cause an increase in commodity prices as well as transport costs. However, the government still maintains its stance that this Act is intended to stabilize and improve the economy of the country and Kenyans can only brace themselves for its implementation.


Article by George Ngatiah & Grace Maina

Published on

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through:

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

DATA PROTECTION IN ACTION: HOW THE DRAFT DATA PROTECTION (GENERAL) REGULATIONS 2021 AIM TO PROTECT YOUR PERSONAL DATA

 A.  INTRODUCTION

The Draft Data Protection (General) Regulations, 2021 (“the Draft Regulations”) were recently published for public consultation by the Communications Authority of Kenya. They elaborate the rights and duties of the data subjects, data controllers and data processors, and also provide the procedures for enforcement of the said rights and duties.

Data subjects are individuals whose personal information is collected while data controllers are the individuals or entities that determine the use and mode of processing the personal information collected from data subjects. Data processors, on the other hand, are individuals or entities that process the personal information collected, on behalf of data controllers.

We highlight the salient provisions of the Draft Regulations below.

  • B.   REVIEW OF THE DRAFT REGULATIONS
  1. Enabling the Rights of Data Subjects

The Draft Regulations require that data subjects are informed by data controllers/processors through notice of the following:

  1. nature and scope of the personal data to be processed;
  2. the reasons for the said processing;
  3. confirmation on whether the data will be shared with third parties.

Data processors and controllers are also required to ensure that:

  1. the data subject has capacity to understand and communicate their consent - consent cannot be presumed on the basis that the data subject did not object and cannot be implied where the intention of the data subject is ambiguous or doubtful;
  2. the nature of processing is explained in an understandable language to the data subject;
  3. Data is voluntarily given by the data subject;
  4. Data is specific to the data subject.

Further, data subjects have the right to request for data portability, access, restriction and objection to their data processing as well as deletion/rectification of their personal data held by data processors or controllers. If any request by a data subject is rejected, data processors are required to notify them promptly and give sufficient reasons for the refusal.

Data processors are also required to act in the best interests of data subjects despite receiving consent to use and process their personal data.

  1. Restrictions on the Commercial Use of Personal Data

The Draft Regulations classify the sending of electronic messages, catalogues and display of adverts on online media sites of data subjects as a form of direct marketing. They, therefore, require data subjects to be given prior notice of the intended use of their personal data for commercial purposes. On receipt of the notice, data subjects can object to the use of their personal data for marketing by third parties. Sensitive personal data and personal data belonging to minors is excluded from direct marketing by the Draft Regulations.

Additionally, data processors are required to have an op-out system, and to make it simple, easily understandable and place it in a conspicuous place that is easily visible for use by data subjects. Direct messages should contain a single sentence notifying data subjects that they can opt out of future messages by responding to the direct messages by using one word, and the unsubscribe link in an email should be prominently located. With respect to phone calls, data subjects should be informed that they can verbally opt-out of future calls.

  1. Obligations of Data Processors and Controllers

The Draft Regulations require data processors to have a personal data retention schedule that sets out the purpose for retention of data, the retention period and a provision for periodic audit(s) of personal data. Where a data subject requests for their personal data to be anonymised or pseudomised, the data processor is under obligation to consider the request.

Where the sharing of personal data by data processors or controllers is on a regular basis, they should enter into a written agreement with data subjects prior to the sharing. Further, where data processors are involved in automated data processing (i.e., processing without human involvement), data subjects should be informed of the same and of their right to object to any profiling for marketing purposes. The system used for automated processing should be sound, accurate and non-discriminative.

Additionally, the Draft Regulations provide that any server used for processing personal data for actualising public goods or services, such as education or elections, must be located in Kenya. Data processors that do not perform such activity may also be required by the Data Commissioner to move their servers to Kenya where there is a breach that violates the Data Protection Act (“Act)) or if they fail to co-operate with the Data Commissioner during an investigation.

  1. Notification of Data Breaches

The Draft Regulations set out the types of breaches that amount to notifiable breaches, including instances where a data subject’s identification details that are not publicly available are unduly revealed, and disclosure of personal credentials such as passwords used to access electronic or online systems or accounts. Such notification to the Data Commissioner should include the scope and extent of the breach and steps taken to mitigate the same.

  1. Cross-border Data Transfer

The Draft Regulations provide that transfer of data outside Kenya should only be done under written agreements with data subjects that set out the obligations therein. Moreover, data processors should ensure that the legal regimes for data protection binding the transferee are at least the same as under the Act and its attendant Regulations. For this purpose, countries that have ratified the African Union Convention on Cyber Security and Personal Data Protection, or have a reciprocal data protection agreement with Kenya or an adequate data protection law are presumed to have sufficient safeguards.

  1. Data Protection Impact Assessment

Under the Draft Regulations, when data processors engage in activities that constitute high risk in relation to personal data, they are required to undertake a detailed Data Protection Impact Assessment as set out in the guidelines. These high-risk activities include automated decision making with legal or similar significant effects, processing of biometric or genetic data, and processing of sensitive personal data or data relating to children or vulnerable groups.

 C.   CONCLUSION

From the foregoing, it is apparent that efforts have been made to substantively implement the provisions of the Data Protection Act. Public participation is ongoing and it is expected that this will result in changes being introduced in the Draft Regulations.


Article by Pauline Njau & James Karuga

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Introduction

Decent and affordable housing in Kenya is important as it affords dignity, security, and privacy to Kenyans. The Constitution of Kenya, 2010 mandates the State to take a legislative,

A hangar is a large building that is used for the storage of aircraft. Leasing of hangars is a common practice within the aviation industry. It is a facility that is highly significant to aviation operators since it reduces their cost of security. Kenya does not have specific laws governing hangars, and they mostly fall under the ambit of land law. This means that the regulations surrounding hangars depend on whether the land is publicly or privately owned. For privately owned land, the terms of the lease are determined by what the lessor wishes to include. On the other hand, for public land, the regulations are subject to the Public Procurement Disposal Act. This means that the process of acquiring a hangar on public land is subject to bidding, and the tender is awarded to the successful bidder, after which the lease is drafted.

Types of leases

     a) Fixed Base Operator (FBO) Lease

A Fixed Base Operator (FBO) is an authorized entity, granted rights by the Kenya Airport Authority (KAA), to operate within the airport premises and provide various aviation services such as fuel, parking, aircraft rental, and hangar space. An FBO lease agreement is established between the owner of the airport, whether it is privately owned or managed by KAA, and the FBO as the lessee. The purpose of this lease is to enable the FBO to commercially operate within the hangar and deliver their services in a profitable manner. The lease agreement must adhere to the airport's rules and regulations.

     b) Specialized Aviation Service Operations (SASO) Lease

While an FBO is authorized to offer a wide range of aviation services, a SASO lease agreement is specifically intended for entities providing specialized services in aviation, such as flight maintenance. It is important to note that SASO does not include the retail sale of fuel. A SASO entity can enter into a lease agreement either directly with the airport or as a sub-lessee of an FBO.

Under a SASO lease agreement, a hangar can be leased for purely commercial purposes, specifically for in-house aircraft maintenance. The lease agreement can include provisions to protect other on-airport FBOs and SASOs by ensuring that the hangar is exclusively used for their own aircraft and not for third-party aircraft.

     c) Hangar Rental Agreement

This type of lease agreement offers greater flexibility compared to the previously mentioned types. It can accommodate various types of hangars, whether for commercial or other purposes. The hangar rental agreement is applicable to tenants who do not fall within the scope of FBOs or SASOs.

In a hangar rental agreement, the rental price needs to be specified, taking into account factors such as the hangar's size, amenities available for stored aircraft, and its location. It is crucial for this lease agreement to include a clause that ensures compliance with the airport's rules and regulations.

     d) Subleases

This is an agreement which allows a tenant to sublet a part of the hangar. The primary lease should have a clause that gives the airport owner the discretion to allow the tenant to sublet the hangar in whole or part. The primary tenant should ensure that the secondary tenant complies with the rules and regulations of the airport and the terms and conditions in the sublease must be aligned with those in the primary lease .

     e) Land Lease

This is where the owner of an airport or land adjacent to an airport leases land to a tenant for a specific period of time. The tenant then improves the property by erecting hangars or incidental facilities on the land. The tenant may opt to operate the hangars for their own benefit or to lease the hangars altogether for profit. However, it should be noted that at the end of the contract period, the land and project reverts to the entity that originally granted the lease. Notably, the value of the lease largely depends on the location, duration of lease and user of the land.

Essential features of hangar leases

  1. Description of the premises – The lease agreement should provide a clear and detailed description of the hangar being leased. It should include specific information that helps easily identify the hangar, such as its physical characteristics, the land it occupies, and any additional improvements that are part of the property. It's also beneficial for potential buyers to have a site map or an airport layout plan to get a visual understanding of where the hangar is situated within the airport premises. Having this visual aid can enhance clarity and make it easier to navigate the location.
  1. Use of Premises – The lease should detail the specific purpose of the subject property. It should state activities that can and cannot be undertaken on the lease property. A hangar rental agreement would ideally prevent commercial use of the premises. FBO and SASO leases should provide for the specific commercial activity that is allowable in the hangar.
  1. Lease term – the lease should specify the period within which the lease is in existence. The term is dependent on various factors, including the size of the lessee’s investment and the useful life of the improvements on the premises. A lease term that is too short curtails the investor’s ability to amortize their investment.
  1. Rental amount – the lease should be very specific about the amount of rent required to be paid. It should also stipulate the frequency and method of payment to prevent future disagreements by the parties. The penalty for failing to remit timely payments should also be specified.
  2. Rights and obligations of parties – the lease should stipulate the rights and obligations of both the lessor and the lessee in the existence of the lease period.
  1. Subletting and assignment– the lease should specify if the lessee is allowed to sublet hangar space to other tenants. In this regard, it should particularize whether the lessor needs to give consent so such assignment or subletting.

Conclusion

Essentially, hangers are leased by owners of the airport. If the airport is privately owned, the lessor will be bound by contract law and rules of the airport in the lease. However, if the airport is owned and managed by the Kenya Airports Authority, the Public Procurement and Asset Disposal Act is applied in a competitive tendering process where approved entities place their bids. Leases are caused to be drawn by the Authority to secure the interests of the awarded entity.


~Article by June Njoroge Ngwele, George Ngatiah and Fridah Gatwiri~

 

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it.  or This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

A. INTRODUCTION

The Landlord and Tenant Bill 2021 dated 12th February 2021 (“the Bill”) is sponsored by Majority Leader Amos Kimunya and is currently undergoing review in Parliament. The Bill seeks to consolidate all the laws on residential and commercial tenancies and to ensure regulation of the rental sector in Kenya.

The main objectives of the Bill are:

  1. To repeal the Distress for Rent Act, the Rent Restriction Act, and the Landlord and Tenant (Shops, Hotels, and Catering Establishments) Act;
  2. to consolidate the laws relating to renting of business and residential premises; and
  3. to introduce a legal framework which balances the interests of landlords and tenants aimed at promoting the sustainable growth of the rental sector in Kenya.

We have discussed the salient features of the Bill below.

  • B. OVERVIEW OF THE BILL
  1. Scope of Application of the Bill

If passed, the Bill will apply to:

  • tenancies of all residential premises except the following:
    1. excepted residential premises;
    2. residential premises let on service tenancies, that is, premises let by a landlord to an employer who provides the same premises to an employee in connection with their employment; and
    3. residential premises whose monthly rent does not exceed the amount prescribed by the Cabinet Secretary.

tenancies of business premises that meet the following conditions:

  1. Not in writing;
  2. In writing but have an express provision allowing for the tenancies to be terminated before the end of 5 years for reasons other than breach of covenants in the tenancies. 
  1. Establishment of Regulatory Tribunals

The Bill gives the Chief Justice power to establish related tribunals with mandates and jurisdiction over prescribed areas including:

  1. resolution of disputes amongst landlords and tenants;
  2. authority to determine, assess, and apportion rent and service charge payable;
  3. making orders that are incidental to the rights and obligations of landlords and tenants such as ordering a landlord to repair premises, reinstate a wrongfully evicted tenant, etc;
  4. power to investigate complaints from landlords or tenants or in the tribunals’ own motion.

The decisions of the tribunals are binding on the parties and failure to act on their orders amounts to an offence punishable by a fine not more than Kshs. 100,000/= or to imprisonment for a term not more than 12 months, or both.

    3. General Provisions

The following crucial provisions in the Bill are worth highlighting:

  •      a. Rent Increase and Decrease

The Bill recognizes that rent payable in tenancies is a matter determined by mutual agreement by the parties. However, where parties fail to agree on the rent payable, the tribunals established under the Bill can determine the fair rent payable.

The Bill also seeks to regulate any increase or decrease of the rent payable in tenancies. Rent can only be increased after 12 months for residential premises and 24 months for business premises. This is from the commencement of tenancy or from the date of the last increase in rent under the same tenancy.

The increase has to be justified and should be based only on capital expenditure incurred, increase in land rates of the property or the inflation rates in the country’s economy.

Further, for an increase of rent to be valid, the landlord has to serve a 90-day notice to the tenant of the intention to increase rent. Failure to serve the notice will render the increase ineffective. The tenant has a right to object to the notice given by the landlord within 30 days or it will be deemed an acceptance of the increase in the rent payable.

The Bill also mandates landlords to decrease rent payable proportionally if they cease to provide a given service with respect to the tenancy.

  •      b. Termination of Tenancies

The Bill provides that either party may terminate the tenancy. A valid notice of termination of tenancy issued by either party must comply with the requirements set out in the Bill. Landlords are required to give tenants at least 24-months’ notice of termination for business premises and 12-months’ notice for residential premises where they intend to terminate the leases, before expiry of the lease term, for reasons other than breach of covenant by the tenants. Where the tenants are in breach of a covenant, and that forms the ground for termination by the landlords, the landlords are required to serve notice in the prescribed form. These notices of termination have to be filed with the Tribunal.

Despite this, a landlord may terminate a tenancy in the following ways:

  1. in good faith, by giving a 60-day notice to the tenant if the premises are needed for possession by the landlord, their spouse, their children or their parents;
  2. by giving a 120-day notice to the tenant if the landlord needs to demolish the premises, convert them to other use other than change of user, or carry out extensive renovations on the premises.

A notice of termination of tenancy may be challenged by referring the matter to the Tribunal for determination. If the tenant does not vacate the premises pursuant to the landlord’s notice to terminate, the landlord may apply to the tribunal for an order to terminate the tenancy and to evict the tenant.

     c. Other Terms

The Bill also has provisions governing the following:

  1. variation of terms and conditions of a tenancy;
  2. subletting of premises;
  3. the landlord’s responsibility to keep records of tenancy and rent payment and share the same with the tenant;
  4. eviction and reliefs from unlawful eviction;
  5. protection of tenant’s property from illegal distress for rent and illegal evictions;
  6. landlord’s remedies upon abandonment of the premises by tenant or death of a tenant; and
  7. penalties for breach of the provisions of the Bill.

C. CONCLUSION

As seen above, the Bill proposes to regulate the relationship between Landlords and Tenants in various ways including rent increases and termination of tenancy which would effectively reduce the power of landlords over tenants.


Article by Sheila Mutiga and Judy Marindany

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Introduction

On nearly a daily basis, you often are required to provide information about yourself that is personal. You walk into an office of a service provider,

Introduction

The Constitution of Kenya, 2010 grants every Kenyan the right to own property in any part of Kenya. Article 40(6), however, places a caveat on the enjoyment of the right to own property. It provides that such right shall not be enjoyed in respect to property which has been unlawfully acquired. This position was reinforced by the Supreme Court in its recent decision in Dina Management Limited v County Government of Mombasa & 5 Others (Petition No. 8 (E010) of 2021. In this landmark decision, the Supreme Court deconstructed the doctrine of indefeasibility of title and enlarged the buyer’s role in the due diligence process.

Indefeasibility of Title

Kenya operates under the Torrens Registration System which ensures that all titles to land in Kenya are registered and such records are accurately kept. Therefore, titles issued to individuals are conclusive evidence of ownership. Hence, official search results generated by the Lands Registry are expected to be a depiction of the correct ownership of the property.

However, the Supreme Court has affirmed that search results from the Lands Registry do not always show the correct state of ownership. In the much-contested ownership of land between the Appellant and the County Government of Mombasa, the court noted that the title is an end product of a process. The Appellant in this case had acquired the disputed property from a seller who had initially acquired the property from H.E. Daniel Arap Moi. It was urged that the former president acquired the property by allocation. The Court noted that the allocation process had been irregular and illegal and as such, he could not have passed a good title. Accordingly, any person who acquired the property from H.E. Daniel Arap Moi could not have obtained a clean title. On this basis, the court denied the appellant ownership of the property, noting that it could not find refuge in the doctrine of indefeasibility of title. Moreso, the court was quick to note that irregularly acquired title cannot be sheltered by the law under the pretext of the right to property since the right can be limited by law.

 If the process preceding the issuance of the title is tainted by fraud and illegality, the title cannot be protected under the doctrine of indefeasibility of title. This places a heavy burden on the Purchaser and their advocates in the investigation of title.

Investigation of Title

Due diligence is a crucial facet of a land transaction. The duty of investigating the title befalls the Purchaser to ensure that they will acquire a good title, devoid of encumbrances. This enables the Purchaser to avoid potential contestations of the title. The Supreme Court’s pronouncement has broadened the scope of due diligence. Initially, the buyer would make an application for official search at the Lands Registry and the results would suffice as the correct record of ownership.

However, there are several loopholes that may not be revealed by Official Search Results from the Lands Registry. Such loopholes include erroneous or irregular registration of property as was the case with the Supreme Court Case at hand. With the new decision, the buyer is obligated to conduct a historical search on the property to ensure that the entire process of acquisition beginning from the initial allocation of the land to the current title has been proper and legal. Failure to conduct such extensive due diligence exercise could result in the buyer obtaining an unclean title, incapable of being validly transferred.

The bona fide Purchaser for Value without notice

A bona fide purchaser is defined in the Black’s Law Dictionary as:

“One who buys something for value without notice of another’s claim to the property and without actual or constructive notice of any defects in or infirmities, claims or equities against the seller’s title; one who has in good faith paid valuable consideration for property without notice of prior adverse claims.”

The doctrine of bona fide purchaser for value without notice protects purchasers who acquire property in good faith and without knowledge of any other adverse claims. The Supreme Court cited the case of Samuel Kamere v Lands Registrar Kajiado [2015] eKLR which provided the threshold for consideration of a bona fide purchaser:

  1. The purchaser must have acquired a valid and legal title;
  2. The purchaser must have carried the necessary legal due diligence to determine the lawful owner from whom they acquired a legitimate title; and
  3. The Purchaser must have paid valuable consideration for the purchase of the property.

Against this backdrop, the Supreme Court also found that the Appellant could equally not find solace under the doctrine of a bona fide purchaser for value without notice. This is because the Appellant had not acquired a valid and legal title and it had also not conducted historical due diligence to ascertain that indeed the property had been validly owned since the first allocation. This finding buttresses the heightened obligations on the buyer to investigate the title beyond the Official Search results issued by the lands registry.

Conclusion

A purchaser must be diligent in investigating the title by exhausting all avenues of information to ensure that they obtain a valid and legal title that can be defended against any contestation. This obligation is especially burdensome in the wake of the ongoing digitization process which has complicated access to historical records. Even though the digitization process aims to correct anomalies and make it easier for due diligence, we still have a long way to go due to system hitches. Essentially, the Supreme Court’s decision will affect land transactions and even the use of property as collateral in the lending sector.


 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

 

 

New Changes to the Kenyan Business Laws: Here’s what you need to know

The Business Laws (Amendment) (No. 2) Act, 2021 (the “New Act”) was passed on 30th March, 2021. Its main purpose is to facilitate the ease of doing business in Kenya by reducing the costs and time spent on various transactions.

We have set out below a detailed review of major amendments to the various laws:

Law of Contract Act (Cap 23)

The New Act has amended the meaning of the term “sign” in Section 3 to include execution of Company documents in the manner outlined in the Companies Act 2015. According to the Companies Act 2015[1], a company can sign documents as follows:

  1. by the affixing of its common seal and witnessed by a director; or
  2. by two authorised signatories or by a director of the company in the presence of a witness who attests the signature.

Therefore, all contracts by a company which have to be in writing under this Act, must be executed as stated or they will not be valid.

Industrial Training Act (Cap 237)

Payment of training levies by employers will now be remitted at the end of the financial year of a business. Businesses are therefore not required to follow the government’s financial year or the calendar year.

Further, the payment should be made by the ninth day of the month following the end of the business’ financial year.

Stamp Duty Act (Cap 480)

Contracts which are considered to be conveyances on sale under Section 49 of the Stamp Duty Act will be exempt from the fixed duty of one hundred shillings, that was previously charged under the said Section of the Act.

National Social Security Fund Act, No. 45 of 2013

Section 27 has been amended to require employers to pay contribution to NSSF on the ninth day of the month to harmonize payroll deductions through the Unified Payroll Return.

Previously, they were collected on the first day of the month.

Companies Act, No. 17 of 2015

The definition of a general meeting has been expanded and the same can now be a physical, virtual or hybrid meeting which are defined as follows:

  1. Hybrid meeting - where some participants are in the same physical location while other participants join the meeting through electronic means;
  2. Virtual meeting - where all members join and participate in the meeting through electronic means.

For hybrid and virtual meetings, the notice of the meeting must specify the means of joining and participating in the meeting. 

Paragraph 11 of Sixth Schedule of the Companies Act has been deleted. This section previously allowed the use of the official seal of an existing Company that had been obtained prior to the repeal of section 37 of the DDC.

Insolvency Act, No. 18 of 2015

The New Act has made the following amendments to the Insolvency Act, among others:

  1. Under Section 643, on obtaining a moratorium, company directors have to prepare a document setting out the terms of the proposal and a statement of the company’s financial position containing such particulars of its creditors and of its debts and other liabilities and of its assets.
  2. Directors are required to set out why a moratorium is desirable to assist in agreeing to an informal restructuring or other agreement with creditors or entering a formal insolvency procedure which could lead to the rescue or efficient liquidation of the company.
  3. Additionally, Directors are now required to submit the financial statements to the Monitor for consideration and comment.
  4. A moratorium ends after thirty (30) days from and including the day on which it takes effect, unless the moratorium period is extended under Section 669.
  5. During a voluntary arrangement, the Company is now required to appoint a Monitor, not a provisional supervisor as previously required. The Monitor has to be an insolvency practitioner who will supervise the voluntary arrangement including giving an opinion as to whether a moratorium has a reasonable prospect of achieving its aim and if the company is likely to have sufficient funds available to it during the proposed moratorium to enable it carry on its business.

Small Claim Courts Act, No. 2 of2016

 Section 34 has been amended to provide a sixty-day (60) timeline for adjudication of small claims.  


Article by Mary Ndung’u

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

 

[1] Section 37

Introduction

For various reasons, layoffs commonly happen. Downsizing too.

Mergers and acquisitions occur and whenever they do, they create overlap problems, and employees are cut.

Introduction

The Constitution of Kenya guarantees every person the right to own property.[1] A property owner is free to dispose their property as they will, and disposal of property in land has become a lucrative business in Kenya. With the supply of land remaining constant while the demand increases by day, land has become an invaluable commodity, desired and acquired by many. But just how easy is it to sell land in Kenya?

Pre-contractual stage

Selling property can be a complex process and without vigilance, a seller can easily stumble into pitfalls. Such pitfalls could cost a seller their investments and as such, the first step to selling property is to hire a lawyer. A lawyer will not only secure the seller’s interests in the transaction but also ensure legality in the completion of the transaction.

Secondly, it is important for a seller to open an Ardhisasa account. This is now mandatory   if the sale property is situate within Nairobi County. All transactions within the County can only be done through the Ardhisasa platform. This means that the seller must first ensure that their property is verified, before it can be disposed. Additionally, this will facilitate the purchaser to conduct due diligence more efficiently and timeously.

Thirdly, the seller should also confirm whether the property is subject to conversion. Conversion is the process of migrating land from the repealed registration laws and aligning them with the current land laws. Learn more about conversion here. A seller cannot deal in the property until it has undergone the conversion process. If the subject property has been listed for conversion, the seller should ensure that the property is converted before they can sell it. One can be able to navigate through these processes with the help of a qualified lawyer.

Contractual stage

The law requires all agreements for sale of land to be in writing, signed by all the parties and attested by a witness who is present when the contract is signed.This is a crucial stage where the seller needs a lawyer. The seller’s lawyer drafts the Agreement for Sale and negotiates the terms of the agreement on the seller’s behalf.

 The seller n eeds to look out for the ‘Purchase Clause” which is vital in securing the vendor’s interests. It provides for the selling price and elaborates the manner in which payment is to be effected. This clause will be curved differently depending on whether the purchase is being financed or not. The lawyers also secure the vendor’s interests through a document known as a professional undertaking especially where the buyer is taking a loan facility to pay for the property. Professional undertaking is a promise given by an advocate to another qualified advocate, undertaking to do a certain action. This document enables the vendor to release completion documents upon assurance that they will receive the agreed purchase price.

The seller should also be keen not to allow the purchaser possession of the property before registration has taken place. This is because all the risks in the property are borne by the seller until registration of the transfer of the property is completed.  This is risky since the seller can only evict such a person peaceably or by court order (i.e. the buyer must leave on their own volition and if not the seller has no choice but to go to court).

Post-contractual stage

This stage mandates the seller to collate and surrender completion documents to enable the purchaser to register the transfer in their favour. The completion documents include the original title to the property, duly signed Transfer document, copies of the seller’s identification documents and KRA PINs.

Consents are essential completion documents that a seller is required to surrender to the purchaser to facilitate the process of registration. Consents help to validate land transactions by shielding the seller from a person who would have otherwise had a legal right to challenge the validity of the transaction. Such consents include Land Control Board Consent, Spousal consent. Most lawyers will require a seller who’s not married to swear an affidavit to that effect. This protects the seller from problems that could ensure thereafter. Once the seller has collated all the required completion documents, they are transmitted to the purchaser, upon payment of the remainder of the purchase price.

The actual transfer of interest in land is an obligation usually bestowed on the Purchaser. The seller’s mandate is to execute the transfer instrument. In the inception of Ardhisasa, the Seller’s obligations have been heightened to the execution and approval of the transfer on the Ardhisasa platform. This is to mean that both the Seller and the Purchaser must approve the transfer to signify that the transaction is voluntary.

The last facet of the transaction is fulfilment of tax obligations. The seller is required to pay Capital Gains Tax on the profit acquired on transfer of the property. Capital Gains Tax is payable on or before the actual transfer of the property, but not later than the 20th day of the month following the month during which the transfer was completed. Initially, the Capital Gains Tax payable was 5% of the capital gained from the transaction. Currently, with the inception of the Finance (Amendment) Act of 2022, the rate has been increased by 10%. Therefore, Capital Gains Tax payable is 15% of the gains obtained from the sale of the property.

Conclusion

It is paramount for sellers to involve professional and creditable lawyers whenever they are selling land. This ensures that they receive proper legal advice and vigilant representation in protection of their interests. The above-discussed process can be daunting and complex. However, a lawyer irons out the complexity and helps the seller to avoid unnecessary pitfalls in the process.


Article by June Njoroge Ngwele and Fridah Gatwiri

 

John C. Maxwell wisely cautions that “Change is Inevitable and Growth is Optional”. This is evident in Estate Planning where one of the most frequent questions is “what happens to my Will if things change, or if I change my mind?”.

It is important to understand that Wills take effect only after the demise of the maker of the will (“testator”). This is captured in the definition of a Will found in Section 3 of the Law of Succession Act which states that:

“(A) ‘will’ means the legal declaration by a person of his wishes or intentions regarding the disposition of his property after his death, duly made and executed”.

Therefore, even after one has made a Will, they are free to deal with their property as they wish prior to their death. This means that property included in a Will may be sold or leased for the benefit of the maker of the Will up until their demise. The maker of a Will is also free to acquire additional property or change their mind and redistribute their property by changing the provisions of their Will. This is supported by Section 17 of the Law of Succession Act which provides that, “A will may be revoked or altered by the maker of it at any time when he is competent to dispose of his free property by will.”

Any of the above-mentioned changes (transfer of assets, acquisition of property or change of intended beneficiary) should prompt a Will review.

Changes in Wills are effected through codicils or revocation. A codicil is a “testamentary instrument made in relation to a will, explaining, altering or adding to its dispositions or appointments”. It can be described as a document which is supplementary to a will.  It does not stand alone as it is attached to an existing Will which it alters or amends by subtracting or adding to it.

Revocation, on the other hand, refers to the official cancellation of the Will by its maker.

The extent of the changes will determine whether the changes to the Will shall be made by the preparation of a codicil or revocation of the existing will and making a new one.

The case of re Estate of Ephantus Munyutu Waigi (Deceased) [2014] eKLR is illustrative of how the courts recognize both revocation and codicils as a means to effect changes to one’s estate plan. In this matter, the deceased had made a Will on 12th January 2000, another on 24th November 2004 and a codicil signed on 12th July 2007. In his 2004 will, the deceased had expressly revoked all other wills and testamentary dispositions made by him prior thereto and declared the 2004 will to be his last will. This was upheld by the court and the 2000 will was deemed invalid for the purposes of succession. The court held that distribution of the estate of the deceased should accord with the will dated 24th November 2004 and the codicil dated 12th July 2007. In giving its decision the court reiterated that a “codicil may be described as a document which is supplementary to a will.  It does not stand alone like a will.  It is attached to some will.  It does not have a life of its own, for it rides on a back of a will.  It serves to revoke, alter, amend, subtracts to form, add to or connect a will...a codicil never stands alone, but with the will it seeks to supplement or add to, and when admitted to probate, the codicil becomes part of the will it seeks to supplement or add to.

While this article mainly deals with intentional changes to a Will, it is worth noting that the revocation of a Will shall be automatic in the following instances:

  1. by the making of another Will;
  2. by the burning, tearing or otherwise destroying of the Will with the intention of revoking it by the testator; or
  3. by the marriage of the maker, except where a Will is expressed to be made in contemplation of marriage.

Thus, Kenyan law anticipates that one’s circumstances may change even after making a Will. One can therefore have a Will in place and ensure that any changes in circumstances are adequately addressed through periodic reviews.  We therefore advice all testators to update their wills regularly to ensure that it captures any changes in property and intentions and to ensure that the will remains valid.


Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction

Unclaimed assets are those assets which have been presumed abandoned or in respect of which there are conditions raising a presumption of abandonment.

The Central Bank of Kenya has issued a regulatory approval to Fingo Africa, the first ever digital-only bank, to roll out its services in Kenya. Fingo Africa (“Fingo”) is a Neobank that has partnered with Ecobank. Both institutions are planning a Pan-African roll out which shall commence in Kenya. According to Fingo, it has raised seed capital of Kenya Shillings 1 billion (which under Kenyan Law is the minimum capital required to establish a bank) and its services are to be accessed through the ‘Fingo Africa App’, now available on Google Play Store and Apple Store. The services include account opening, withdrawals, deposits, savings, checking of bank balances, request for bank statements, monitoring of financial statements and general financial education. Fingo has no monthly charges, overdraft fees, credit checks or minimum balance required. It also has a guaranteed access period of five minutes.

Similarly, Branch Microfinance Bank (“Branch”), which acquired Century Microfinance Bank in 2022, recently communicated that they have been licensed to operate as a digital microfinance bank in Kenya. Branch has rolled out services such as digital credit provision which include savings, payment of bills and peer-to-peer funds transfer. Branch also announced that they have closed one of their three physical branches and that they will remain with only one branch, which they intend to close with time, as they work towards operating as a Neobank.

A.  What is a NeoBank? A Neobank, otherwise known as a digital bank, is a bank whose services are wholly conducted through a software or digital application. The services would include account opening, withdrawals, deposits, savings, checking of bank balances, request for bank statements, monitoring of financial statements and financial education. Such banks do not require physical premises to carry out their business and offer their services.

  • B.  Are Neobanks Regulated in other Jurisdictions?
  •       1. Nigeria

In Nigeria, there are several Neobanks such as Kuda, Vbank, Sparkle, VFD and ALAT by WEMA. They are regulated by the Central Bank of Nigeria (mandated under the Bank and Other Financial Institutions Act, 2020) which is yet to create a specific licensing regime for digital banks. Consequently, Neobanks are required to obtain either a Microfinance Bank License, a Payments Service Banks License or a Finance Company License before commencement of their operations. They are also required to set up a company at the Corporate Affairs Commission. The Neobanks are also regulated by the Nigeria Deposit Insurance Act, 2006 which requires them to have an insurance plan for deposits accepted from customers.

Despite Nigeria having several Neobanks, the requirement for them to obtain either of the above-mentioned licenses is limiting on Neobanks that intend to enter the Nigerian market and undertake business activities that require more than one license.

     2. Senegal

The regulations in Senegal are silent on Neobanks. However, according to the Global Fintech Index City Rankigs of 2020, Senegal has approximately 20 Financial Technology (“FinTech”) companies. Despite Senegal not having a sector specific regulation for FinTech, the Central Bank of Senegal has set up a Bureau de Connnaissance et de Suivi des FinTech to promote the FinTech sector and collect and/or process requests for information. As a result of the lacuna in legislation governing FinTech, the industry is scarcely regulated.

Senegal is a reflection of most African countries; which do not have sector specific regulations for Neobanks but are slowly embracing technology by implementing special vehicles to address concerns and inquiries on Neobanks.

     3. Hongkong, Taiwan, Korea and Singapore

These countries have significant and stringent regulations for the licensing of digital banks and they have the following in common:

  1. They focus on financial inclusion- their Regulators require new market entrants to target undeserved customer segments such as macro, small and medium enterprises;
  2. They promote compliance with basic banking requirements- new digital banks are required to comply with the existing banking laws and regulations, prudential requirements and consumer protection rules; and
  3. They encourage innovation of digital distribution- digital banks are encouraged to be innovative in digital distribution of their services, for instance, to offer services through a shared network or through agents. 

It is important to note that licensing of Neobanks varies from country to country, for example, in some countries such as Malaysia, Phillipines, Singapore and South Korea, the licensing is provided under a specific licensing and regulatory framework, whereas in Indonesia, the Neobanks are licensed as standard banks with specific provisions in the banking regulatory framework. In other countries such as Nigeria, China, Russia, United Kingdom and Canada, the Neobanks are licensed under the general banking and financial services regulatory framework. 

  • C. What is the Legal framework for Neobanks in Kenya? In Kenya, so far there is no legal framework developed specifically to regulate Neobanks. Therefore, the existing banking regulations would be applicable to Neobanks. These regulations stem from the following statutes:
  •    1. The Banking Act CAP 488 

The Banking Act CAP 488 does not have specific provisions on Neobanks but defines a bank as a company that carries on banking business in Kenya. This definition does not include the Central Bank of Kenya (“CBK”). The Act further defines banking business as that which entails the accepting of money on deposit repayable on demand or on expiry, from members of the public, accepting from the public of money on current account, employing of money held on deposit or on current account or any part of the money held, by lending, investment or any other manner, for the account and at the risk of the person so employing the money or such other business as the Central Bank of Kenya may prescribe. 

The Act mandates CBK to issue licenses to institutions intending to transact in banking business or financial business. The Act provides a list of requirements for one to be registered as a bank in Kenya, as follows:

Capital requirements:

  1. A core capital of not less than 80% of total risk adjusted assets plus risk adjusted off balance sheet items, as may be determined by CBK;
  2. A core capital of not less than 80% of its total deposit liabilities;
  3. A total capital of not less than 12% of its total risk adjusted assets plus risk adjusted off balance sheet items as may be determined by CBK; and
  4. A core capital of at least Kshs. 1 billion. Interestingly, the capital requirement for Fingo matches this statutory minimum. 

Other requirements:

  1. Formal application for the license in writing, addressed to CBK;
  2. Moral and professional suitability of the proposed executive managers and board members responsible for the management and control the institution;
  3. Proposed location of the business;
  4. Financial history of the entity;
  5. Adequacy of capital structure and earning prospects;
  6. Convenience and needs of areas to be served;
  7. Service of public interest; and
  8. Character of management.

Despite the requirements noted above, CBK may subject applicants to certain further conditions, which must be complied with for the banking licence to be issued to them.

   2. The Finance Act, 2008

The Finance Act, 2008 amended the Banking Act by raising the capital requirement for banks and mortgage finance companies from Kshs. 250 million to Kshs. 1 billion. Therefore, banks are now required to have minimum core capital of at least Kshs. 1 billion for them to be licensed by CBK. 

   3. The Central Bank Act Cap 491 

The Act highlights some of the licensing requirements provided under the Banking Act and further emphasizes that the license shall be issued subject to such conditions as CBK may consider necessary. It also provides that CBK has the mandate to add, vary or substitute the conditions after issuance of the license, whenever it deems such changes necessary.

   4. The National Payment System Act No. 39 of 2011 

The Act mandates CBK to gazette a designated payment system that shall be used for purposes of sending, receiving, storing, processing payments and providing services related to payments made through any electronic system. The Act mandates banks to issue payment instructions to payment service providers who shall be required to act upon them. Some of the payment service providers include M-PESA, which was the first online payment system that was introduced in Kenya by Safaricom and Vodafone in 2007 and whose main target was the unbanked; permitting them to operate a cash wallet in the absence of a bank account.

D. The concept of digital Financial Technology (“FinTech”) vis a vis Neobanks- Financial Technology refers to mobile applications, software and other forms of technology which have been created to automate and improve the conventional forms of finance for businesses. FinTech covers digital lending, digital wealth management, blockchain and digital payments. 

On the other hand, a Neobank is an unconventional type of bank which runs all its operations and renders its services solely through an online platform. 

Various FinTech models have emerged since the wake of Covid-19 in 2020, for instance, the adoption of digital banking platforms such as the M-Co-op app which has been used by Co-operative Bank of Kenya to render some financial services despite there being physical bank branches which can still be accessed.

The adoption of FinTech through mobile banking applications by various banks in Kenya, such as Pesa Pap (Family Bank), KCB Mobi App (KCB Bank) and Eazzy Banking App (Equity Bank) is a progressive step towards the introduction of Neobanks in Kenya, in future. This is also a positive move on the part of CBK, which has issued the approvals for mobile banking.

  • E. Recommendations on licensing of Neobanks in Kenya 

In Kenya, since there are no specific regulations on Neobanks, it is imperative to note that such banks’ operations should not mimic those of traditional banks especially in light of the fact that they are digital in nature. Therefore, the license issued to Neobanks would need to be given exemptions from adherence to certain requirements, such as:

  1. The requirement to have physical premises under CBL Prudential Guideline CBK/PG/01- will be redundant due to the nature of the bank; and
  2. The requirement to display their license at their physical premises- they would be required to display the same on the website since Neobanks are solely run online. 

Further, in order to avert possible risks associated with any shortcomings related to liquidity and loss of customer confidence, CBK ought to discourage partnerships between banks and proposed Neobanks (which may result in shadowing of Neobank’s reputation and trigger loses in case of non- compliance or compromise of platforms since the Neobank would not have control rights) and in light of the current technological trends, CBK should prepare and publish draft regulations with respect to Neobanks.

It is noteworthy that CBK has taken steps in the recognition of mobile banking which has largely contributed to the growth of the banking sector. This has been made successful through the publication of the E- Money Regulations, 2013 by CBK. The regulations require a proposed E-money issuer to have a core capital of Kshs. 60 million for them to be authorized by the Central Bank of Kenya, among other requirements.

F. What are the Advantages and Challenges of Neobanks?

Neobanks, just like conventional banks, have their advantages and challenges as highlighted below:

Advantages

  1. Convenience- financial transactions such as deposit or withdrawal of funds are done at the convenience of the user of the digital channel who has an account, at anytime, anywhere in the world;
  2. Expeditious- bank account opening and other transactions are expedited as long as the user has a stable internet access; and
  3. Lower costs- Neobanks operate at lower costs considering the fact that they do not operate in the same way as traditional banks because by their nature, they are not required to have physical branches.

Challenges

  1. For one to operate an account in a Neobank, they should be computer literate and familiar with online services. As such, Neobanks are not convenient for everyone especially persons who are not computer literate;
  2. Lack of face-to-face contact, support may be frustrating especially in instances where downtime is experienced; and
  3. Can be insecure where the software does not have proper security features hence subjected to hacking, virus attacks, online user ID theft and fraudulent transactions which may jeopardize the security of the user’s funds. 

Conclusion

The advent of Neobanking is significant in the financial market particularly in light of the current technological trends. The move by CBK to license Fingo and Branch Microfinance Bank is a positive market decision that will ensure that with time, all Kenyans will receive banking services at their convenience, and enhance the country’s status in the global financial market. With sound policy and regulatory consideration, Neobanks will increase efficiency in the banking sector and attract more global multi- currency banks in Kenya.

Even though the licensing requirements for both commercial banks and microfinance banks are built on prudence, the difference in both is that commercial banks are based on utilizing traditional banking practices whereas microfinance banks are anchored on diverse banking practices. However, these practices cannot be adopted wholesome without curtailing and diluting the benefits of technology which is at the core of NeoBanking. In Kenya, there are no specific regulations, therefore, such bank operations should not mimic those of a conventional bank. It is imperative that CBK considers formulating regulations that are specific to and promote Neobanking. There is also need to amend the existing Acts to expressly provide for such banks and ascertain the status of already licensed traditional banks (commercial or microfinance) that have opted to take the digital route and have in fact reduced the number of branches and banking halls. The reduction of bank branches and banking halls is considered a step towards full migration to Neobanking.


Prepared by

Godwin Wangong’u/ Senior Partner

Grace Andati/ Associate

 

19th April, 2023

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. 

For particular expert advice on any matter dealt with above, please contact us through 

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. Mboya Wangong'u  Waiyaki

Introduction

Currently, the Competition Act of Kenya 2010 (‘the Act”) and the Consolidated Guidelines on the Substantive Assessment of Mergers under the Act (“Consolidated Guidelines”) only require notification of joint ventures if they are full - function and if they meet the required thresholds. Until recently, there were no guidelines and/or rules that specifically addressed joint ventures.

It is in this regard that the Competition Authority of Kenya (“the Authority”) has now developed Draft Joint Venture Guidelines (“draft Guidelines”) which are currently undergoing public participation. The purpose of the draft Guidelines is to provide clarity on transactions that qualify as full-function joint ventures, give guidance on notification requirements and give an overview on the review and analysis of full-function joint venture transactions by the Authority. Notably, the draft Guidelines do not substitute the existing provisions of the Act or the Competition (General) Rules 2019 (“the Rules”). They only supplement them.

Below is an overview of the draft Guidelines.

  • 1.   Types of Joint Ventures

     a)    Full-Function Joint Ventures

This is a joint venture that will perform, for a long duration (usually at least 10 years), all the functions of an autonomous economic entity including: operating on a market and performing the functions normally carried on by undertakings operating in the same market; having management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets for its business. Such joint ventures are considered mergers under the Consolidated Guidelines

     b)    Greenfield Joint Ventures

These are joint venture arrangements aimed at engaging in a new business venture separate from and unilateral from activities of the parties to the joint venture. They usually apply where local or foreign entities collaborate with other local domiciled entities to develop new products and services separate from the products and services offered by the parent entities. In some instances, such arrangements may result in full-function joint ventures depending on the prevailing circumstances and as such parties are advised to utilize advisory opinions before implementation of Greenfield Joint Venture transactions.

2.   Filing Notifications for Joint Venture Transactions

Unlike in mergers and acquisitions where the target and the acquirer are easily identifiable, the target and acquirer in joint venture transactions are not easily identifiable. For this reason, the Authority will require the parent entities to separately submit documents relating to the transaction by filing the merger notification forms, in the prescribed form, as joint venture parents. The joint venture vehicle will also be required to fill the merger notification form as a joint venture vehicle.

3.   Basis for Determination of Assets and Turnover Thresholds

To determine the impact of the proposed transaction in the market, parties to a joint venture will be required to provide complete financial information during filing. This requirement also applies for entities who may not be deriving their turnover in Kenya prior to the joint venture. The parents of the joint venture and their subsidiaries/related companies will also be required to submit the turnover and asset figures, whether or not attributable to parties in Kenya. 

The Authority will also use the financial information of the parent entities and the joint venture entity to compute merger filing fees.

4.   Elements of Joint Ventures and Analysis by the Authority

     a)    Impact on Competition Analysis

The competition review of full function joint venture transactions will be guided by the Act, Rules and the Consolidated Guidelines. In order to determine the anti-competitive effects of a joint venture, the Authority will consider the terms of the joint venture agreement(s) including: the activities of the joint venture and its parent undertakings; the governance structure adopted; the duration of the joint venture; the nature and extent of assets transferred to the joint venture versus those retained by the participants; and the freedom parents retain to compete with each other and with the joint venture. Any exclusivity clauses that tend to raise barriers to entry or expansion facing third parties will also trigger review.

     b)   Public Interest Analysis

Public interest analysis will be based on the Consolidated Guidelines. In particular, the review of public interest issues will seek to identify the positive synergies likely to arise from the transaction. The Authority will also consider the likely technological benefit, real resource savings, compatibility with competition and economies of scale accompanying the transaction.

5.   Guidance on New Trends in the Digital Economy

In reviewing the impact of joint venture transactions, the Authority may also consider the aspects of big data and digital economy dynamics of entry and access to data. This will apply to transactions likely to involve big data even where data is not the main component of the transaction. Where likely negative competition and public interest impacts of a joint venture transaction are identified, parties to the joint venture will be required to come up with remedies to mitigate against the harm.

 Conclusion

In conclusion, the draft Guidelines, if passed, will offer a clear framework to stakeholders in joint venture transactions on the notification requirements and procedures of the Authority besides those provided under the Act, Consolidated Guidelines and Rules. They are therefore a welcome addition to the competition laws of Kenya.

Article by Audrey Seur and Grace Andati


 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through:

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction 

For a long time, Kenya Power and Lighting Company (“KPLC”), has monopolized the distribution and retailing of electricity in Kenya.

Conflict is what happens when boardroom dialogue fails. The resultant effect of any conflict can have far-reaching effects on a company. What happens where a member is disgruntled by the decisions of some of the members of the company and yet the wrongs cannot be resolved by internal mechanisms due to majority rule? What should a minority shareholder do in such circumstances? The principal law governing protection of minority shareholders from controlling shareholders is the Companies Act, No. 17 of 2015 (together with attendant regulations) and complemented with common law principles.

Among the protections afforded by the existing legal regime to the minority shareholders include derivative action. The Companies Act, 2015 (Section 238) defines a derivative action as ‘proceedings by a member of a company in respect of a cause of action vested in the company; and seeking relief on behalf of the company.’

This is a remedy that avails to shareholders who would like to challenge oppressive conduct perpetrated by the controlling shareholders.

The rule established in Foss versus Harbottle (1843) was that, being a separate legal entity from its members, only the company could institute claims for any wrongs it suffered.  To bring a derivative action under common law, one had to fall within the exceptions to this rule. Some of the exceptions include instances where the company had acted ultra vires; instances of fraud by the controlling shareholders inter alia. Further, Onguto J in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another [2017] eKLR defined a derivative claim as “a mechanism which allows shareholder(s) to litigate on behalf of the corporation often against an insider (whether a director, majority shareholder or other officer) or a third party, whose action has allegedly injured the corporation.” According to this case, derivative actions are aimed at enhancing accountability.

Following the enactment of the 2015 Act, the pursuit of derivative action is now a matter of judicial discretion rather than a matter of the exceptions under common law rules. The Court with proper jurisdiction being the High Court. the Act under Section 780 and 782 permits the court to intervene where the conduct of the affairs of the company is extremely prejudicial or oppressive.

Section 780 of the Companies’ Act further provides that a member may apply to Court for an order under section 782. Some of the grounds are that the company's affairs are being or have been conducted in a manner that is oppressive or is unfairly prejudicial to the interests of members; or an actual or proposed act or omission of the company is or would be oppressive or prejudicial.

The High Court in Joseph Munyoki Nzioka v Raindrops Limited & 3 others [2019] eKLR held that for a Plaintiff to succeed in a derivative claim, they must satisfy the following conditions:

  1. Be a member of the Company or a person who is not a member of the Company but to whom shares in the Company have been transferred or transmitted by operation of the law;
  2. The proceedings must be in respect to a cause of action vested in the Company;
  3. The proceedings must be seeking relief on behalf of the Company;
  4. The proceedings must be for protection of members against unfair prejudice brought under the Companies Act; and
  5. The proceedings are in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.”

Section 782 permits the Court to make orders in respect of the company as it may deem fit. Some of the Court Orders provided under Section 782 (2) include:

  a.  Regulation of the conduct of the affairs of the company in the future;

  b.  require the company—

       i. to refrain from doing or continuing an act complained of; or

      ii. to do an act that the applicant has complained it has omitted to do;

  c. authorize civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the Court directs;

  d. require the company not to make any, or any specified, alterations in its articles without the leave of the Court;

 e. provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the                  company itself, the reduction of the company's capital accordingly.

Where a shareholder holds 50% of the shares which implies that they are not strictly speaking a minority, they have to demonstrate that the company has suffered a wrong caused by one of the other shareholders. The Court in David Langat v St Luke’s Orthopaedic & Trauma Hospital Limited & 2 Others [2013] eKLR reckoned that a strict requirement for the demonstration of majority or minority may occasion an injustice, and the Court would be abdicating its responsibility to do justice if it strictly insisted on this requirement.

Through a derivative claim, the minority shareholder(s) may be able to recover damages for the company and prevent wrongs against the company by the majority. Since the remedy traces its roots to the equitable maxim that he who comes to equity must come with clean hands, it is instructive that the conduct of minority shareholders pursuing this remedy should not be tainted. The claim should always be brought in good faith and in the best interests of the company.


 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

In the unfortunate demise of an individual, there are various rights that accrue to different persons depending on the relationship between that person and the deceased. For example, wives and children of the deceased will be considered ‘automatic’ beneficiaries/heirs of the deceased and they will not need to prove their dependency on the deceased. This is contrasted to persons like parents of the deceased whose beneficiary status is not automatic, that is, they have to prove their dependency on the deceased immediately before his/her demise. Because of the ‘automatic’ status of the wife/wives and children of the deceased, it is usually assumed that their rights over the property of the deceased are superior to the rights of any other potential beneficiary. 

However, this is not always the case. There are instances where the rights of other individuals, who are not necessarily wives or children of the deceased, may override the rights of the deceased’s heirs. These include persons such as: joint land owners and nominees, among others. 

This article focuses on the rights of nominees and it explains why their rights over the estate of a deceased override those of heirs.

Nominees are third parties who are selected by the deceased during their lifetime to receive their benefits in various entities upon their death. These include benefits held in insurance policies, SACCOs, retirement benefit schemes, bank accounts, company shares, chamas, among other entities. Such entities usually require a member to nominate persons who would receive the benefits held by them upon their demise. Once the nomination is done by the deceased, the benefits held no longer form part of the ‘free property’ that is the subject of probate and administration proceedings, neither can they be bequeathed by the deceased under a will. 

The nominated benefits will be subject to the laws that govern the various entities such as the Insurance Act, the Retirement Benefits Act, the Co-operative Society Act and the Sacco Societies Act. These laws recognize nominations and they provide that property which has been duly nominated should go to the nominee. For example, Section 36A of the Retirement Benefits Act provides that, “Upon the death of a member of a scheme, the benefit payable from the scheme shall not form part of the estate of the member for the purpose of administration and shall be paid out by the trustees in accordance with the scheme rules.” Its Regulations require the Scheme Rules to provide for the benefits of a deceased member to be paid to a nominated beneficiary. 

This is a position that has been affirmed by the Kenyan courts on various occasions. An example is the case of In re Estate of Carolyne Achieng’ Wagah (Deceased) [2015] eKLR which was decided by Hon. Justice Musyoka. In this case, the administrator of the estate of the deceased sought to have the benefits of the deceased, such as terminal benefits upon death, pension, group life insurance and shares in a co-operative society be considered as part of the deceased’s estate and distributed among the beneficiaries according to the laws of succession. The deceased had made a will which only included assets that were subject to statutory nomination. The court dismissed the administrator’s application and held that funds which were subject to nomination did not form part of the deceased’s estate and could not pass under a will. The court also held that despite the fact that there was a will, all the deceased’s assets under the will had been nominated by the deceased and could only be given to the nominees and not to any other beneficiaries. Thus, the grant issued to the administrator was worthless since it sought to distribute property that the probate court had no jurisdiction to distribute in the first place.

In view of the foregoing, it is clear that the right of a nominee will override the right of an heir in instances where nomination is allowed by law. It is therefore important for one to understand the impact of nominating the funds they hold in various schemes to their preferred kin. When making a will, a person needs to be aware of the assets they have already nominated which will usually be funds held in the entities discussed above. The will should not include these funds otherwise it will be in vain because the funds will be paid to the nominee.

Since it is usually a requirement for one to make a nomination in the entities mentioned above, it is crucial for a person to keenly consider who their preferred nominees will be and the allocation of the share of the funds that they will give each of their nominees. Any person qualifies to be a nominee including one’s husband, wife, children, siblings, parents, friend, and so on. Consequently, one’s heirs can also be their nominees. 

Thus, nomination is another way in which a person can bequeath their assets. In fact, one of the main advantages of nomination is that a nominee will directly receive the nominated funds upon the demise of the nominator and will not need to go through any court processes for the nomination to take effect. The other major advantage is that a nomination is not likely to be contested and will therefore pass as indicated by the nominator without objection from other parties. Therefore, it is advisable for one to take advantage of the option of nomination if available.


Article by Ivyn Makena

Disclaimer
This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

It is not in doubt that technology has changed the way we live, the way we purchase products, the way we communicate, the way we travel, the way we learn and the way we do business in general.

In a bid to regulate a largely unregulated sphere, the Capital Markets Authority (CMA/Authority) of Kenya gazetted new regulations on crowdfunding, Capital Markets (Investment Based Crowdfunding) Regulations (hereinafter “the Regulations”) that came into effect on 30th September 2022. The regulations are aimed at allowing Kenyan registered micro, small, and medium enterprises (MSME) with a two-years’ operating track record and sound corporate governance record to raise funds from investors through licensed crowdfunding platforms operating in the country while at the same time ensuring protection of investors and promotion of transparency in their operations of crowdfunding platforms.

Simply defined, crowdfunding refers to the act of raising money from many individuals or entities to either finance a project or business through a crowdfunding platform. Typically, crowdfunding has three critical players: the issuer who is the person fundraising, the investor and the technological platform which facilitates interaction between investors and issuers and other related interactions. The Regulations apply where: the platform is established in Kenya; or majority of the key components of the platform when taken together are physically located in Kenya; or the platform is located outside Kenya but actively targets Kenyan investors.

Regulation 4 provides that all persons or entities operating, maintaining an investment based crowdfunding platform to be licensed by the Authority and makes it an offense to operate such a platform without first obtaining a license from the Authority. The regulations further provide for the licensing requirements and documentation, eligibility criteria, and rules for the operation of investment crowdfunding platform. A crowdfunding platform license application must include the following documents: a certified copy of the certificate of incorporation, evidence of a firm's financial soundness and capital adequacy, and a business continuity and disaster recovery plan, a business plan with financial projections, evidence of adequate human resources, details of the organization structure and management profile, details of platform outsourcing arrangements (if any), and detailed information about the platform. Under sub-regulation 39, an entity operating an investment-based crowd fund is required obtain a license from the Authority within a period of twelve months i.e. by 30th September 2023. 

Regulation 14 limits the maximum amount of funds that can be raised from a crowdfunding platform by a given micro, small and medium enterprises or startup to kshs. 100 million for a 12-month period and prohibits the following entities from raising money through crowdfunding platforms: public listed companies and their subsidiaries; entities with a poor governance record; entities that intend to use the funds raised to provide loans or invest in other entities; and any other entity as may be specified by the Authority.

To limit the risk exposure of unsophisticated investors, the regulations limit the investment by unsophisticated investors to the investment limits prescribed by the crowdfunding platform operator but up to a maximum of Kenya shillings one hundred thousand.  There is no investment limit for sophisticated investors. Further, the regulations require the operators of crowdfunding platforms to come up with rules that provides for inter alia: criteria for onboarding users; code of conduct and ethics; communication policy; rules and procedure for their trading facility; cyber security; dispute resolution among other requirements.

Other key items introduced by the regulations include: the requirement of issuers to have an offering documents that complies with the disclosures set forth under schedule four of the regulations; the actions to be taken and timelines thereof upon failure to meet the targeted amount of issue; investors’ right of withdrawal; restriction imposed on the platform against raising own funds through its platform, offering investment advice, handling investors, guaranteeing returns and promising a guaranteed outcome.

In addition to this regulations, a Crowdfunding platform operator is required to comply with:  the Capital Markets (Conduct of Business)(Market Intermediaries) Regulations, 2011; the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations, 2011; the Guidelines on the Prevention of Money Laundering and Terrorism Financing in the Capital Markets; and any other existing capital market laws and Regulations to the extent applicable except where expressly exempted by the Authority.

The Capital Markets (Investment-Based Crowdfunding) Regulations, 2022 will play a crucial role in promoting the growth of investments in the country through innovative products. The crowdfunding regulations of Kenya 2022 are also an important step towards promoting transparency and protecting investors in the crowdfunding space. The regulations will help to build a more trustworthy and reliable crowdfunding industry and provide a safe and secure environment for investors and entrepreneurs to participate in crowdfunding campaigns. Further, investors’ personal details will be subjected to the Data Protection Act, 2019, which will ensure confidentiality and realization of their right to privacy.


Article by James Karuga and Fridah Gatwiri

Published on February 22, 2023

This article is intended for general knowledge only and must not be construed or relied upon as legal advice. For substantive legal advice on this, please contact us through  This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. 

Introduction 

Through a Legal Notice dated 18th February, 2020, the Attorney General has published the Companies (Beneficial Ownership Information) Regulations, 2020 (the “Regulations”). The Regulations seek to operationalize the provisions of the Companies Act on keeping of records regarding a company’s beneficial ownership. The enactment of the Regulations is geared towards aligning Kenya’s laws with international standards which recommend minimum levels of transparency concerning the beneficial owners of companies, trusts and other legal arrangements in order to promote implementation of legal, regulatory and operational measures for combating money laundering, and terrorism financing. 

 As Kenya is not immune to these vices, the country first introduced a law requiring companies to keep a register of beneficial owners in 2017. The regulations contemplated under the said law are what forms the subject of this article, which highlights the salient provisions by answering a few questions.

Who is A beneficial owner?

The Regulations define a beneficial owner to be a natural person who holds at least 10% of the issued shares in the company either directly or indirectly, exercises at least 10% of the voting rights in the company either directly or indirectly,  holds a right, directly or indirectly, to appoint or remove a director of the company exercises significant influence or control, directly or indirectly, over the company. 

Is the Company required to keep the beneficial owner’s details in the Register of Members?

Yes. The regulations provide that a company shall, where applicable, enter in its register of members details in respect of its beneficial owner including full name, national identity card number/passport number, KRA PIN, nationality, date of birth, postal, residential, telephone and email address, occupation, date on which any person became a beneficial owner, date on which any person ceased to be a beneficial owner  and nature of ownership or control.  The register of beneficial owners’ particulars is required to be lodged with the companies’ registry. The Regulations also require companies to notify the registry of changes in the particulars of the beneficial owner or of the cessation of the person from beneficial ownership. 

 Who is Responsible for finding out the Beneficial Owners’ details?

The company has a duty to take reasonable steps to find out and identify its beneficial owners.  Where the necessary particulars are not within the company’s knowledge, the company is required to give notice to anyone whom it knows or has reasonable cause to believe to be a beneficial owner. The notice will require the addressee to state whether or not the addressee is a beneficial owner of the company and if so, to confirm or correct any particulars of the addressee that are included in the notice. 

What if the Suspected Beneficial Owner fails to comply with the Notice?  

The addressee is required to comply with the notice within 21 days from the date of the notice failing which the company may issue a warning notice informing that person that it is proposing to issue the person with a restriction notice with respect to any interest they hold in the company. A copy of the warning notice is also to be kept in its register of beneficial owners. Upon the lapse of 14 days from the warning notice, the company may note a restriction with respect to the particular interest and lodge a copy of the restriction with the registrar and notify that person. Under the Regulations, a restriction notice renders void any transfer of the interest in respect of which the notices were given. It also has the effect of stopping the exercise of any rights in respect of the particular interest. The company may also withdraw the restriction once the person complies with a request for information. 

Are there restrictions on sharing of the Disclosed Information? 

The company is barred from disclosing the beneficial owner’s particulars except when communicating with the beneficial owner concerned or when complying with any requirement of the Regulations or with a court order.  In a rather controversial provision, the Registrar may, upon a written request, disclose protected information to a competent authority which includes the A.G, DCI, law enforcement agencies and authorities that supervise and monitor the financial sector. The Regulations outlaw the disclosure of beneficial ownership information the in any manner other than for the purpose for which such information is obtained. 

These regulations are aimed at requiring companies to obtain and hold adequate, accurate and current information on their beneficial ownership. It is also noteworthy that provisions allowing a search to be carried out on the beneficial ownership of the company were dropped in the final draft. It is hoped that with the blanket access given to the authorities, the Regulations will help the government to fight money laundering and tax evasion. 


Article By : CG Mbugua and Enock Mulongo

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it.  or This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Introduction to Bonds
Bonds are generally defined as fixed income instruments that represent a loan made by an investor to a borrower. Conventionally, the bond issuer raises a fixed amount of capital from investors over a set period of time,

Data protection law originated from Europe in the 1970s as a reaction to the rise of the use of computers. This eventually led to the development and adoption of the now-famous General Data Protection Regulation (GDPR) in 2016 which became enforceable in 2018. The GDPR is a legal framework that sets guidelines for the protection of the personal information of European Union citizens. The GDPR has since then become a reference point for other data protection laws globally.

In Kenya, The Constitution of Kenya 2010, Article 31 provides that every person has the right to privacy, which includes the right not to have the privacy of their communications infringed and information relating to their family or private affairs unnecessarily revealed. The Data Protection Act No. 24 of 2019 (“the DPA”)gives effect to the above Article 31, together with the Regulations below:

  1. The Data Protection (Registration of Data Controllers and Data Processors) Regulations, 2021 (the “Registration Regulations”);
  2. The Data Protection (Complaints Handling Procedure and Enforcement) Regulations, 2021 (the “Complaints Regulations”); and
  3. The Data Protection (General) Regulations, 2021 (the “General Regulations”).

The DPA applies to all entities processing the personal data of data subjects residing in Kenya, regardless of their location.

What is Personal Data?

The DPA defines personal data as any information relating to an identified or identifiable natural person. Further, it is any information that may identify a natural person such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social or social identity. For purposes of land transactions, the name of a person, their National ID or Passport Number, their KRA PIN, their passport photos, their Ardhisasa ID and their address are personal data.

What Responsibilities are placed on persons' dealings with land transactions?

Primarily, the DPA introduces Data Controllers and Data Processors, who are persons and/or entities that deal with information pertaining to land and real estate transactions.

Section 2 of the DPA provides that a Data Controller as a natural or legal person determining the purpose and means of the processing of personal data while a Data Processor is a natural or legal person, that processes personal data on behalf of the data controller.

How does this apply to Real Estate?

Regulation 13 of the Data  Protection (General) Regulations, 2021, provides that Data Controllers and Data Processors must register with the Office of the Data Protection Commissioner (“the ODPC”). Further, the ODPC has provided a guideline to the effect that registration is mandatory for Data Controllers and Processors who process personal data for property management including the selling of land. For this purpose, the following

players involved in a property purchase and/or sale are registrable with the ODPC :

  1. Buyer’s Agent (Real Estate Agent)
  2. Listing Agent
  3. Insurance Company
  4. Appraiser
  5. Local Authority/County Governments
  6. Purchaser
  7. Advocates
  8. Lands Registry
  9. Attorneys/Notary Signing Agent
  10. Tax Advisors

The above persons use personal data from various data subjects when dealing with property, including processing   IDs, photos, signatures, location, bank account information etc. and as Data Controller, when deciding what use to put the said data to, to facilitate the completion of a purchase, transfer, registration of a lease, legal charge etc. over a property.

Is Property Information Personal Data ?

Property information is linked to an owner as the details of the said property are not complete without the description of the owner, for example, their name, ID number and address. Thus, this data is an ‘identifiable marker’ and is thus considered to be personal regarding the individual.

It is important as a property owner to know that the usage of your personal data in the process relating to your property is sensitive in nature and the law affords you the: Right to give consent to the usage of personal data (e.g., the location of your name, property etc. Being disclosed)

  1. Right to demand for safety protocols to be put in place to safeguard and protect your data
  2. Right to be informed how your personal data will be used
  3. Right to be informed how long your personal data will be used
  4. Right to options to stop and relinquish the processing of personal data
  5. Right to be informed if the persons dealing with your property registered with the ODPA and if compliant with the DPA

What does this mean to me?

The introduction of the DPA protects individuals including but not limited to property owners. If you are a person who deals with any personal data relating to a property transaction, you should register with the ODPC and process data lawfully; minimize the collection of data; impose restrictions on the processing of data; ensure data quality; establish and maintain security safeguards to protect personal data and generally comply with the DPA.


Article by  June Njoroge & Mary Ndung’u 

Published on 26th January 2023

 

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through

This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction

Since its declaration by the World Health Organization as a global pandemic, Covid-19 has had devastating effects on businesses all over the world. Courts in many jurisdictions including the USA have recognized the pandemic as a natural disaster with far reaching effects. Parties to contracts have had to establish whether the Covid-19 pandemic falls within the scope of the force majeure clause; as well as whether the doctrine of frustration can be relied on for one to be relieved of their contractual obligations. We discussed these two doctrines in our earlier article available here.

Locally, the Government of Kenya has put in place various legislative and policy measures to cushion both citizens and businesses from the ensuing economic hardships. Such measures include reduction of the Central Bank Rate to 7%to enable commercial banks lend to consumers at affordable interest rates, reduction of VAT rate from 16% to 14% leading to reduction on the price of vatable goods and services and reduction of Cash Revenue Ratio to 4.25%. The reduction of the Cash Revenue Ratio by the Central Bank is intended to increase liquidity among commercial banks. This will in turn avail more cash to the banks to continue advancing credit facilities to businesses and other consumers during the pandemic. 

Despite the various measures put in place by the government to cushion businesses and consumers from the economic effects of the pandemic, many businesses have experienced and continue to experience reduced turnover. This development has hampered many businesses’ ability to service their credit facilities timeously. This may in turn result in drastic measures by creditors such as commencement of insolvency proceedings which would negatively impact the ability of businesses to operate as going concerns in the long term. Conscious of this, many businesses are struggling to keep their doors open and lights on. In this publication, we explore the various options available to both businesses and creditors for purposes of increasing capital flow so that the businesses can remain afloat while at the same time meeting their financial obligations towards their creditors.

Insolvency: When does it happen?

Insolvency is a financial position where a company is unable to meet its financial obligations as and when they become due. More likely than not, an insolvent company’s liabilities are more than its assets. Under the Insolvency Act, 2015, a business is insolvent if a demand to pay its debts has been issued and the notice period has lapsed without the company honouring the same. At this point, a creditor has the statutory right to lodge an insolvency petition in court for the assets of the company to be liquidated as a way of recovering its money. 

It is important to note that Kenyan courts have ruled that insolvency is not a measure of last resort in debt recovery. On the same note, Kenyan courts have also ruled that where the debtor has made proposals to liquidate the debt, such proposals should not be taken as inability to pay the debt and therefore an insolvency petition presented where such proposals exist will be declined. Similarly, courts frown upon creditors who present insolvency petitions for the sole purpose of coercing debtors to pay debts. Consequently, it is important for both creditors and debtors to consider arrangements that provide for adequate capital to run the business while at the same time servicing the debts. That notwithstanding, many companies may find themselves dealing with insolvency petitions during this pandemic. However, as discussed below, there are various options in law which both the debtor and the creditor may explore to achieve a win-win situation in the long term instead of liquidation. A snippet of each of these options is outlined below.

Legal options for both creditors and borrowers to raise capital during insolvency.

There are several options that ought to be considered where businesses are in dire need of capital and deteriorating performance. Each case is unique and we present some of the options available in law that companies in financial distress and their creditors should consider during prevalence of the Covid-19 pandemic, alongside the various Covid-19 reliefs the Government of Kenya has implemented.

  1. Company voluntary arrangements
  2. Schemes of arrangement and compromise
  3. Administration
  4. Balance sheet reorganization

      

Data protection can be defined as the mechanism of safeguarding personal data and entails protections granted with respect to collection, processing, dissemination and use of the data.

A. INTRODUCTION

The Matrimonial Property Rules, 2022 (“the Rules”) were published by the Rules Committee in Legal Notice No. 137 on 29th July, 2022, to further advance the Matrimonial Property Act, 2013 (“the Act”).

The Act provides for the rights of spouses with respect to their matrimonial property and it sets out the parameters for division of matrimonial property in the case of the dissolution of that marriage. The Act is founded on Article 45 of the Constitution of Kenya 2010, which recognizes the family as the basic unit of the society that enjoys protection by the State. This Article gives a right to every adult to marry a person of the opposite sex as long as there is free consent and will of the parties. Parties to such a marriage are entitled to equal rights at the time of their marriage, during their marriage and at the dissolution of their marriage. Unlike the Married Women's Property Act, which was promulgated during the colonial era, the Act recognizes that married women have the same rights as married men. The Act provides a clear definition of matrimonial property, the spouses’ rights attached to it including those of spouses in a polygamous marriage, and also includes a definition on property that does not form matrimonial property, among other provisions.

The sole objective of the Rules is to facilitate the fair and just resolution of disputes relating to matrimonial property by providing direction on the manner in which courts ought to determine such disputes in line with the rights outlined in the Act. The Rules are aimed at creating an expeditious means of filing and resolving such disputes.

B. SALIENT FEATURES OF THE MATRIMONIAL PROPERTY RULES

The salient features of the Rules include:

  1. Persons eligible to institute Matrimonial property claims

A spouse , any person against whom a spouse has made a conflicting claim in respect of matrimonial property, trustee in bankruptcy, an executor under a will or other testamentary grant, an administrator or a personal representative of the estate of a spouse seeking an order or declaration relating to the status, ownership, vesting, or possession of any specific property by, or for the beneficial interest of, a spouse or former spouse, may institute civil proceedings at the High Court claiming any right or relief in relation to matrimonial property at any time after the dissolution of marriage or during the subsistence of a marriage in cases of spouses.

  1. Eligible Property

In case the property in question is immoveable property, the applicant is required to state the title/ownership details, particularly in relation to joint ownership i.e., joint tenants or tenants -in- common, particulars of any encumbrances on the property and whether the title to the property is registered or unregistered.

  1. Service of court documents and Court processes

Service of court documents in relation to claims of right in matrimonial property is done in person save for where the recipient has appointed an agent or advocate with instructions to accept service on their behalf. Service may also be done by a registered courier service, electronic mail services or mobile- enabled messaging applications. The Rules also provide for service on recipients that are out of Kenya.

  1. Opposition to Matrimonial Property claims of right or relief

Any party referred to in (1) above, opposing the claim is allowed to file their grounds of opposition to such claim with proof within 15 days from the date of appearance before the court.

In every claim, the court makes and gives orders that it deems fit and may refer issues in dispute to mediation in accordance with practice and procedure in force for the time being for the court-annexed mediation.

  1. Relief given by the court in Matrimonial Property Claims

Once the court has heard all the parties to the claim, it may make any of the following orders:

  1. Declare a sale of the Matrimonial Property or a part of it and for the division of the proceeds of the sale;
  2. If the property is jointly owned by the spouses, the court may vest it in them in common in such shares as the court deems just;
  3. Declare an order vesting the matrimonial property or any part therefore in either of the spouses;
  4. Declare an order for partition of the property in dispute;
  5. If the property is owned by one spouse, the court may declare an order vesting ownership on the spouses jointly or in common in shares that the court considers just and vice versa;
  6. Declare an order for payment of a sum of money by one spouse to the other;
  7. Declare an order for the transfer, lease, licence or tenancy of an interest on the land or the land itself;
  8. Declare an order for occupation by a spouse for such a period as the court deems fit;
  9. Declare an order vesting on either spouse the tenancy of a dwelling house and the use of the furniture and other household appliance/effects/ in cases where only one spouse was the sole tenant;
  10. Declare an order vesting an insurance/assurance policy or rights and obligations under a hire purchase agreement or lease in either spouse notwithstanding anything in the respective agreements;
  11. Declare an order for the transfer of shares or stock or mortgages, charges, debentures or other securities or documents of title or for the transfer of rights or obligations under a contract or instrument; and
  12. Declare an order varying the terms of any trust or settlement other than a trust under a will or other testamentary disposition or such other orders that the court may deem fit and just.

Any party aggrieved by the orders of the court may apply for a review of the court’s judgement, decree or order to the same court that made the orders or appeal to a higher court.

C. CONCLUSION

The Rules have attempted to simplify the processes involved in determination of matrimonial property claims by courts by providing the requisite forms to be used in the proceedings. The Rules also allow the court to make such orders as to costs as may be deemed just in the various circumstances. These Rules will now apply to all the proceedings that were pending at the time of their coming into force though without prejudice to the validity of anything that had been done previously.


Article by Sheila Mutiga & Ann Yvonne Muriithi

Published on 6th October, 2022

 

Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..