Branch vs Subsidiary in Kenya: Which Structure Should a Foreign Company Use?

This is usually the first real decision a foreign company makes when entering Kenya; before hiring, before a lease, before anything else.
The two options are a branch — a registered extension of the foreign parent — and a subsidiary — a separately incorporated Kenyan company. They look similar on the surface but once you look at liability, tax, and governance, you’ll realize they are not.

The Core Legal Difference

A subsidiary is a distinct legal entity, incorporated in Kenya under the Companies Act, 2015, with its own legal personality separate from its foreign parent. As a general principle, the parent company is not liable for the subsidiary's actions or debts. The corporate veil genuinely protects the parent's other assets from what happens in Kenya.

A branch is not a separate entity. It's registered under Part XXXVII of the Companies Act as a foreign company carrying on business in Kenya, and legally it's treated as one and the same entity as the foreign head office — a point Kenya's Tax Appeals Tribunal has explicitly affirmed.
That means the parent company is fully and directly liable for everything the branch does. If the branch is sued, defaults on a contract, or racks up a debt it can't pay, that liability runs straight back to the parent — there's no separate entity standing between them.

For most foreign companies, this single difference is in practice: a subsidiary insulates the parent; a branch doesn't.

Tax Treatment: Closer Than It Used to Be, But Still Different

This is an area worth getting current information on, because it changed relatively recently and a lot of older guides still cite outdated figures.

Before January 2024, branches were taxed at a distinctly higher corporate income tax rate — 37.5%, versus 30% for resident companies (which includes subsidiaries). The Finance Act, 2023 closed that gap: as of 2024, both branches and subsidiaries pay the same 30% corporate income tax rate on Kenyan-sourced profits. If you're reading a source that still quotes 37.5% for branches, it's out of date — this is a genuinely common error in circulating guides.

Rate parity doesn't mean the total tax burden is now identical, though. The real difference has moved to how profits get sent home:

A subsidiary pays a 15% withholding tax on dividends actually declared and remitted to its parent. If profits stay in Kenya and are reinvested rather than distributed, no repatriation tax is triggered.
A branch is subject to a 15% branch repatriation tax on its deemed profit repatriation — calculated on the branch's profits regardless of whether cash is actually sent back to the head office. In effect, a branch's after-tax profit is treated as repatriated for tax purposes whether or not it physically moves.

There's a second, less obvious difference worth flagging: a subsidiary can generally deduct legitimate interest, royalties, and management fees paid to its parent (subject to their own withholding tax and increasingly strict "benefit test" scrutiny from the KRA), while a branch faces tighter restrictions on deducting these kinds of "internal" charges to its own head office, since a branch and its parent are, for tax purposes, the same legal person rather than two contracting parties.

Net effect: for a business planning to reinvest profits locally for growth rather than repatriate them, a subsidiary offers more genuine flexibility. For a business that expects consistent profit and doesn't mind (or intends) steady repatriation, the practical tax gap between the two structures is smaller than it used to be, but not zero.

Ownership and Local Representation

Neither structure imposes a general local-ownership requirement outside Kenya's regulated sectors (banking, insurance, mining, aviation, and a handful of others carry their own sector-specific rules regardless of which structure you choose). Where the two diverge is in who has to physically be there.

A subsidiary has no statutory requirement for a resident director — a foreign individual or entity can be the sole director and sole shareholder. Since a 2023 company law amendment, the subsidiary does need to appoint either a company secretary (mandatory in any case above KES 5 million in paid-up capital) or a resident director, or failing that, a local contact person with a permanent Kenyan address — a compliance role, not an ownership stake.
A branch is required to maintain a local representative who must be present at the registered office during business hours, and that individual carries personal liability for the branch's compliance failures under Kenyan company law. This is a materially bigger practical commitment than the subsidiary's local contact person requirement, and it's one of the more concrete reasons many foreign companies lean toward a subsidiary even when a branch would otherwise suit them.

Registration and Ongoing Compliance

Both structures register through the Business Registration Service and require a registered office, annual filings with the Registrar of Companies, and tax filings with the KRA.

A branch's registration is built around the foreign parent's own incorporation documents — certificate of incorporation, constitution, and details of the parent's existing directors and shareholders — rather than creating new governance documents from scratch, which can make initial setup marginally more straightforward for a branch in some respects.

A subsidiary requires its own full incorporation process — memorandum and articles, its own share structure, its own board — which takes more upfront work but produces a genuinely independent entity with its own credit history, its own contracting capacity, and its own standing before Kenyan courts and regulators.

Which Structure Actually Fits Which Situation

A branch tends to suit: a time-limited engagement — a specific construction or infrastructure contract, a defined project mandate, a representative or liaison office feeding business back to the parent.
Where the foreign company doesn't need or want a fully independent Kenyan entity, and where the parent is comfortable carrying direct liability for that limited scope of activity.

A subsidiary tends to suit: genuine, open-ended local operations — hiring a local team, entering long-term contracts, building a local customer base, holding local assets, or bidding for government or corporate tenders where local incorporation is often an explicit or practical prerequisite.
The liability separation alone makes a subsidiary the more conservative choice for anything beyond a bounded, short-term mandate.

In practice, the large majority of foreign companies setting up an ongoing presence in Kenya choose the subsidiary route — the liability protection, the tax flexibility around reinvested profits, and the more common perception among Kenyan counterparties and regulators of a "real," independent local company tend to outweigh a branch's marginally simpler initial paperwork.

Branches remain the right tool for a genuinely narrower set of cases: short-term, project-bound, or liaison-style presences where full local incorporation isn't proportionate to what the company is actually doing in Kenya.

The Decision, in Short

If you're choosing based on liability alone, the subsidiary wins for anything beyond a short, defined engagement — it's the structure that actually protects the parent.

If you're choosing based on tax, the gap has narrowed significantly since 2024 but still favours a subsidiary for businesses planning to reinvest profits locally.

If you're choosing based on how quickly you need to be operational for a narrow, time-bound piece of work, a branch can be the more proportionate option — provided the parent is genuinely comfortable with the direct liability exposure that comes with it.

Choosing between a branch and a subsidiary shape your tax position, your liability exposure, and how you're perceived by Kenyan partners and regulators for as long as the entity exists — it's worth getting right at the outset rather than restructuring later. This is exactly where Vela Global Mobility works with foreign companies, as part of our East Africa Market Entry service line — get in touch if you're weighing your structure for entering the Kenyan market.