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