Hotel Management Agreements: Brand Licences, Fees and Withholding Tax for Foreign Operators

A foreign hotel operator entering Kenya usually signs two things with the local property owner: a management agreement under which it runs the hotel for fees, and a licence to use its brand and standards. Hotel management agreements look like a single commercial deal, but Kenyan law treats their parts differently. The brand licence sits under the Trade Marks Act, and the fees fall under the Income Tax Act’s withholding rules. This article sets out what a foreign operator and a Kenyan owner should settle on each point before signing.

Two contracts in one

The owner is normally a Kenyan property company, and our guide to developing a hospitality property in Kenya explains the twin-company structure and the licences a hotel needs. The operator supplies management services and the brand. The two parts should be drafted with separate fee lines and separate exit consequences, because the tax and IP rules that apply to each are different.

The brand licence: register the mark and record the licensee

A hotel brand is a service mark, usually registered in Nice class 43 for hotel and restaurant services. The operator should have the mark registered in Kenya before it signs; see our article on trademark clearance at KIPI. Then the licence should be recorded on the register, for three reasons.

• Use counts for the operator. Section 31(1) of the Trade Marks Act allows a person other than the proprietor to be registered as licensee for services with which it is connected in the course of business, and calls use by a registered licensee that meets the conditions of its registration the “permitted use” of the mark. Section 31(2) treats permitted use as use by the proprietor for section 29 and any other purpose for which use is material. Section 29 lets a person aggrieved remove a mark that has gone five years without bona fide use; see removal for non-use under section 29. If the brand is used in Kenya only through the hotel, recording the licensee is the safe way to make that use count. Whether use under an unrecorded licence would count is a point we would not leave to argument.
• The management agreement becomes evidence of control. Under section 31(4), the proprietor and the proposed licensee apply in writing, with a statutory declaration by the proprietor giving particulars of the relationship, including the degree of control by the proprietor over the permitted use, the services covered, any conditions or restrictions on the mode or place of use, and the period of permitted use. The Registrar registers the licensee only if satisfied that the use would not be contrary to the public interest (section 31(5)). The brand-standards and inspection provisions of the agreement should therefore match what the declaration will say.
• Enforcement and exit. Under section 31(3), and subject to any agreement between the parties, a licensee can call on the proprietor to sue for infringement and, if the proprietor does not act within two months, sue in its own name. Section 31(8) lets the Registrar cancel a licensee’s registration on the application of the proprietor or the licensee, or on grounds such as use other than the permitted use. The agreement should oblige both sides to sign the cancellation application when the agreement ends.

Our guide to trademark licensing and assignment in Kenya covers the wider position on licences.

Fees and withholding tax

Hotel management fees usually have a base element and an incentive element, often a percentage of revenue or operating profit. Section 2 of the Income Tax Act defines a “management or professional fee” as any payment, other than to an employee, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated. Under section 10(1), a payment by a resident person, or a person with a permanent establishment in Kenya, for such a fee or for a royalty is deemed to be income accrued in or derived from Kenya, if it is incurred in producing Kenyan income or in a Kenyan business. Under section 35(1), a person paying such an amount to a non-resident with no permanent establishment in Kenya must deduct withholding tax.

Paragraph 3 of the Third Schedule, on the consolidated text on Kenya Law as at 1 July 2026, sets the non-resident rate at twenty per cent of the gross sum for management or professional fees, and twenty per cent of the gross amount for a royalty, with a five per cent rate for payments made by a Special Economic Zone enterprise, developer or operator. Later Finance Acts and double tax agreements may change the position, so confirm it before pricing; our article on royalty withholding tax in Kenya covers relief under treaties.

Two drafting consequences follow. First, if the agreement says the operator must receive its fee net of tax, the owner must gross up. At a twenty per cent rate, delivering a net fee of 100 requires a gross payment of 125. Second, the brand royalty, the management fee and any cost recharges should be separate lines, because each stream may be characterised differently and a single blended fee makes that analysis harder.

Territory and non-compete clauses

Operators often ask the owner not to run a competing hotel within a set radius, and owners ask for exclusivity in return. Whether such restrictions are enforceable depends on the reasonableness of their scope and duration; our article on exclusive territory and non-compete clauses in Kenyan franchise agreements explains the test.

A pre-signing checklist for foreign operators

• Clear and register the brand for hotel and restaurant services in Kenya.
• Name the Kenyan licensee and record it under section 31 before opening.
• Make the brand-standards clause consistent with the control described in the statutory declaration.
• Split the fee into base fee, incentive fee, royalty and recharges, and decide who bears the withholding tax.
• Provide for de-identification of the hotel and cancellation of the licensee’s registration on termination.
• Check the owner’s licences and structure against the hospitality guide.

Our guide to protecting a brand in Kenya covers the filing route for overseas owners.