On December 11, 2024, the President of Kenya assented to the Business Laws (Amendment) Act, 2024, introducing significant changes to various statutes, including the Special Economic Zones Act, Cap. 517A (the Act). The Act came into force on December 27, 2024. These amendments aim to enhance the attractiveness of special economic zones (SEZs) by expanding the range of eligible businesses, streamlining administrative processes, and providing longterm investment incentives.

Below, we outline the key amendments to the Special Economic Zones Act and their implications.

Revised Definition of Business Process Outsourcing (BPO)

The definition now explicitly includes the delegation of information technology-intensive business processes to external providers, alongside backoffice support services in areas such as human resources, finance, accounting, and procurement.

Minimum Investment Amount

A new section 4(5A) empowers the Cabinet Secretary responsible for matters relating to industrialization, upon recommendation by the Special Economic Zones (SEZ) Authority (the Authority), to set the minimum investment amount to be invested in an area declared as a SEZ.

Treatment of Goods in SEZs

A new section 8(5) provides that goods sold within a customs-controlled area of an SEZ are not deemed to have entered the customs territory and remain eligible for SEZ benefits under the Act.

Additional functions of the SEZ Authority

The following amendments have been made to section 11, detailing the functions of the SEZ Authority:

• Under paragraph (d), the Authority will now be responsible for determining of investment criteria, investment threshold and minimum investment value.
•  A new paragraph (fa) provides that the Authority shall be responsible for reviewing applications and granting of SEZ service permits.
• Paragraph (h) now assigns the SEZ Authority the responsibility to establish and administer a “one-stop” shop for SEZ Enterprises to facilitate the processing of permits, approvals, licenses, and other facilities, in coordination with government or private entities. 
• Paragraph (m) now empowers the SEZ Authority to recommend to the Cabinet Secretary to suspend or cancel the licence of a SEZ Enterprise or Developer found in violation of any applicable law, including but not limited to the Act and the East African Community Customs Management Act, 2004.

Eligibility of Public Entities as SEZ Developers

Section 28 now allows public entities to qualify as SEZ Developers.

Introduction of Business Service Permits

• Section 30A introduces a requirement for businesses, providing services which attract no incentive or benefit under the Act within SEZs, to apply for a SEZ business service permit, with the Cabinet Secretary prescribing associated rights and obligations.
• Additionally, section 33 now allows SEZ developers to lease, sub-lease, or sell land or buildings to SEZ business service permit holders and residents.

Penalties for Record-Keeping Violations

SEZ Developers or Operators who fail to maintain adequate records are now subject to penalties of up to KES 5 million, imprisonment for a term not exceeding 6 months, or both, under section 33(4). This replaces the previous penalties, which included fines of up to KES 300,000 or imprisonment for up to 6 months, or both.

Incentives and Tax Benefits

A new section 35(5) guarantees SEZ developers, operators, or enterprises a 10-year period of incentives and tax benefits from the date of license issuance, notwithstanding changes in other laws. Note: While this introduces an element of certainty to investors, it will be interesting to see how this will work in practice given frequent changes in tax laws especially annually under the Finance Bills.

Implications for SEZ businesses

• The amendments collectively seek to enhance the attractiveness of SEZs by expanding the range of eligible businesses, streamlining administrative processes, and providing longterm investment incentives.
• SEZ Developers, Operators, and Enterprises within SEZs should be aware of the new compliance requirements, including recordkeeping standards and the potential for stricter enforcement of laws. 
• The introduction of business service permits and the possibility of public entities (which are likely to include national and county government ministries, corporations and agencies) competing with private developers for SEZ projects may create new opportunities but also increase competition. Overall, the amendments are likely to stimulate growth within SEZs. 
• We expect that regulations will be enacted to give effect to some of the changes introduced by the amendments set out above. 

Please note that the information provided in this article does not constitute legal or professional advice or a legal opinion of any kind. If you require any assistance regarding specific issues, please contact the key contacts