The Cost of Starting a Business in Kenya: All The Taxes and Fees You Pay

Starting a business in Kenya can be an exciting yet challenging journey. This is why, before you get too far ahead, it’s essential to understand one of the most critical aspects: the cost. 

From registration fees to taxes, the upfront financial requirements can quickly add up. As an aspiring entrepreneur, being unaware of the full extent of these costs can lead to unpleasant surprises down the line. They can force you to go over budget, take unplanned loans, or cancel your plans midway. 

Most business models involve several initial expenses, such as licenses, permits, and government fees, all of which play a vital role in compliance and legality. Properly accounting for these costs from the outset can help you create a more accurate business plan, allowing for better financial management and avoiding unexpected financial strain.

To help you get started on the right foot, here are the costs you should plan for when starting a business in Kenya. 

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Business Registration Fees

Business registration gives your company legal recognition and allows you to trade, hire employees, and pay taxes.

The process typically begins with choosing a business name, which costs KSh950. Once the name is approved, you can proceed with registering your business, depending on the type of entity you wish to establish.

Different types of businesses in Kenya have varying registration fees, each reflecting the structure of your company. 

Here is a breakdown of the fees for different business types:

• Limited Liability Partnership: KSh25,000
• Private Limited Company: KSh10,650
• Public Limited Company: KSh10,650
• Unlimited Companies: KSh20,050
• Foreign Company Opening a Branch in Kenya: KSh7,550

The business name you choose represents your brand identity, and getting it right is crucial for marketing and legal reasons. Similarly, selecting the correct business structure can significantly impact your tax obligations, personal liability, and growth potential. 

If you choose the wrong name or register the wrong business structure, you may need to change your business name or convert from one business type to another later. This process will incur additional costs, which can disrupt your budget.

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Licensing Fees

Once your business is registered, the next step is obtaining the necessary licenses to operate legally. In Kenya, licensing fees vary depending on the type of business, the services provided, and the location. Both national and county governments charge these fees.

General Trade Licenses

Most businesses require a general trade license, also known as a business permit or single business permit, which allows you to conduct commercial activities within a specific county. 

These permits must be renewed annually, and the cost varies based on factors such as the business size, location, and type of operation. Typically, you will also need to pay for a fire clearance certificate and advertisement fees if you have a physical location. 

Sector-Specific Licensing

Certain industries require specialised licences to operate legally. These licences are offered by the national government, county governments and their agencies. 

For example, restaurants need health certificates to ensure they meet hygiene and safety standards, petrol stations require licences from the Energy and Petroleum Regulatory Authority (EPRA), and starting a transport company needs licences from NTSA.

Professional Licences

Some businesses in Kenya, especially those offering specialised professional services, require professional licences from regulatory bodies. These licences verify that the company and its employees meet the necessary qualifications and can provide specific services.

For instance, opening an accountancy firm requires a professional certificate from the Institute of Certified Public Accountants of Kenya (ICPAK), while starting a law firm requires one from the Law Society of Kenya.

VAT Registration and Tax Compliance Costs

Once your business is registered and licensed, the next step is ensuring that it complies with Kenyan tax regulations. This involves registering a Tax Personal Identification Number (PIN) for your business and obtaining a Tax Compliance Certificate from the Kenya Revenue Authority (KRA). 

Kenyan businesses are required to pay a range of taxes, depending on the nature of their operations. The most common tax obligations you may need to register for include:

• Corporate Income Tax: This tax is levied on companies' profits and varies depending on their business structure.
• Value-added Tax (VAT): VAT is levied on the sale of goods and services at a standard rate of 16%. Depending on your business type, you may need to register for VAT.
• Pay As You Earn (PAYE): Employers must deduct PAYE from employee salaries and remit it to the KRA.
• Rent Income: If your business leases property, you may be required to pay rent income tax.
• Withholding Tax: This tax is deducted from certain payments you make at the source.
• Digital Service Tax: For businesses providing digital services.
• Capital Gains Tax: Charged on profits from the sale of capital assets.
• Turnover Tax: Levied on businesses with a turnover of less than KSh5 million.

While applying for a Tax Compliance Certificate and registering for these tax regimes are generally free, you may have to hire tax consultants or accountants, particularly if you have complex operations that require multiple tax registrations. These professionals will charge you for the services they offer you.  

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Social Security and Employee Deductions

If your business will employ staff, you will need to account for social security and employee deductions. These deductions are mandatory and help ensure the welfare of your employees. In Kenya, the main social security deductions include:

National Social Security Fund (NSSF): Both the employer and the employee contribute equally to this pension fund. Contributions help employees build savings for retirement.

The Social Health Insurance Fund (SHIF): Employers must enrol employees in SHIF and make monthly contributions that go towards healthcare coverage. You may also choose to offer your staff private medical insurance in addition to SHIF.

National Industrial Training Authority (NITA) Levy: Employers are required to pay a monthly levy of KSh50 per employee to NITA, which supports workforce training.

Affordable Housing Levy: This is a 1.5% deduction from employees’ gross salaries, matched by an equal contribution from the employer, to support Kenya’s affordable housing initiative.

While registering your business and employees for SHIF, NSSF, and other deductions is free, you should plan for the administrative costs of managing these contributions when starting a business. For instance, you may need to invest in payroll management systems and software, hire external consultants, or create an in-house HR department. 

Legal and Consultancy Fees

Starting a business often requires legal and consultancy services, which can add to your startup costs. Hiring a lawyer to draft contracts, review leases, or assist with regulatory compliance is often necessary. Additionally, you may need consultants for services such as accounting, marketing, or business planning.

In Kenya, withholding tax is charged on consultancy fees paid to resident consultants. The withholding tax is 5% of the costs. Legal services are also subject to 16% VAT if you hire a lawyer, which must be remitted to the KRA.

Other professional services, such as those provided by accountants or architects, also attract withholding tax at rates ranging from 2% to 5%. Hiring these professionals ensures that your business complies with legal and regulatory frameworks, but it’s essential to budget for the associated fees and taxes.

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Import Duties for Business Equipment

If your business involves importing equipment or raw materials, you will face additional costs in the form of import duties, VAT, and potentially excise duties. Import duties in Kenya are typically between 0% and 35%, depending on the type of goods. 

VAT on imported goods is levied at 16%, calculated on the value of the goods, including cost, insurance, and freight (CIF), along with the applicable import duty.

Certain goods like vehicles and luxury items may also be subject to excise duties.

If you intend to hire foreign nationals, you will need to obtain work permits or special passes for them to work legally in Kenya. The cost of these permits can range from Ksh15,000 to Ksh200,000. 

Incidental Costs

Beyond the major expenses like taxes, registration fees, and licences, every business must plan for incidental operational costs. These everyday expenses keep the business running and are essential for smooth operations.

Office Supplies: Setting up a functional office requires basic supplies such as computers, printers, desks, chairs, and smaller items like stationery. These costs can add up quickly, especially when starting from scratch. 

Rent and Office Space: Renting commercial space is often a significant upfront cost for businesses. Many landlords require a security deposit—typically two to six months' rent—and goodwill payments if you’re taking over an established space or prime location. If you lease land for your business, you may also have to account for county land rent.

Technology and Software: Modern businesses require technology and software to operate effectively. This includes tools for accounting, project management, customer relationship management (CRM), and inventory tracking. Many of these software solutions are subscription-based, and their cost can vary depending on the system's complexity. 

Hiring Costs: Hiring employees comes with costs, including advertising job vacancies, conducting interviews, and onboarding new staff. If you use recruitment agencies to find talent, they may charge fees for their services. In addition, you may need to budget for training new employees to ensure they are fully equipped to handle their responsibilities. 

Business Insurance: Your new businesses may opt for insurance policies covering assets, liabilities, and workers' compensation. This can include property insurance, public liability insurance, or coverage for equipment. 

Marketing and Advertising: You will need to account for the Initial costs of branding and renovating your physical location. Investing in materials like logos, business cards, and a website will also cost you money. Businesses may also invest in social media advertising, Google ads, or traditional marketing like flyers and banners.

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WRAPPING UP 

The total cost of starting a business in Kenya varies widely depending on the type of business you are setting up. A small retail shop will have significantly different expenses than a manufacturing or professional service firm. Knowing these costs will help you create a realistic budget and avoid surprises.

If you carefully prepare for and account for these expenses, you can make the business setup process smoother and faster. Proper planning helps you manage your startup capital and keeps your focus on growing your business rather than dealing with financial headaches.

It is crucial to follow the correct procedures when obtaining licences and permits. Skipping steps or overlooking mandatory requirements may save you money in the short term but could result in fines, penalties, or even business closures later.