Special Economic Zones and Manufacturing Incentives in Kenya
Kenya runs two zone regimes side by side: special economic zones under the Special Economic Zones Act and export processing zones under the Export Processing Zones Act. This guide explains how to choose between them and ordinary investor status, how licensing works, and what the tax position is after the Finance Act 2026 and the Special Economic Zones (Amendment) Act 2026.
Which regime fits
Kenya has two statutory zone regimes, not one. Which suits an investor depends less on the label than on how much of the output will be sold in Kenya and the region.
The older regime is the Export Processing Zones Act (Cap. 517), run by the Export Processing Zones Authority (EPZA). It is built for export businesses: under section 25, goods and services go into the Kenyan customs territory only with the Cabinet Secretary’s approval, and EPZA describes the programme as one where at least 80% of sales go outside the East African market. The newer regime is the Special Economic Zones Act (Cap. 517A), in force since 15 December 2015 and run by the Special Economic Zones Authority (SEZA). Section 4(6) lists the kinds of zone it covers, without limiting them: free trade zones, industrial parks, free ports, ICT parks, science and technology parks, agricultural zones, tourist and recreational zones, business service parks, livestock zones, and convention and conference facilities. “Industrial park” and “free trade zone” are therefore categories of SEZ, not separate regimes.
The practical split
- Almost all output exported: an EPZ enterprise licence usually gives the deeper early saving, a full ten-year corporate tax holiday.
- A real share sold into Kenya or the EAC: SEZ enterprise status is usually the better fit, because it is not built around an export quota.
- Building serviced land, warehousing or a business park for others: that is an SEZ developer or operator case; it is what the industrial park and free port categories are for.
- No zone at all: a manufacturer that wants allowances and licensing help without zone status can use the general tax incentives and, for a foreign investor, an investment certificate under the Investment Promotion Act (Chapter IV).
The SEZ Act and licensing
SEZA issues three licences: developer, operator and enterprise. Getting one runs on one of two tracks: joining a zone that is already declared, or taking new land through declaration first. The regulator is the same; the timelines are not.
Enterprise licence in an existing zone
Proposal
A letter of interest with SEZA’s Investment Project Proposal Form, a concept note, business plan and pre-feasibility material.
Formal application
If the proposal is accepted, the full Enterprise Licence Application Form with its supporting documents.
Approval in principle
Conditions typically include incorporating an SEZ company, a NEMA permit, a land-use plan, a lease, and any sector registrations.
Incorporation
SEZA issues a letter of no objection so the Business Registration Service can incorporate the SEZ company.
Licence
On proof of incorporation and payment of the annual fee of USD 1,000, the licence issues. Applications go through SEZA’s eCitizen portal.
Section 29 sets the test: zone benefits do not accrue to an enterprise without a valid SEZA licence, and the Authority must be satisfied about incorporation, that the activity is eligible, that it has no negative environmental or security impact, and about compliance with the law.
Developer or operator licence for a new zone
This is the longer path: expression of interest, full application, project evaluation, land search and site evaluation, a SEZA Board recommendation, submission to the Cabinet Secretary, a Gazette Notice declaring the area an SEZ under section 4, then the licence and operationalisation. Under section 28 a developer must be a company incorporated in Kenya or a public entity, with adequate financial capacity, technical and managerial expertise and a relevant track record. A developer may run the zone itself or appoint a licensed operator. The developer or operator licence fee is USD 5,000 a year.
Changes since 2024
- Business Laws (Amendment) Act 2024 (in force 27 December 2024): opened developer and operator licences to public entities, let the Cabinet Secretary set a minimum investment for a declared zone (section 4(5A)), created a business service permit for service providers who get no zone incentives (section 30A), and capped incentives at ten years from the licence date (section 35(5)).
- Special Economic Zones (Amendment) Act 2026 (Act No. 12 of 2026, in force 15 May 2026): brings upstream and midstream petroleum operations into the SEZ framework and made consequential changes to the Income Tax Act and VAT Act, covered in Chapter III.
A developer or operator that fails to keep proper accounts and records commits an offence under section 33(4), with a fine of up to KES 5 million. Commentary on the 2024 Act says the alternative prison term was removed, but the consolidated text on Kenya Law (version of 27 December 2024) still shows up to six months. Treat imprisonment as a live risk until the point is settled.
Tax incentives
The baseline is 30% corporate tax for a resident company and 16% VAT on most supplies. Both zone regimes displace that baseline for a defined period, in different ways. The figures below are taken from the Income Tax Act and VAT Act as consolidated by Kenya Law at 1 July 2026, read with the Finance Act 2026.
| Item | Treatment | Where in the law |
|---|---|---|
| Corporate tax, years 1 to 10 | 10% | ITA, Third Schedule, Head B, para 2(h) |
| Corporate tax, years 11 to 20 | 15% | ITA, Third Schedule, Head B, para 2(h) |
| Dividends paid by an SEZ entity | Exempt | ITA, First Schedule, Part I, paras 66 and 67 |
| Royalties, interest, management, professional, training, consultancy, agency or contractual fees paid to non-residents | Exempt, with no ten-year limit since May 2026 | ITA, First Schedule, Part I, para 73 |
| Other payments to non-residents, such as rent | 10% withholding tax | ITA, Third Schedule, Head B, para 3(n) |
| Gains on transfer of property within the zone | Exempt | ITA, First Schedule, Part I, para 72 |
| Investment deduction on manufacturing buildings and machinery (and hotel buildings) | 100% | ITA, Second Schedule, para 1(1A)(c) |
| Supplies of goods and taxable services to an SEZ entity | Zero-rated | VAT Act, Second Schedule, Part A, para 12 |
| Stamp duty on instruments for the business | Exempt | SEZ Act, s. 35(2)(a) |
| Import declaration fee (2.5%) on goods for an SEZ enterprise | Exempt | Miscellaneous Fees and Levies Act, Second Schedule, Part A |
| Railway development levy (2%) | No general SEZ exemption | Miscellaneous Fees and Levies Act, s. 8 and Second Schedule, Part B |
Zero-rated, not exempt. Supplies to an SEZ entity are zero-rated, which matters: a zero-rated supplier keeps its right to recover its own input VAT, where an exempt supplier would not. Under the VAT Act an SEZ entity is not a “registered person”, and goods moving from the rest of Kenya into a zone are treated as exports.
The Third Schedule still carries a 5% withholding rate on royalties, interest and management or professional fees paid by an SEZ entity to non-residents. Paragraph 73 of the First Schedule exempts the same payments. Our reading is that the exemption governs, but confirm the treatment with the Kenya Revenue Authority before relying on a nil rate in a funding or licensing model.
The Income Tax Act sets SEZ rates over twenty years (10%, then 15%). Section 35(5) of the SEZ Act says incentives and tax benefits under that Act “or other written law” apply for no more than ten years from the date the licence issues, while SEZA’s own FAQ says incentives last as long as the licence is valid. In April 2026 the National Assembly’s trade committee declined a proposal to delete section 35(5), leaving it to a SEZA policy review. Until the conflict is resolved, model the second decade at the higher rate and treat 15% as upside.
EPZ enterprises
- Corporate tax: exempt for ten years from the first year of production, sales or receipts, then 25% for the next ten years (ITA, Third Schedule, para 2(f); EPZ Act, s. 29(2)(c)). An enterprise doing “commercial activities” such as trading, breaking bulk or repacking does not get the holiday.
- Withholding tax: dividends and other payments to non-residents are exempt during the ten-year holiday, not beyond it (EPZ Act, s. 29(2)(d); ITA, Eleventh Schedule, para 3(b)).
- VAT and excise: imports for eligible activities are exempt from VAT and excise duty, subject to the Second Schedule exclusions such as passenger cars and most fuel (EPZ Act, s. 29(1)); supplies to an EPZ business are zero-rated (VAT Act, Second Schedule, Part A, para 2).
- Stamp duty: exempt on instruments for the business (EPZ Act, s. 29(2)(e)).
Minimum top-up tax
Since 27 December 2024, section 12G of the Income Tax Act charges a minimum top-up tax where the combined effective tax rate of a Kenyan member of a multinational group with consolidated turnover of EUR 750 million or more falls below 15%. An SEZ entity at 10%, or an EPZ enterprise on a holiday, that belongs to such a group can lose much of the benefit. Model this before presenting the incentive to a parent company as a saving.
Thresholds and the non-zone route
None of the three routes, SEZ, EPZ or the investment certificate, is a formality, and each carries different capital expectations.
| Route | Capital expectation | Basis |
|---|---|---|
| SEZ developer or operator | KES 500 million minimum capital | SEZA guidance; the Act itself fixes no figure |
| SEZ enterprise | No published fixed minimum | Eligibility turns on the activity (s. 29) |
| EPZ SME programme | Initial investment under KES 40 million, fewer than 100 workers, at least 75% Kenyan owned | EPZA programme criteria |
| Investment certificate (foreign investor) | At least USD 100,000 | Investment Promotion Act, s. 4(1)(b) |
SEZ developers and operators. SEZA’s FAQ states a KES 500 million minimum capital and attributes it to “Section 28(2)”, but section 28 of the Act as published on Kenya Law contains no figure. The legal hook is section 4(5A), under which the Cabinet Secretary, on SEZA’s recommendation, sets the minimum investment for a declared zone, and section 11(d), which lets the Authority set investment criteria. Treat KES 500 million as an administrative benchmark and confirm it before it goes into a model. The pending Kenya Economic Zones Bill would set KES 5 billion for every developer, operator and enterprise licence (clause 36(6)), amendable by Gazette notice.
EPZ. A general EPZ enterprise licence has no published minimum beyond the business case and export orientation. EPZA’s SME Development Programme targets horticulture and food processing, textiles and apparel, leather, commercial crafts, business process outsourcing and ICT, with the same tax incentives plus smaller units and reduced rent.
Incentives without zone status
- Investment allowance: 50% in the first year of use for buildings and machinery used for manufacture, with the residue at 25% a year; 100% where the investment is outside Nairobi City and Mombasa counties and meets the KES 1 billion (three-year) or KES 250 million (single-year) tests (ITA, Second Schedule, para 1).
- VAT on capital goods: exemption for capital goods the Cabinet Secretary determines, to promote manufacturing investment of at least KES 2 billion (VAT Act, First Schedule, Part I, para 146).
- Local vehicle assembly: 15% corporate tax for the first five years, extendable by five years at 50% local content (ITA, Third Schedule, para 2(j)).
- Investment certificate: for a foreign investor investing at least USD 100,000, KenInvest’s certificate gives help with the licences in the Act’s Second Schedule and, under section 13, three entry permits for management or technical staff and three for owners, shareholders or partners. The section still uses the old permit class letters.
Land and site
An SEZ is a declared area. Nothing about SEZ status attaches to land until the Cabinet Secretary declares it by Gazette notice under section 4, and that step is the real bottleneck for a new zone.
Joining an existing zone
The fastest route to production is a site inside a zone that is already declared. An enterprise taking space there moves straight into the enterprise licensing sequence in Chapter II. SEZA lists these zones on its own site:
| Type | Zones listed by SEZA |
|---|---|
| Public (government-developed) | Dongo Kundu (about 3,000 acres next to Mombasa Port, developed by Kenya Ports Authority), Naivasha (about 1,000 acres at Mai Mahiu on the SGR line) and Konza |
| Private (developer-led) | Tatu City, Compact Free Trade Zone, Africa Economic Zone (Eldoret), Two Rivers International Finance and Innovation Centre, Northlands, SBM (Kwale), Mt. Kipipiri Golf & Resort and East Africa Free Zone, plus Nairobi Gate Industrial Park |
Developing a new private zone
A developer with its own land must take it through the declaration sequence in Chapter II before a developer licence issues and before any enterprise can be licensed in the zone. SEZA’s application package asks for unencumbered title, a feasibility study (market demand, schematic master plan, economic impact assessment and a strategic environmental and social assessment), a development plan and timetable with perspective drawings, and statutory documents including a tax compliance certificate and three years of audited accounts.
Choose the site by its declaration status, not the other way round. A parcel outside any declared zone carries the whole declaration process before a single enterprise can be licensed on it.
Clay Odari, Lead Counsel
Once declared, public and private zones are treated alike; the difference is who builds the infrastructure. The enterprise conditions in Chapter II, including the NEMA permit and land-use plan, still apply to every business inside the zone.
Customs and domestic sales
The tax position in Chapter III rests on a customs fiction: goods inside a zone are treated as outside Kenya’s customs territory. That works cleanly only where the customs mechanics are in place.
- Into the zone: goods and services from the rest of Kenya are treated as exports.
- Out to the domestic market: under section 6(b) of the SEZ Act, goods taken into the customs territory are deemed imported and pay duty under the East African Community Customs Management Act. Content that originates in the customs territory is exempt from import duty; partly local goods pay duty on the non-originating part. SEZA’s guidance is that SEZ goods sold into the EAC market pay duty at the Common External Tariff.
- Within the zone: goods sold to a person who stays within a customs-controlled area of the zone are not treated as entering the customs territory (section 8(5)).
- EPZ goods for home use: they need the Cabinet Secretary’s approval (EPZ Act, s. 25) and attract an additional duty of 2.5% of customs value under section 9A of the Miscellaneous Fees and Levies Act, on top of ordinary duty.
SEZA says every zone has a resident customs office, and that Nairobi Gate Industrial Park has a gazetted customs control area. Declaration as an SEZ and a gazetted customs control area are separate matters, and we have not checked the customs status of each zone. Before committing to a site on the assumption of on-site clearance from day one, confirm it with SEZA and KRA Customs for that zone.
Labour and work permits
Zone status changes the tax and customs position. It does not change Kenya’s employment and immigration law, and staffing should be planned on that basis.
Foreign staff
Section 35(3) of the SEZ Act entitles licensed SEZ entities to work permits for up to 20% of their full-time employees, and section 35(4) allows more for specialised sectors on SEZA’s recommendation. Each permit is still a Class D (employment) permit from the Directorate of Immigration Services, which requires:
- a named Kenyan understudy, with their CV and certificates;
- evidence that the employer tried and failed to fill the role locally;
- a valid tax compliance certificate for the employer;
- a processing fee of KES 20,000 (non-refundable) and an issuance fee of KES 500,000 a year; EAC citizens are exempt.
The One-Stop Shops at both Authorities help with permit applications, but they do not replace the Class D requirements. EPZ enterprises state their foreign staff needs when they apply, and EPZA then supports the immigration applications for the approved numbers.
Payroll obligations do not pause
An SEZ or EPZ enterprise still owes PAYE, NSSF, SHIF and Housing Levy deductions from the first hire, still needs work injury cover and workplace registration, and still pays the NITA training levy. For EPZ enterprises, the Eleventh Schedule to the Income Tax Act confirms that resident employees and directors pay income tax and that the employer must operate PAYE. A budget that counts only the corporate tax holiday will understate the cost of the workforce.
SEZ and EPZ compared
Side by side, the trade-off is consistent: EPZ gives a deeper early holiday and a tighter export requirement; SEZ gives more room in the domestic market and a wider range of activities, at a lower but longer preferential rate.
| Feature | SEZ | EPZ |
|---|---|---|
| Statute and regulator | SEZ Act (Cap. 517A); SEZA | EPZ Act (Cap. 517); EPZA |
| Zone types | Ten listed in s. 4(6), not exhaustive | Export-oriented manufacturing, commercial and service zones |
| Corporate tax, years 1 to 10 | 10% | 0% |
| Corporate tax, years 11 to 20 | 15%, subject to the s. 35(5) ten-year cap | 25% |
| Withholding tax on dividends to non-residents | Exempt | Exempt during the ten-year holiday |
| VAT on supplies to the entity | Zero-rated | Zero-rated; imports exempt |
| Stamp duty | Exempt | Exempt |
| Domestic sales | Allowed, as imports under EAC customs law | With Cabinet Secretary approval; EPZA describes up to 20% of sales; extra 2.5% duty |
| Fees | USD 5,000 a year (developer or operator); USD 1,000 a year (enterprise) | USD 250 application fee, then a one-year licence |
| Minimum capital | KES 500 million for developers and operators (SEZA benchmark) | No general figure; SME programme under KES 40 million |
This is not a ranking. A capital-intensive plant that exports nearly everything is usually better off with the EPZ holiday. A manufacturer building for the East African market, or a developer building space for others, is usually better off in an SEZ, where 10% still sits well below the standard rate and the list of activities is far wider.
Compliance pitfalls
Most zone problems are not disputes about the incentives. They are timing and documentation failures that quietly cost an investor part of an incentive it would otherwise have kept.
- Treating a land purchase as declaration. Buying land does not make it an SEZ. Declaration is a separate act of the Cabinet Secretary under section 4, after a SEZA Board recommendation, and it can be deferred or declined. Do not budget on zone status before the Gazette notice is out.
- Assuming on-site customs. As Chapter VI explains, check the customs arrangements for the specific zone.
- Operating through the foreign parent. Section 29 requires the licensee to be incorporated in Kenya. Foreign ownership of that company is permitted; operating directly through the overseas company is not.
- Booking zero-rated supplies as exempt. That loses input VAT recovery, which is a cash cost, not a technicality.
- Starting the clock too early. Section 35(5) runs the ten-year incentive period from the date the licence issues, not from first production. An investor that licenses early and then spends two years building loses two years of benefit. Sequence the licence against the construction programme.
- Ignoring the top-up tax. For an in-scope multinational group, the section 12G top-up tax can absorb most of a 10% or 0% rate (Chapter III).
- Assuming EPZ status converts to SEZ. Neither Act provides a conversion route. Treat a change of regime as a fresh licensing question for both Authorities.
Application checklist
The points to confirm before an SEZ or EPZ application goes in.
Choose the regime first
SEZ, EPZ or the non-zone route, based on export share and expected domestic sales, before drafting anything.
Fix the zone category
Identify which section 4(6) category the project fits and check it against SEZA’s expectations for the site.
Check the site’s declaration status
Confirm with SEZA that the location sits in a declared zone, or budget for the full declaration sequence.
Assemble the land file early
For a developer or operator: unencumbered title, feasibility study and schematic master plan before submission.
Set up the Kenyan company
The licence cannot issue to a foreign entity; settle structure and shareholders before filing.
Reconfirm capital criteria
Treat the KES 500 million developer benchmark as guidance that can change, and watch the Kenya Economic Zones Bill.
Sequence NEMA with licensing
The environmental permit is a standard condition of approval in principle, not a later step.
Time the licence
Because the ten-year period runs from licence issue, plan the licence date against construction.
Map work permits
Count Class D needs against the 20% entitlement, name understudies and budget KES 500,000 a year per permit.
Model the group tax position
For a multinational group with EUR 750 million turnover, test the incentive against the 15% top-up tax.
Frequently asked
An EPZ gives 0% corporate tax for ten years, then 25% for ten years, but expects the business to stay export-oriented, with domestic sales only by approval. An SEZ starts at 10%, then 15%, covers a wider range of activities and allows sales into Kenya and the EAC as imports.
Yes. The SEZ Act does not restrict foreign ownership of the licensed company, but the licensee must be incorporated in Kenya. The foreign parent cannot hold the licence directly.
Yes. A NEMA permit is a standard condition of SEZA’s approval in principle for both enterprise and developer licences, and SEZA’s fast-track licensing expressly excludes it.
The Income Tax Act gives 10% for ten years and 15% for the next ten. Section 35(5) of the SEZ Act caps incentives at ten years from the licence date. Until the two are reconciled, plan on ten years with certainty and treat the second decade as upside.
Paragraph 73 of the First Schedule to the Income Tax Act exempts royalties, interest and management, professional, training, consultancy, agency and contractual fees paid by SEZ entities to non-residents, and since May 2026 that exemption has no ten-year limit. Rent and other payments not listed are taxed at 10%.
Neither Act provides a conversion route. Treat it as a new SEZ licence application, with the EPZ licence and its incentives dealt with separately.
Sources
Primary sources first, checked on 24 October 2026. Press and law firm commentary is marked as such and used only where no primary text was available.
- Special Economic Zones Act (Cap. 517A), ss. 4, 6, 8, 11, 28, 29, 30A, 33, 35 (version of 27 December 2024)Primary
- Export Processing Zones Act (Cap. 517), ss. 25 and 29Primary
- Income Tax Act (Cap. 470), Kenya Law revision as at 1 July 2026: s. 12G, First, Second, Third and Eleventh SchedulesPrimary
- Value Added Tax Act (Cap. 476), Kenya Law revision as at 1 July 2026: s. 5, First and Second SchedulesPrimary
- Finance Act 2026 (Act No. 19 of 2026), Kenya Gazette Supplement No. 157Primary
- Miscellaneous Fees and Levies Act (Cap. 469C), ss. 7, 8 and 9APrimary
- Investment Promotion Act (Cap. 485B), ss. 4 and 13Primary
- Kenya Economic Zones Bill 2026 (National Assembly Bill No. 46 of 2026), Kenya Gazette Supplement No. 179Primary
- National Assembly, Report on the Special Economic Zones (Amendment) Bill (National Assembly Bill No. 8 of 2026), April 2026Primary
- SEZA, fiscal incentives, enterprise licence, developer licence, land declaration and FAQsRegulator
- SEZA, public SEZs and private SEZsRegulator
- EPZA, EPZ programme and SME Development Programme and FAQsRegulator
- Directorate of Immigration Services, Class D (employment) permitRegulator
- Bowmans, amendments to the SEZ Act under the Business Laws (Amendment) Act 2024Law firm
- The Star, Ruto signs tax, investment and tech bills into law (11 May 2026)Press
- Mzalendo bill tracker, Kenya Economic Zones Bill (First Reading 28 July 2026)Tracker
Pick the regime before the paperwork
Tell us about the plant, the export mix and the ownership structure. We will tell you which regime fits, what it costs and what the incentive is really worth.