Advantages OF Operating Under Special Economic Zones (SEZs)

In the realm of global commerce and legal jurisdictions, one distinctive concept has emerged as a powerful catalyst for economic growth and investment facilitation - Special Economic Zones (SEZs). As SMEs and other stakeholders strive to navigate the complex terrain of international business, it becomes increasingly imperative to explore the nuanced advantages that these specialized zones offer.

This article endeavors to shed light on the multifaceted advantages of operating under SEZs, having considered their legal framework, regulatory incentives, and the favourable business climate they create.

1)     Fiscal Incentives

Numerous fiscal, financial and economic incentives have been availed to investors investing in the Special Economic Zones. They include:

a)     Tax exemptions - Investors operating within the Special Economic Zones have favorable custom privileges, tax rates and exemptions, availed to them. Investors are fully exempt from payment of stamp duty on any instrument relating to the business activity of the SEZ enterprise, developer or operator. This, other exemptions and the application of preferential withholding rates creates favorable tax environments thereby encouraging investments within the zones. An in-depth analysis of the tax incentives availed to SEZs has been discussed in a subsequent write up.

b)     License fees exemptions - SEZs enterprises are exempt from the requirement to take up various licenses under various regulations. For example: a filming license under the Films and Stages Plays Act; a Trading in Unwrought precious metals licence under the Trading in Unwrought Precious Metals Act; a manufacturing licence under the Tea Act; and a liquor licence under the Alcoholic Drinks Control Act.

c)    Investment deduction allowance - Investors in the SEZs who expend capital expenditure on building and/or machinery are entitled to 100% investment deduction.

d)  Exemption from payment of various local government fees - Investors in the SEZs are exempted from the payment of advertisement fees as well as business service permit fees levied by the respective County Governments.

e)     Exemption from payment of income declaration fee - Goods destined for SEZ enterprises when imported through customs are exempted from payment of income declaration fee subject to the Miscellaneous Fees and Levies Act, 2016.

2)   Administrative Benefits

Special Economic Zones have an array of administrative benefits advanced to them which enable rather easy entry to and navigating the zone. They include:

a)     An all-in-one information centre – the SEZ Authority offers a one stop shop where enterprises intending to operate within the SEZ can make enquiries and obtain information and/or advise necessary for decision making. 

b)     Reduced documentation and paperwork - SEZ Authorities has simplified the licensing procedures through reducing the documents and paperwork necessary for the issuance of a license. 

c)     Streamlined licensing procedures - SEZA requires investors in the zones to have only one license issued by it. The SEZ Act exempts investors from various statutory obligations such as: taking out a Foreign Investments and Protection Certificate under the Foreign Investments and Protection Act, and a liquor license under the Alcoholic Drinks Control Act among many others.

d)     Efficient project approval - The SEZ Authority offers a one stop shop where investors projects can be approved efficiently with the exception of projects that would require the approval of the National Environmental Management Authority.

e)     Work permits entitlement - Special Economic zones enterprises, developers and operators are entitled to work permits of up to 20% of their full-time employees. The Authority may issue additional work permits for specialized sectors. This encourages the creation of more job opportunities and in turn high yields and revenue.

 

3)   Other notable benefits.

a)     Political goodwill - As a means towards achieving Kenya’s Vision 2030 goals, the government of Kenya has identified SEZs as a key driver towards growth in the manufacturing sector and is thus keen on implementing measures, enacting legislations that support the growth of SEZs. 

b)     Strategic investment location - Kenya is strategically placed as an economic, commercial and financial hub within the East African region as well as Africa. This thus makes it a desirable location for potential investors and businesses in the SEZs are well positioned for partnerships, security, presence of business activity, supporting infrastructure and services.

How we can help

At CM SME Club, we advise various stakeholders on setting up business vehicles that are most suitable to operate under the Special Economic Zones. We shall also assist you in the preparation and review of agreements incidental to operations within the SEZs, ultimately helping your business mitigate potential risks.

Please feel free to contact us on law@cmsmeclub.com for any further clarification and assistance.

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