Pharmaceutical Manufacturing Licensing and EPZ Incentives in Kenya

Pharmaceutical manufacturing licensing and EPZ incentives are the two legal pillars of a Kenyan production investment. The manufacturing licence from the Pharmacy and Poisons Board (PPB) decides whether you may make medicinal substances at all, and the Export Processing Zones (EPZ) regime decides how the investment is taxed and where it is located. A manufacturer has to sequence both, together with product registration, and each involves a different regulator. This article sets out what the statutes actually provide, and flags the points that investors tend to assume rather than check.

The pharmaceutical manufacturing licence

Part IIIA of the Pharmacy and Poisons Act (Cap. 244) governs the manufacture of medicinal substances. Section 35A(1) provides that no person shall manufacture any medicinal substance unless the Board has granted a manufacturing licence. Four features of section 35A matter in practice.

• Each manufacturing licence expires on 31 December every year, and renewal is subject to compliance with conditions the Board prescribes (section 35A(2)).
• No person may manufacture a medicinal substance for sale without applying for and obtaining a licence for each substance intended to be manufactured (section 35A(3)).
• The application is made in the prescribed form for the licensing of the premises, with the prescribed fee (section 35A(4)).
• The Board, or a person it authorises in writing, may enter and sample any medicinal substance under production to check that the approved method of manufacture is being followed (section 35A(5)).

Section 35B deals with compliance with good manufacturing practice. Part IIIB (sections 35C to 35K) establishes the National Drug Quality Control Laboratory, and section 35K provides for the certificate of analysis, which is a document that product registration applications may need.

How the licence feeds into product registration

The manufacturing licence is a prerequisite for registering the product itself. Under the Pharmacy and Poisons (Registration of Health Products and Technologies) Rules (Legal Notice 100 of 2022), rule 5(4) allows the Board to issue a certificate of registration if the applicant holds a valid practising licence, wholesale dealer’s licence, poisons licence or a manufacturing licence under section 35A. Manufacturing in Kenya also lowers the registration fee: the Second Schedule sets USD 500 to register a health product manufactured in Kenya, against USD 1,000 for one that is not. Our guide to medical device and health product registration sets out the application process.

Export Processing Zones: licensing and permitted activities

The Export Processing Zones Act (Cap. 517) lets the Export Processing Zones Authority (EPZA) operate a regime of declared zones. Section 19 prohibits carrying on business as an EPZ developer, operator or enterprise without a licence from the Authority. Before issuing a licence that allows commercial activities, the Authority must consult the Commissioner-General of the Kenya Revenue Authority (section 19(2A)).

Section 17 provides that the activities eligible within a zone are manufacturing, commercial and service activities. Where manufacturing and commercial activities involving goods manufactured outside Kenya are both carried on by one enterprise, the two must be physically separated. The Act also defines the customs territory so that it does not include an export processing zone, which is the basis for the customs treatment of zone inputs. Zones are declared and revoked by Legal Notice, so confirm that a proposed site is currently declared before committing capital.

EPZ tax treatment

Section 4B of the Income Tax Act (Cap. 470) applies the Eleventh Schedule to a business carried on by an export processing zone enterprise. The corporation tax position is set out in paragraph 2(f) of the Third Schedule. An EPZ enterprise that does not engage in commercial activities is exempt from corporation tax for ten years, starting in the year in which production, sales or receipts from the licensed activities commence. The rate is then 25 per cent for the following ten years. For this purpose “commercial activities” includes trading in, breaking bulk, grading, repacking or relabelling goods and industrial raw materials.

The Eleventh Schedule adds further rules. The enterprise must keep its business accounts in a convertible foreign currency of its choice, provided the Commissioner’s consent to that choice has been requested and obtained. During the corporation tax exemption the enterprise is deemed a non-resident for withholding tax purposes on payments made to it. Employees and directors who are not non-residents remain liable to personal income tax, and the enterprise must deduct it.

We have not restated other commonly quoted EPZ benefits, such as VAT and import duty treatment or investment deductions, because they sit in other statutes and have been amended repeatedly. Check them against the current text of the VAT Act, the East African Community Customs Management Act and the Income Tax Act, and the current Finance Act, before building them into a financial model.

Sequencing the approvals

A pharmaceutical manufacturer entering Kenya must usually manage three relationships at once. The first is PPB, for the premises and manufacturing licence under section 35A, good manufacturing practice under section 35B and later product registration. The second is EPZA, for the zone licence under section 19 of the EPZ Act. The third is KRA, for the corporation tax, withholding tax and consultation points described above.

The order matters. Product registration depends on a valid section 35A licence, so the premises and licence strategy must be settled before registration applications are prepared. Equally, an EPZ licence is oriented to export production and, unless the Authority licenses commercial activities, you cannot treat a zone as a domestic distribution base. Manufacturers that intend to sell into Kenya as well as export should compare the Special Economic Zones regime before choosing a structure.