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In an increasingly global and environment, many companies are exploring how best to engage workers across borders. For foreign companies looking to employ Kenyan residents, the legal and regulatory framework may seem both complex and far fetched. This article explores whether foreign entities can directly employ Kenyan residents, the legal compliance requirements of such arrangements, and the legal risks associated with bypassing local registration of the foreign entity.

Can Foreign Entities Employ Kenyan Residents?

Yes, but with qualifications. The Employment Act (Cap. 226) Laws of Kenya (the Employment Act) does not expressly require an employer to be a Kenyan-registered entity. Any person or company that enters a contract of service with person in Kenya qualifies as an employer under the law, regardless of where they are based or registered. This means a foreign company may legally employ a Kenyan resident, even without a physical presence such as a branch office, or subsidiary in the country. However, such employers must comply with all Kenyan laws on employment and labour, tax, social security and other regulatory obligations.

The Hidden Compliance Burden

While Kenyan law does not preclude a foreign entity from employing persons who are resident in Kenya, there are several obligations bestowed upon an employer under Kenyan law. These include: Remitting Pay-As-You-Earn (PAYE) taxes and other statutory deductions to the Kenya Revenue Authority (KRA).

• Contributing to the National Social Security Fund (NSSF) as required under the National Social Security Fund Act, Cap. 258.
• Contributing to the Social Health Insurance Fund (SHIF) as required under the Social Health Insurance Act, Act No. 16 of 2023 and the Social Health Insurance Regulations.
• Remitting the Affordable Housing Levy (Housing Levy), and matching employee contributions at one point five percent (1.5%) of gross salary as provided under the Affordable Housing Act, 2024.
• Ensuring the employment contracts are compliant with the Employment Act.
• Meeting obligations under the Industrial Training Act (Cap. 237) Laws of Kenya, including registering as a training levy payer and submitting contributions.

Without a local legal presence, most foreign companies face substantial logistical barriers to fulfilling these legal obligations, particularly where local presence is a prerequisite of registration with KRA and other regulatory bodies to enable the remittance of tax and other statutory deductions. It should be noted that, even inadvertent failures to comply can result in penalties, reputational damage, or potential employee disputes. For this reason, proper structuring and access to reliable local support are essential when employing individuals based in Kenya.

The Role of an Employer on Record

To bridge this gap, many foreign companies who do not wish to have a local presence in Kenya often opt to appoint a local Employer on Record (EOR). An EOR is a third-party company that acts as the legal employer for a company’s workforce in a specific location or country. An EOR arrangement can take the following two (2)models:

• Agent Model – The employment contract is between the foreign company and the employee, but the EOR manages compliance on behalf of the employer.
• Legal Employer Model – The EOR becomes the formal employer on record, contracting directly with the employee and managing all legal responsibilities.

A foreign entity can enter into a services agreement with an EOR, under which the EOR assists with employer obligations such as payroll processing, tax remittances (PAYE), statutory contributions (NSSF, SHIF, Housing Levy), and overall employment law compliance. However, the foreign entity remains the legal employer, with the EOR acting solely as an agent rather than assuming full employer responsibilities.

It is important to note that even if a foreign entity decides to have an EOR arrangement, the employer obligations will still apply to the former as they will be deemed to be the employer. In the case of Samuel Wambugu Ndirangu vs 2NK Sacco Society Limited [2019] eKLR, the Court had this to say in regard to the ingredients that are necessary to determine the existence of an employer-employee relationship:

“A review of the elements above reveals that in order for a positive determination of the existence of the employer-employee relationship there must be the selection and engagement of the employee (the hire after either a restricted or open interview process), proof of payment of wages, the power of dismissal and finally, the power to control the employee’s conduct (this is what gives the test the nom de guerre – control test).”

Further, the Court in the case of Christine Adot Lopeyio vs Wycliffe Mwathi Pere [2013] eKLR, spelt out various tests to determine the nature of an employer-employee relationship in a contract of service as follows:

“In most cited authorities in this regard from various jurisdictions, several tests have been applied to distinguish between what comprise ‘employment’ as against what constitutes ‘service’ in case of contracts of service as contrasted with contracts for service. They include the following:

1. The control test whereby a servant is a person who is subject to the command of the master as to the manner in which he or she shall do the work.
2. The integration test in which the worker is subjected to the rules and procedures of the employer rather than personal command. The employee is part of the business and his or her work is primarily part of the business.
3. The test of economic or business reality which takes into account whether the worker is in business on his or her own account, as an entrepreneur, or works for another person, the employer, who takes the ultimate risk of loss or chance of profit.
4. Mutuality of obligation in which the parties make commitments to maintain the employment relationship over a period of time. That a contract of service entails service in return for wages, and, secondly, mutual promises for future performance. The arrangement creates a sense of stability between the parties. The challenge is that where there is absence of mutual promises for stable future performance, the worker thereby ceases to be classified as an employee as may be the case for casual workers.”

It is therefore evident the determination of the existence of an employer- employee relationship is primarily guided by the manner in which the work is performed and the remuneration of the employee, and not necessarily the EOR. In this regard, the employer would still be held responsible for the employer obligations if the EOR fails to comply with such obligations.

The Risk of Creating a Permanent Establishment

In addition to employment compliance, engaging an EOR may have broader implications. When foreign companies engage Kenyan residents to provide services locally, particularly over extended periods, they risk inadvertently creating a permanent establishment (PE) in Kenya.

The definition of a PE has largely been borrowed from the Organization for Economic Co-operation and Development (OECD) guidelines. Kenyan law sets out broad parameters for determining a PE. For instance, a fixed place of business in Kenya through which business is wholly or partly carried out, including a place of management, a branch, an office, a factory, a workshop, or a place of extraction of natural resources for a period of six (6) months or more, would constitute a PE. In addition, the provision of services, including consultancy services, by a person through employees or other personnel engaged for that purpose, for a period exceeding the aggregate of ninety-one (91) days in any twelve-month period, or the presence of a dependent agent who acts on behalf of the non-resident person in respect of that person’s activities in Kenya, would constitute a PE.

Where a non-resident person is deemed to have created a PE in Kenya, the non-resident person would be considered to have created a taxable presence in Kenya and would therefore be subject to tax on the proportionate income that will be accrued in or derived from the business activities carried on in Kenya. Such tax implications would include payment of corporate income tax for the income derived or accrued in Kenya. A PE may also give rise to transfer pricing implications.

Mitigating Risk

To mitigate the risk of creating a PE in Kenya, foreign entities may consider establishing a Kenyan presence for employment purposes. It may do so by:

• Registering a subsidiary in Kenya – incorporating a wholly owned Kenyan company to directly employ individuals and comply with all statutory obligations locally.
• Registering a branch in Kenya – registering as a foreign company under the Kenyan Companies Act, which can hire employees and comply with local employment regulations.

Notably, a subsidiary or a branch will be required to comply with all the applicable Kenyan laws relating to the operation of its activities in Kenya, including corporate governance, regulatory and tax laws.

Final Word

While foreign entities can employ individuals residing in Kenya without the necessity of registering a Kenyan entity, the operational hurdles, from registration as a taxpayer to enable remittance of PAYE and other statutory deductions to compliance which other obligations of an employer under Kenyan law require careful navigation. Failure to comply could result in penalties, labour disputes, or unintended tax liabilities. For most foreign companies seeking to engage Kenyan residents, having an EOR arrangement or in the alternative establishing a Kenyan presence for employment purposes may be necessary. In either case, seeking legal and tax advice is necessary to avoid any unintended legal consequences.

The African Continental Free Trade Area Agreement (the AfCFTA) is a framework that aims to facilitate African industrialisation and development by shifting the continent’s global trade patterns. It represents a landmark effort to redefine Africa’s trade landscape by creating a unified market for goods and services across the continent. It came into force on 30th May 2019, after the required a number of ratifications were deposited with the African Union (AU) Commission. It currently has fifty four (54) signatories, boasting the largest free trade area globally by membership.

The AfCFTA was introduced to foster a symbiotic relationship among African countries, with the overarching goal of reducing barriers to trade. It endeavours to boost intra-African trade by addressing non-tariff barriers to trade and progressively reducing tariffs. However, in an era increasingly driven by digital commerce, the success of this ambition depends not only on the flow of goods and services but also on the free and secure movement of data.

Data Protection and Cross Border Trade

As trade becomes increasingly digital, cross-border data flows and harmonised data protection frameworks become essential for e-commerce to function securely and seamlessly across jurisdictions. The United Nations Economic Commission for Africa recognised the AfCFTA as the world’s largest free trade area since the formation of the World Trade Organization (WTO). Additionally, in 2016, the United Nations Conference on Trade and Development (UNCTAD) affirmed that data protection is critical to digital trade, citing that poor data governance diminishes customer trust and distorts market dynamics.

However, it is important to recognize that no country is willing to grant another unfettered or unregulated access to its data. Increasingly, data governance has become a source of tension and dispute among sovereign states. While the AfCFTA has enabled the free flow of services and information across borders, critical questions remain as to the safeguards in place to protect that information. For member states to fully harness the benefits of the digital economy in international trade, they must acknowledge that data is a strategic asset and establish robust and effective data protection regimes.

As such, there is a need for continental or regional data protection harmonisation to secure digital trade. By focusing on streamlining trade, including services, investment, intellectual property and digital trade, the AfCFTA aims to facilitate free movement of persons, goods and services crucial for deepening economic integration. This free movement is largely fuelled by data and the cross-border movement of the same. Data protection therefore becomes a key concern.

The Heads of State and Government of the AU in their decisions (Assembly/AU/4(XXXIII) of 10th February 2020 and Ext/Assembly/AU/Decl.1(XII) of 5th January 2021) mandated negotiations for the Protocol, emphasising the importance of safeguarding national data integrity and security. This directive aligns with the broader objective of upholding citizens’ rights to retain control of their personal data. Against this backdrop, the 37th AU Heads of States Summit held in February 2024, adopted the much-anticipated Protocol to the Agreement Establishing the AfCFTA on Digital Trade (the Protocol). The Protocol seeks to facilitate cross-border data flows while addressing privacy concerns and will come into force once the required number of ratifications is deposited in accordance with Article 23 of the AfCFTA. Part IV of the Protocol on data governance encompasses cross-border data transfers, protection of personal data, location of computing facilities (data localisation), and data innovation.

Additionally, under Article 20 of the Protocol, on cross-border data transfers, parties to the Protocol, subject to the relevant Annex, can only allow cross-border transfer of data, including personal data by electronic means, provided the activity is for the conduct of digital trade by a person of a state party. The exception to this is where a state party intends to achieve a legitimate public policy objective or protect essential security interests provided that the measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination, or a disguised restriction on digital trade, and do not impose restrictions on transfers of data greater than are necessary to achieve the objective.

Article 21 also requires state parties to adopt legal frameworks at the national level providing for the protection of personal data of natural persons engaged in digital trade. Article 46 further provides that after the adoption of the Protocol, state parties shall adopt annexes including the Annex on Cross-Border Data Transfers. On 16th February 2025, the Assembly of Heads of State and Government of the AU formally adopted eight (8) annexes to the Protocol including the Annex on Cross-Border Data Transfers, which sets out regulations aimed at facilitating secure and efficient data flows across member states.

Advancing Data Governance

McKinsey, in its report on Africa business growth noted that Africa has over 400 million internet users, with the implication that e-commerce is largely propelled on the continent. One of the projected outcomes of the growth of intra-African trade spurred by the AfCFTA is increased data transfers across member countries.

Data protection harmonisation across member states can propel AfCFTA forward, in turn building consumer and business trust as well as fostering the digital economy. Following the integration of digital technology in trade, the African Heads of State recognized the need to provide data protection and privacy for the parties involved. This move was especially motivated by the fact that while the AfCFTA aimed to facilitate seamless trade across the continent and the free flow of goods, services and information, it failed to address questions as to how the data involved is protected.

Furthermore, the regulatory fragmentation across member states was a major concern, as some member states to the AfCFTA lack data protection laws at the national level to help govern and control how data flows, its security and usage in the region. This left data exchanged across jurisdictions open to misuse, hacks and threats. These issues underscored the imperative for the AfCFTA to include robust data protection measures, either within its core framework or through an annexure, to ensure its effective implementation.

It is important to recognise that no country is willing to grant another unfenered or unregulated access to its data. Increasingly, data governance has become a source of tension and dispute among sovereign states. While the AfCFTA has enabled the free flow of services and information across borders, critical questions remain as to the safeguards in place to protect that information.

In light of the above, the recent adoption of the Annex on Cross-Border Data Transfers within the Protocol marked a transformative step in aligning Africa’s digital economy with modern data governance standards. Recognising the essential role of cross-border data flows in intra-African trade, this development demonstrates the visionary leadership of the AU Heads of State in enabling secure, seamless, and trusted data exchanges across the continent.This Annex not only complements the AfCFTA’s mission of boosting intra-African trade but also provides a regulatory framework to safeguard personal data and digital trust in the e-commerce ecosystem, in turn standardising cross-border data transfer conditions among member states. It provides for exceptions grounded in legitimate public policy objectives and essential security interests. The Protocol mandates the inclusion of provisions in the Annex addressing acceptable use of data, restrictions on third-party sharing, and applicable regulatory limitations, including data protection safeguards. The Annex now introduces a harmonised set of rules that serve as a common baseline, particularly benefiting jurisdictions that are yet to enact domestic data protection laws, as the Protocol emphasises for member states to establish regulatory frameworks that focus on improving trust in digital transactions.

Recommendations

While the adoption of the Cross-Border Data Transfers Annex is a significant milestone, the effectiveness of its implementation will hinge on a few strategic actions:

i. Benchmarking with European Legal Architecture

The European Free Trade Agreement (EFTA) provides a robust precedent on integrating data protection frameworks within trade agreements. Annexure XI of the EFTA outlines regulatory approaches to data protection in areas such as electronic communications and information services. The Protocol and its Annexes can draw insights from this model, and borrow useful provisions.

ii. Standardising Cross-border Data Transfer Conditions

The Annex must prescribe detailed safeguards that promote accountability and risk management in data flows. These safeguards include providing proof of availability and effectiveness of appropriate safeguards with respect to security and protection of personal data subject to the transfer. Additionally, data transfers must be grounded on lawful bases such as consent, contractual performance, data subject’s benefit and public interest, among others.

Key Take Away

Data is the backbone of Africa’s evolving digital economy. The adoption of the Cross-Border Data Transfers Annex under the Protocol is more than a regulatory milestone, it is a bold affirmation of Africa’s readiness to lead in the digital trade era. By laying down clear, harmonised standards for data governance, the Agreement addresses one of the most critical enablers of modern commerce: trust.

As implementation unfolds, this Annex could become the backbone of a secure and thriving continental digital market, eventually evolving into a blueprint for global south-led data governance models.

“Indeed, the title or lease is an end product of a process. If the process that was followed prior to issuance of the title did not comply with the law, then such a title cannot be held as indefeasible. The first allocation having been irregularly obtained, HE Daniel Arap Moi had no valid legal interest which he could pass.” This finding was affirmed by the Supreme Court in the instant case, being Sehmi & another v Tarabana Company Limited & 5 others [2025] KESC 21 (KLR) (the Tarabana Case) having been borrowed from the Supreme Court’s earlier decision in Dina Management Limited vs. County Government of Mombasa & 5 Others [2023] KESC 30 (KLR) (the Dina Management Case).

The observations of the Supreme Court gave authoritative clarity on the doctrine of an innocent purchaser for value without notice. In doing so, the Supreme Court conclusively resolved any lingering uncertainty surrounding the application of the doctrine which has frequently been used as a defense by unscrupulous land grabbers who are intent on circumventing the provisions of Article 40 of the Constitution of Kenya, 2010.

It is now settled that no valid title can pass and no legal estate is acquired if the process leading up to the said acquisition is marred with procedural illegalities. The defence of an innocent purchaser for value without notice thus falls by the wayside.

Exploring the Limits and Applicability of the Innocent Purchaser Doctrine

In the Tarabana Case, the Supreme Court undertook a comprehensive analysis of the legal doctrine of the bonafide/innocent purchaser for value without notice. The Court was invited to consider whether, and under what circumstances, a purchaser may be deemed to have acquired a valid and indefeasible interest in land notwithstanding underlying irregularities or illegality in the allocation process.

In its determination, the Supreme Court laid out the test made up of three (3) ingredients that a person claiming to be a bonafide purchaser must meet. These ingredients entail the following:-

i. Element of Innocence

This means that the purchaser must act in good faith. His conduct must not raise any doubt as to whether indeed, he did not have any notice or knowledge as to the existence of a rival interest in the suit land. The element of innocence also connotes the exercise of due diligence expected of any reasonable purchaser. The claimant must demonstrate that he acted diligently and conducted a reasonable inquiry into the status of the estate or land that he sought to purchase.

ii. Purchase for Value

This means that consideration in money or money’s worth was paid by the claimant in return for the land. The purchaser must actually pay all the money due before receiving notice of the existence of the equitable interest over the suit land. Mere execution of the instrument of conveyance of the legal estate before notice is received without payment of the money due, will not avail to the claimant the defence of innocent purchaser.

iii.  Legal Estate

An innocent purchaser of a legal estate in land without notice of an equitable interest in the said land, takes it free from the encumbrance of the latter interest. This is because legal rights are good against all the world; equitable rights are good against all persons except a bonafide purchaser of a legal estate for value without notice.

Having outlined the ingredients that must be met, the Supreme Court then proceeded to interrogate whether these ingredients were met in the Tarabana Case as detailed below.Analysis of Legitimacy

The Supreme Court was confronted with a dispute involving two (2) sides, the Appellants on the one hand, and the 1st and 2nd Respondents on the other. Each of these sites claimed to be holding title to the suit property they deemed legitimate. At the centre of the matter was the question of competing claims to land ownership, where legality and equity seemed to be at odds.

In finding that the Appellants neither had a legal nor equitable interest in the suit property, the Supreme Court found as follows:
“By the time the suit land was allocated to the 2nd Respondent, the Appellants’ lease had long expired. We are therefore in agreement with the Court of Appeal’s conclusion that the lease having expired, the land had reverted to the Government. It was no longer a leasehold estate, but government land within the meaning of the Government Lands Act (now repealed). Where did this cruel reality leave the Appellants? What rights, if any did the Appellants have over the suit land? It was submitted without contestation at the trial court, that after the expiry of the lease, the Appellants continued in possession of the land, while paying the applicable land rates and rent. What then was the legal status of the appellants with regard to the land? Can the appellants be considered as having acquired an equitable interest in the land by virtue of their continued stay upon the same? We think not, since through effluxion of time, and reversion to the Government, the lease had become extinguished for all purposes. No equitable interest over the land could survive such extinction. Whatever remained in favour of the appellants over the land, could at worst be regarded as “a tenancy at will” or at best “a mere equity”.

The Supreme Court then proceeded to address the illegality of the 1st and 2nd Respondents’ title as below:

“ … it is our finding that the allotment of the suit land to the 2nd Respondent can neither be regarded as legal nor regular. The allocation was made by a person other than the holder of the office of Commissioner of Lands. Neither was the allotment preceded by the requisite advertisements and biddings assuming that it was being allotted for a public purpose. Consequently, the 2nd Respondent could not pass valid title to the 1st Respondent given the incurable procedural irregularities that had characterized the allotment.”

Consequently, the Supreme Court proceeded to nullify the allotment of the suit property to the 2nd Respondent, and found that the 1st Respondent was not a bonafide purchaser of the suit property without notice on account of failing to meet the three (3) ingredients as follows:

• The element of innocence: The allotment to the 1st Respondent was unprocedural as it was not done by the Commissioner of Lands. The allotment was also not preceded by the requisite advertisements and biddings. There was nothing on record to show how, and for what purpose the suit land came to be allocated to the 2nd Respondent who promptly sold it to the 1st Respondent.
• Purchase for value: No explanation was given for the discrepancy in the purchase price which was KES 12.5 Million in the transfer documents despite the sale agreement indicating KES 24 Million. This was interpreted as a deliberate attempt to evade paying the higher stamp duty applicable to the transfer.
• A legal estate: The 2nd Respondent was incapable of passing a valid title to the 1st Respondent as it had acquired the same un-procedurally.

The Appellants’ Saving Grace – Legitimate Expectation

It was on record that three (3) months before the expiry of the lease, the Appellants had made an application for its extension. The Commissioner of Lands, the Director of Physical Planning, and the Director of Survey all acknowledged receipt of the application for extension of lease by the Appellants and indicated that there were no objections to the renewal. This was never communicated to the Appellants. However, inexplicably, the application for extension of lease remained pending and unacted upon for eight (8) years, when the suit land was allocated to the 2nd Respondent. The Supreme Court observed that the application for renewal gave rise to the legitimate expectation for the renewal of the Appellants’ lease and stated thus:

“More often than not, public leases contain an option for renewal. However, such renewal must be activated by an application by the lessee to the government agency having authority to renew the lease. It follows therefore that where the lessee makes an application for renewal of his/ her lease, his/her application would be considered either way and that, the applicant would be furnished with reasons should the application be declined. It would also be expected that the application would be clear and unambiguous. It is the application for renewal that ignites the legitimate expectation, given the fact that it is addressed to an authority that has the competence to renew the lease.”

The Supreme Court found it logical to conclude that the Appellants had a legitimate expectation that their lease would be extended. Such an expectation was not only reasonable, but was expressed to a competent authority, who at different times, had exercised the powers conferred upon him by the law, to extend the leases of other applicants in a similar position as the appellants. To this end, it was the Supreme Court’s final order that the Appellants were entitled to an extension of lease over the suit property.

Disposition

The clarity provided by this decision settles an issue that has been bedeviling the question of acquisition of titles in Kenya and it is now hoped that moving forward, alleged ‘innocent purchasers’ have been put on notice that their alleged innocence may not meet the requisite legal threshold for granting them titles to land. In essence, the Supreme Court has emphatically underscored the need for absolute propriety and regularity in every step of the process leading up to the acquisition of land, signifying a clear position that Courts will henceforth not shy away from striking down as illegitimate any tittle acquired through a flawed process.

The taxation of income earned by insurance tied-up agents has been a contentious subject over the years. At the heart of the dispute lies a fundamental question touching on the nature of the relationship between insurers and their tied-up agents. Are these agents employees or independent contractors?

The Appeal

Our very own Tax team successfully represented CIC Life Insurance Limited (“the Company”) in HCCOMMITA E218 of 2023 Kenya Revenue Authority v. CIC Life Insurance Limited. Being an appeal against a Judgment of the Tax Appeals Tribunal (the “Tribunal”) the Kenya Revenue Authority (“KRA”) challenged the Tribunal’s decision that tied-up agents licensed under the Insurance Act (Cap 487, Laws of Kenya) (the “Insurance Act”) are not employees and consequently, the income they earn from this relationship is not chargeable to Pay As You Earn (“PAYE”).

KRA argued that the relationship between the tied-up agents and the Company amounted to an employer-employee relationship. In support of this position, they relied on the control test i.e., that the tied-up agents are subject to the Company’s control; and that the benefits stipulated in the sample contracts were enjoyed by those in employment relationships.

In response, we demonstrated that a holistic reading of the Employment Act (Cap 226, Laws of Kenya) (the “Employment Act”), the Income Tax Act (Cap 470, Laws of Kenya) (the “Income Tax Act”), and the Insurance Act, together with the relevant regulations, confirmed that in the insurance industry, tied-up agents are independent contractors and not employees. Therefore, KRA’s argument on the benefits offered to tied-up agents held no weight as these benefits are provided for under the Insurance Act and as such these benefits would not convert the relationship to that of an employer and employee.

The High Court’s Decision

At the outset, the Court considered the definitions of the terms “agent” and “employee” in line with the objectives of the Income Tax Act. More particularly, this definitional clarity was pivotal to the broader analysis of whether an agent’s remuneration constituted income arising from employment, thereby subject to PAYE or whether it was income derived from an independent contractual relationship which would instead fall under the scope of Withholding Tax (“WHT”).

Having ascertained these definitions, the Court proceeded to determine the nature of the contractual relationship between the Company and the tied-up agents. In doing so, it referred to the uncontested agreements between the parties as read alongside the definition of an agent under the Insurance Act. The Court subsequently concluded that the agents operating within the insurer’s business cannot, by definition, be employees.

In arriving at this conclusion, the Court affirmed the position in UAP Life Assurance Company Limited v. Commissioner of Domestic Taxes [2019] KEHC 412 (KLR) where the High Court placed emphasis on the harmonious reading of the Insurance Act, Income Tax Act and the Employment Act in order to arrive at the conclusion that tied-up agents do not qualify as employees.​

Similarly, this position was upheld in Commissioner of Domestic Taxes v. Liberty Life Assurance Limited (Income Tax Appeal E108 of 2021) [2023] KEHC 1359 (KLR) (Commercial and Tax) (24 February 2023) (Judgment), where the High Court held that the agents in question were not salaried employees but were instead remunerated through commissions for services rendered. As such, they could not be classified as employees for the purposes of PAYE.

The Significance of this Judgment

The High Court in this decision having concurred with two (2) previous High Court determinations suggests that this matter is now settled, unless overturned by the Court of Appeal. As the question of employment status continues to gain relevance in today’s evolving economy, this Judgment reaffirms that insurance agents, being remunerated through commissions and lacking the hallmarks of employment, are independent contractors. As such, the income they earn is not subject to PAYE.

On 13^th February 2025, the KRA issued a Public Notice on the implementation of the Income tax (Charitable Organizations and Donation Exemption) Rules, 2024 (the “Rules”) in which among many other things, all Charitable Organizations will now be required to comply with the Rules to enjoy tax exemptions.  These Rules will also determine whether such organizations will get tax exemption certificates upon application or renewal.

One of the main concerns of charitable organizations is determining where and how to seek refuge in case their application for tax exemption is declined. The Tribunal in Tax Appeal No. 1545 of 2022 held that it did not have Jurisdiction to entertain appeals arising from rejection of exemption application as the same were neither tax decisions nor appealable decisions.

The Issues in Contention

Our team appealed against the decision wherein we submitted that the rejection decision on the application for exemption was an appealable decision and did not require the Appellant to first lodge a Notice of Objection with the Commissioner. We further submitted that rejection decision was not a tax decision as misconstrued by the Commissioner but an appealable decision and urged the court to apply the plain meaning of “under any other decision made under a tax law” which applied to the rejection decision.

The Commissioner’s team on the other hand argued that the rejection decision did not constitute an appealable decision as defined under section 3(1) of the Tax Procedures Act, Cap 469 A as it was not an objection decision. They further argued that the appropriate forum to challenge the decision was through a judicial review court and that the court should apply the ejusdem generis interpretation rule when interpreting “any other decision made under a tax law”.

The Decision

The High Court, in a Judgement delivered by Lady Justice Rhoda Rutto on 14^th February 2025, in Saleh Mohammed Trust v Commissioner of Domestic Taxes (Income Tax Appeal E221 of 2023) [2025] KEHC 17214 (KLR) (Commercial and Tax) (14 February 2025) (Judgment) – Kenya Law affirmed our argument that any decision made under tax law that is not a tax decision is an appealable decision.

The Court held that the decision to reject the application for exemption is an appealable decision as it falls under “any other decision made under a tax law other- than (a) a tax decision or (b) a decision made in the course of making a tax decision” as defined under Section 3(1) of the Tax Procedures Act, Cap 469 A.

In the appeal to the High Court, the Commissioner argued that the Appellant ought to have challenged the Commissioner’s action by way of Judicial Review. Whereas recognizing this as an available option, the Court in its determination affirmed that pursuant to the provisions of Section 9(2)(1) of the Fair Administrative Action Act,  the High Court or subordinate court, shall not review an administrative action or decision under the Act unless the mechanisms, including internal mechanisms for appeal or review and all remedies available under any other written law  have been exhausted. The Appellant was therefore required to exhaust all available mechanisms, that is, appeal to the Tribunal that is vested with the requisite jurisdiction to hear an appealable decision.

This same position was affirmed in, in the case of Krystalline Salt Limited v Kenya Revenue Authority [2019] KEHC 6939 (KLR) – Kenya Law, see para 69  thereto.

The Court further determined that the appeal be heard on merit by the Tribunal and referred the matter back to the Tribunal for hearing of the substantive appeal as the issue of jurisdiction was now settled.

Significance of the Judgement

It is now settled, (unless the same is overturned by the Court of Appeal) that when a Charitable Organization’s Application for tax exemption is declined, such a decision can be appealed directly to the Tribunal without requiring the applicant to first lodge a Notice of Objection to the rejection decision as it is an appealable decision. This decision clarifies the dilemma that such entities face when contemplating their next action after receiving a rejection of their tax exemption application.

That the digital age has ushered in unprecedented concerns over the right to privacy and the use of personal data is now old news. Virtually all states have set up legal frameworks to safeguard the right to privacy and to govern the use of personal data, including putting into place appropriate compliance and enforcement mechanisms. In Kenya, the right to privacy is entrenched under Article 31 of the Constitution. The Data Protection Act of 2019 (the DPA) establishes the Office of the Data Protection Commissioner (the ODPC) as the institutional mechanism to protect personal data from misuse, as well as to oversee the implementation of and be responsible for the enforcement of the DPA. The ODPC is empowered to investigate any complaints relating to the misuse of personal data and to undertake the necessary enforcement measures through the various regulations made under the DPA, such as the Data Protection (Complaints Handling and Enforcement Procedures) Regulations, 2021 (the Complaints and Enforcement Regulations).

Notwithstanding the ODPC’s clear mandate set out in the DPA, its jurisdiction was recently challenged through a Constitutional Petition filed in the High Court in which it was contended that the ODPC had exceeded its authority by using powers reserved for the High Court. In addition, the Petition argued that the mandate of the ODPC overlapped with that of the Kenya National Human Rights and Equality Commission (the KNHREC), which is the body empowered to investigate and deal with any violations of the Bill of Rights, including the right to privacy.

In dismissing the Petition, the High Court (Mwamuye J) affirmed the authority and mandate of the ODPC in the enforcement of data protection law in Kenya.

A. Background

In the Petition, namely,  Arunda v Office of the Data Protection Commissioner & another; Data Privacy and Governance Society of Kenya (Interested Party) (2025) KEHC 12262, the constitutionality of Section 56 of the DPA and Regulation 14 (5) of the Complaints and Enforcement Regulations was disputed, with the Petitioner contending that these provisions granted judicial powers to the ODPC, consequently infringing upon the exclusive jurisdiction conferred upon the High Court under Articles 23 (1) and 165 (3) (b) of the Constitution. The Petitioner further contended that the mandate of the ODPC overlapped with that of the KNHREC, resulting in confusion as to constitutional and institutional oversight.

B. Issues

The key issues considered in the Petition included the following:

i. Whether the ODPC usurps the jurisdiction of the High Court?

The Petitioner argued that the ODPC’s powers to investigate and issue binding decisions, including compensation, amounted to the usurpation of judicial authority vested in the High Court. The Court disagreed and found that the ODPC’s power to investigate and make administrative findings does not amount to a judicial function, but rather that the ODPC plays more of a complementary role within the wider legal framework relating to the right to privacy. The Court found that the ODPC played an important and constitutionally permissible function for the realisation of the right to privacy under Article 31 of the Constitution, subject to the supervisory jurisdiction of the High Court as preserved under Section 64 of the DPA.

ii. Whether Section 56 of the DPA and Regulation 14(5) of the Complaints and Enforcement Regulations are unconstitutional?

Closely related to the first issue highlighted above, the Petition also raised the issue of constitutionality of Section 56 of the DPA and Regulation 14 (5) of the Complaints and Enforcement Regulations, asserting that these provisions granted judicial powers to the ODPC. Similarly dissuaded by this argument, the Court found that these provisions do not confer judicial powers upon the ODPC but rather authorise administrative and regulatory functions which were necessary to safeguard the rights under Article 31 of the Constitution. The Court returned the finding that these provisions merely provide the necessary enforcement capacity to a specialized agency, while retaining the existing judicial oversight through the appellate mandate granted to the High Court.

iii.  Whether the doctrines of exhaustion and constitutional avoidance applied to bar first instance access to the High Court?

The Court upheld that the doctrines of exhaustion and constitutional avoidance remain applicable. Consequently, the Petitioner was deemed to have improperly bypassed the ODPC’s complaint mechanism, which ought to have been followed in the first instance. The Court reaffirmed the doctrine of exhaustion, which requires persons to first utilise available statutory remedies before approaching the Courts, unless exceptional circumstances are shown to exist, which was not done in this case.

The Court also echoed the doctrine of constitutional avoidance, which discourages premature constitutional litigation when statutory remedies are adequate and available.

iv. Whether there was an overlap between the roles of the ODPC and the KNHREC?

The Petitioner argued that the mandate of the ODPC overlapped with that of the KNHREC, which the Petitioner contended was the body empowered to investigate and deal with any human right violations, including the right to privacy. The Court however took the view that the mandate of the ODPC does not conflict or overlap with that of the KNHREC, but rather the two institutions are designed to complement each other within Kenya’s constitutional and statutory human rights’ enforcement architecture.

C. Conclusion

Overall, the High Court’s decision affirms the power and jurisdiction of the ODPC in the enforcement of data protection and safeguarding of the right to privacy. The decision upholds that the legal architecture provided by the DPA is functional, constitutional and necessary for the effective enforcement of the law relating to data protection.

This case highlights and emphasises the significance of establishing a framework that includes specialised oversight over the increasingly complex issues surrounding data governance, including the collection, storage and use of personal information for addressing privacy-related concerns within a rapidly evolving digital world.

In the 20th Issue of Legal & Kenyan, we featured an article titled “Advancing Green Governance: Standards, Finance and Sustainability in Africa’s Corporate Sector 2.0”, in which we discussed the manner that adoption of the International Financial Reporting Standards Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures Standards (IFRS S2) collectively (the Standards) that were issued by the International Sustainability Standards Board (ISSB) were being adopted by corporations in Africa in the absence of clear frameworks and/or guidelines. In the abovementioned article, we discussed green financing as an effective tool for uptake of the Standards reportable under IFRS S1 and made a case for streamlining of internal operational procedures in an environmental friendly manner as a good metric reportable under IFRS S2.

It is against this backdrop of the absence of clear frameworks and guidelines that Kenyan corporations (especially those in the banking sector) undertook to ensure compliance with the Standards in the best manner they could mirroring international best practice standards. However, from April 2025, with the issuance of Kenya’s Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework for the Banking Sector (the Framework)by the Central Bank of Kenya (CBK), our jurisdiction now has a clear way forward in respect of compliance with the Standards.

KGFT has been developed initially for the banking sector. However, it is intended to serve as an entry point to the larger financial sector in Kenya. KGFT a standardised classification system that identifies and categorises the investment options which are environmentally sustainable and, by extension, those that are not. KGFT defines a minimum set of assets, projects and activities that are eligible to be defined as “green” in line with international best practices and Kenya’s national priorities. The users of the KGFT may utilise it to track, monitor and demonstrate their credentials of their green activities (popularly termed as ESG) in a more confident and efficient manner.

The framework was issued in furtherance of the CBK’s Guidance on Climate–Related Risk Management, which it issued in 2021, and the issuance of IFRS S2 by the ISSB in 2023. Section 33(4) of the Banking Act, (Cap. 488)Laws of Kenya, empowers the CBK to guide institutions to maintain a stable and efficient banking and financial system. As such, CBK, in exercise of its statutory power, has formulated the framework to act as the guide through which the banking sector in Kenya shall identify, classify and disclose relevant, decision useful climate–related information consistently and comparably. The framework is fully aligned with the Institute of Certified Public Accountants of Kenya (ICPAK) recommendations on the IFRS S2, which it did designate as the official standard for climate risk reporting in November 2024.

Kenya’s Green Finance Taxonomy

KGFT has adopted the green European Union Taxonomy for Sustainable Activities as a reference framework, specifically in assessing the substantial contribution criteria for climate change mitigation and adaptation. KGFT seeks to align with Kenya’s National Policy on Climate Finance with regards to climate investment. KGFT is comprised of five (5) parts being: introductory breakdown about the KGFT, User Guidance, Catalogue of Sectors and Activities, Technical Screening and concludes with appendices. At the heart of its formulation is its alignment with international best practice in respect of green finance. This guarantees the users of the taxonomy of its adaptability and alignment with international standards.

Indeed, KGFT’s objective is to first serve as a reference for sustainable progress of the Kenyan economy without social or environmental trade-offs in a bid to increase the consistency of green finance flows and foreign investments. Second, KGFT users can be confident that taxonomically aligned economic activities meet a high threshold of commitment to climate change mitigation and the Kenyan trajectory towards a sustainable economy. Finally, the taxonomy establishes a uniform and transparent performance tracking and reporting mechanism.

There is process for determining taxonomy alignment under KGFT which offer guidance that will help users determine the alignment of their economic activity with KGFT. The expected result is a binary one either taxonomy–aligned or not. Once alignment is assessed based on the details of this screening criteria, taxonomy-aligned financial flows can be calculated and determined. Under KGFT, this determination of taxonomy alignment can be done at an economic activity level. However, taxonomy–aligned finance can only be disclosed at an asset/activity, project, entity, and/or portfolio level.

Ultimately, at the heart of KGFT is its role in contributing to multifaceted sustainable development within the financial sector in Kenya. It is anticipated to provide useful information for measuring, monitoring and reporting on ESG performance and impact of taxonomy– aligned activities.

Kenya’s Climate Risk Disclosure Framework for the Banking

Sector

The Framework issued by CBK was issued against the backdrop of its earlier issued Guidance on Climate–Related Risk Management, and it is complementary to the Green Finance Taxonomy. With this issuance, banks can improve risk management, leading to more informed lending decisions and increased resilience. Transparent disclosures also attract investors seeking sustainable investments, while strategic planning that considers climate risks fosters long-term sustainability.

For investors, the Framework provides the information needed to assess the financial implications of climate change on potential investments. Through the issuance of the Framework, the banking sector in Kenya is well poised to play a pivotal role in fostering a more resilient and sustainable future. The Framework has adopted sophisticated methodologies for risk assessment and management, and has broader reporting requirements such as those set out in the Taskforce on Climate Disclosures (TCFD).

The Framework highlights the exposures of the banking sector’s credit portfolios to “inherent” climate–related risks. These risks can materialize in the short–term, medium–term and/or in the long–term and are largely classified into either physical or transitional risks. With respect to climate governance, CBK has adopted an expectation that is “fit for purpose”. That is ensuring that proper governance structures are in place to properly assess climate–related risks and opportunities, take appropriate strategic decisions to manage them, and determine relevant goals and targets along with progress monitoring mechanisms.

Under the Framework, banks are required to have in place robust governance arrangements that enable them to effectively identify, manage, monitor, and report the risks they are, or might be, exposed to both on an individual and consolidated basis. Whereas this can take several forms depending on the relevant institution’s business model and other factors, there is a requirement on them to demonstrate how their governance body, which can be materialised in the form of a board, committee within the board structure or equivalent body charged with the responsibility of governance and oversight of climate–related risks and opportunities. In doing so, the nexus between the board involvement and management involvement set out in the Framework is achieved.

In formulating their business strategies, institutions are expected to understand the impact of climate–related risks on the business environment in which they operate. The rationale behind climate–related financial disclosures on strategy is to provide a comprehensive understanding of how an entity manages climate–related risks and opportunities.

Ultimately, the Framework presents various opportunities which may be beneficial to Kenya’s financial sector. It presents an opportunity for market discipline and the sustainable strengthening of financial stability of the markets; the broader reporting requirements help in proactive identification and management of risks which impacts decision- making, and the integration of sustainability–related considerations in operational structures.

Upshot

In our previous article on this topic, published in the 20th Issue of this publication, we made a case for the formation of an African sustainable investment alliance in a bid to chart an African way forward as regards the formulation of a harmonised standard on corporate reporting of sustainability within corporate institutions, green finance and climate–related disclosures. This was against the backdrop of the absence of a framework.

Now that KGFT and the Framework have been issued, their integration is important considering that it shall ensure the inflow of finances in the form of investments, and it shall strengthen the alignment with Kenya’s sustainable agenda, all in a bid to ensure Kenya’s financial system is more resilient.

Kenya now has leaped forward within Africa, joining ranks with South Africa and Nigeria; and has taken the bold step to formulate its own standards and frameworks which it shall rely on to guide its financial sector regarding this issue. The implementation of these Frameworks issued by CBK follow a phased approach which ensures institutions have adequate time to transition and adopt robust internal processes. It additionally aligns with ICPAK’s Roadmap for Adoption of Sustainability Disclosure Standards.

Beginning with a voluntary reporting period, which is currently done by the majority of the Tier–1 banking institutions in Kenya, the ultimate goal is to have mandatory reporting and disclosure beginning on or after January 2028. The successful implementation will require collaborative efforts from various stakeholders such as government, regulators, financial institutions and investors.

This is a major development in the sustainable corporate reporting space in Kenya. This now places Kenya on the forefront and trailblazer against fellow African countries in respect of corporate sustainability.

It is bad business for an Award Creditor (one in whose favour an award has been issued) to find itself faced with a pyrrhic victory i.e., an Award that cannot be satisfied on account of an absence of assets belonging to the Award Debtor (the party against whom the Award has been issued). No one wants to throw good money after bad money, not to mention the wasted time and resources that would be involved in what would be a futile exercise.

As such, prior to commencing arbitral proceedings, it is expected that a diligent litigant will have engaged an inquiry agent to establish the existence and adequacy of assets that can be realised to satisfy an arbitral Award obtained in its favour.

Where assets have been identified, monitored and/or preserved during the pendency of arbitral proceedings, enforcement is generally straightforward. Unless there is a setting aside application or other serious legal challenge to enforcement, the process simply involves applying for recognition and enforcement of the arbitral Award in the jurisdiction where the Award Debtor holds assets, followed by the realisation of those assets to satisfy the Award. In some cases, the Award Debtor has assets and realisation of those assets to satisfy the arbitral Award is not difficult. This is the ideal enforcement scenario. However, for a number of reasons, most arbitrations do not necessarily commence in that neat and tidy fashion.

In most cases, diversion of assets or insolvency of the Award Debtor will be discovered at the tail end of the arbitration when an Award has been issued. The reasons for the late discovery of diversion or the insolvency of an Award Debtor could be because there is some sort of urgency in commencing the arbitration and no time to undertake the preliminary steps discussed above; a looming limitations period or time bar; the cost of undertaking an asset inquiry may be prohibitive; or the diversion of assets and insolvency occurs in the course of the arbitration or after the issuance of an Award, amongst many other reasons.

In such a scenario, there are a number of options that may be available to the Award Creditor as discussed below:

  i. Insolvency Proceedings

Insolvency proceedings in Kenya include liquidation, administration, receiverships, Company Voluntary Arrangements (CVA) and Scheme of Arrangement (SOA). On the face of it, insolvency proceedings do not seem ideal as an Award enforcement tool in view of the ranking of creditors, given that the debt arising from an arbitral Award is always considered an unsecured debt and can only be settled after priority debts such as taxes, insolvency costs and secured creditor debts have been settled.

However, insolvency proceedings can prove to be a useful and effective enforcement tool for the disclosure and access to accurate information as to the Award Debtor’s assets and liabilities, including their location. It also allows for discovery of the existence of voidable transactions in the case of fraud or dissipation of assets by the directors of the Award Debtor, which may allow the insolvency practitioner (IP) to pursue the directors personally for the Award or unwind (or claw back) fraudulent or asset-diverting transactions.

However, when considering using insolvency proceedings as an enforcement tool, the following factors should be taken into account:

• The existence of priority or competing creditors vis-à-vis the availability of sufficient assets within the jurisdiction to settle the collective liability of all creditors.
• Whether the country that the award is to be enforced in is a signatory of the New York Convention or the United Nations Trade Commission on International Trade Model Law on Cross-Border Insolvency, which allows for the recognition of foreign insolvency practitioners.
• The type of insolvency proceedings is also a key consideration. For instance in Kenya, unsecured creditors have a better chance of recovery in an administration and CVA process rather than a liquidation or receivership. This is because in administrations, twenty percent (20%) of the assets of the Award Debtor have to be reserved for the unsecured creditors and in CVAs, the priority and ranking of creditors does not necessarily apply.
• The type or the nature of the asset available for realization in satisfaction of an arbitral Award is also an important consideration. If the assets are in the form of proceeds or receivables and unique assets that cannot be sold in whole but may need to be cannibalised, receivership or administration rather than liquidation may be the preferred enforcement mechanism.
• The amount of control that the Award Creditor has over the preferred insolvency process. The more control the Award Creditor has in the insolvency process the more likely it is to achieve its objective to enforce its arbitral award. There is less control over CVA proceedings in comparison to administrations, receiverships and liquidations, as this process is controlled entirely by the Award Debtor’s directors.
• There may be some benefit in first mover advantage i.e., where the Award Creditor is involved in the selection and appointment of the IP rather than relying on another creditor to appoint the IP. This will ensure that the appointed IP is experienced, professional and has a clear understanding of his or her role and obligations and the objectives of the Award Creditor.

One may also consider selecting IPs from the same firm across various jurisdictions to allow for a coordinated approach where the assets of the insolvent Award Debtor are scattered across various jurisdictions.

Other than the foregoing, some other important considerations include: the requirement for leave of the court to commence or continue enforcement proceedings against an insolvent Award Debtor; whether one can commence insolvency proceedings prior to recognition of the award i.e., will it be considered a proven unsecured debt for purposes of ranking; whether the settlement of an arbitral award by an insolvent Award Debtor can be considered an unfair preference; and whether shadow directorships have been created.

One of the ways in which one can attempt to enforce an arbitral award against the assets of a related third party, such as a subsidiary of the Award Debtor, is by placing the parent holding company in liquidation, administration or receivership, which allows the IP to take control of the board of the parent company, which in turn controls the board and assets of the asset or receivable-rich subsidiary.

  ii. Enforcement Against Related Third-Parties

Enforcement against a related third-party can be considered in circumstances where the Award Debtor is a holding company of an asset-rich or receivable-rich subsidiary. However, separate corporate personality is the biggest obstacle to an attempt to enforce an arbitral award against a third-party entity as opposed to an insolvent Award Debtor. Most Commonwealth jurisdictions still uphold the sanctity of the separate corporate personality of a company save in very limited exceptional scenarios.

One of the ways in which one can attempt to enforce an arbitral Award against the assets of a related third-party, such as a subsidiary of the Award Debtor, is by placing the parent holding company in liquidation, administration or receivership, which allows the IP to take control of the board of the parent company, which in turn controls the board and assets of the asset or receivable rich subsidiary.

Courts may also issue tracing, preservation and vesting orders against the assets of subsidiaries or special purpose vehicles (SPVs) of an insolvent holding company that is an Award Debtor on grounds that the funds that were paid by creditors to the Award Debtor were fraudulently invested in the subsidiaries and SPVs and the Award Debtor was merely a shell.

Courts may also pierce the corporate veil of an Award Debtor and its subsidiaries in the case where it can be demonstrated that an Award Debtor fraudulently diverted or transferred its assets to related third party entities just before or in the course of the arbitral proceedings with a view to defeating or frustrating the enforcement of a valid arbitral Award against the Award Debtor.

  iii.  The Appointment of an Equitable Receiver

The Civil Procedure Rules of most Commonwealth countries al- low for the appointment of an equitable receiver over any property of the Award Debtor (assuming that recognition of the Award has been granted and it is now a Decree of the Court) where it is just and equitable to do so. In this case, one may apply for attachment or a charge and collection of dividends of the shares held by the Award Debtor in an asset or receivable rich subsidiary.

Upshot

Based on the foregoing, it is plausible for an Award Creditor to enforce an arbitral Award by instituting insolvency proceedings against the Award Debtor or its asset or receivable-rich related third-parties; and through the appointment of an equitable receiver.

Whatever means of enforcement are eventually resorted to, an Award Creditor is better placed when it has various viable options available to it, as it through the exercise of such options that the fruits of the Award might ultimately be realised.

The world observes World Intellectual Property Day on the 26th of April each year. This year’s theme, “Intellectual Property and Music: Feel the Beat of IP”, highlights the interrelation of legal protection and creativity. Strong and effective intellectual property (IP) laws are crucial as streaming platforms grow, and artificial intelligence joins human artists in music creation. These laws not only support a thriving creative economy but also preserve cultural heritage and ensure fair compensation for artists.

Copyright in Musical Works

Copyright finds its foundational protection in law under the Constitution of Kenya, 2010 as follows:

1. i) Article 260 – which includes IP in the definition of property.
2. ii) Article 40 (5) – where the State is obligated to support, promote and protect the intellectual property rights of the people of Kenya.

iii) Article 11 (2) (a) and (c) – where the State is called upon to promote all forms of national and cultural expression through inter alia, literature, the arts and promote the intellectual property rights of the people.

With constitutional underpinning as set out above, IP is further entrenched into Kenyan law under the Copyright Act, 2001 (the Copyright Act), under which any musical composition and its lyrics are protected automatically from the moment the lyrics are written down, recorded or otherwise reduced to material form. This protection comprises two sets of rights.

Firstly, economic rights allow creators to control the reproduction, distribution, public performance, and digital streaming of their work, ensuring they can earn from broadcasts, downloads, or live performances.

Secondly, moral rights guarantee that the creator’s name remains attached to the work and protects it from distortions or derogatory treatment.

Together, these rights acknowledge that music has both a commercial value and a deeply personal dimension. The Court’s award of KES 4 Million to the well-known artist Nonini for the unauthorized use of his song “We Kamu”, as reported in the Business Today on 6th September 2024, underscores that copyright infringement carries real financial consequences.

Related Rights

Beyond composers and lyricists, Kenyan law also protects the contributions of performers, producers, and broadcasters. Performers i.e., vocalists, instrumentalists, or dancers, can authorise or refuse recordings and broadcasts of their live acts, securing payment whenever those performances are captured. Producers of sound recordings own rights in the resulting phonograms, whether on compact discs or in digital file form. Broadcasters hold rights in their transmission signals, preventing unauthorised retransmission.

By way of example, in Beyoncé’s widely acclaimed 2018 Coachella performance, later streamed globally on Netflix in 2020, her related rights as a performer were fully engaged. She held the exclusive right to authorise the recording and communication of her stage act, so no lawful recording or streaming could occur without her consent and a royalty arrangement. Netflix, as producer and broadcaster, would have secured licences for both the phonogram rights in the audiovisual work and the rebroadcast rights in the transmission signal.

In the Kenyan context, such licences can be administered through Collective Management Organisations (CMOs) such as the Performers’ Rights Society of Kenya (PRISK), which is licenced by the Kenya Copyright Board (KECOBO) established under the Copyright Act, and similar organisations which would collect the agreed fees and disburse them to the artist and any accompanying musicians, dancers or supporting artists.

However, as was recently highlighted by the African Union’s Goodwill Ambassador Nikita Kering at the Africa Creative meeting held in Addis Ababa, performers often struggle with opaque payment systems from CMOs, highlighting the urgent need for greater transparency and accountability within these bodies.

Economic Rationale

IP law seeks to balance two goals: it incentivises artists by granting them exclusive rights for a limited term, typically the author’s life plus fifty (50) years as per section 23 (2) of the Copyright Act, while eventually enriching the public domain once those rights lapse. This approach rewards creativity and encourages further innovation and, at the proper time, makes cultural treasures freely accessible. International Agreements such as the Berne Convention for the Protection of Literary and Artistic Works (the Berne

Convention), to which Kenya is a signatory, and Article 40 (5) of the Kenyan Constitution embrace this balance, recognising IP protection as both a private right and a public benefit.

Creating Value

Owning copyright is just the first step; real value lies in how rights are commercialised. Artists must manage their works strategically by releasing recordings through official channels to prevent piracy, negotiating licences for royalties, and using cross-licensing to expand into new markets. These arrangements, including performance fees, mechanical royalties, and synchronisation licences, help turn musical ideas into sustainable income.

Forms of Exploitation

Musical IP is most commonly monetised through licensing or assignment. A licence allows a rights owner to authorise another party to use the work, such as for streaming, public performance or synchronisation, in exchange for royalties. Exclusive licences give rights to one licensee and exclude others. Sole licences give rights to the licensee while allowing the owner to use the work. Non-exclusive licences allow multiple users at the same time.

Key contractual elements of licenses include precise definitions, clear scope and territorial limits, sub-licensing terms, consideration structures (fixed fees, running royalties or hybrids), confidentiality, and provisions on term, termination, warranties, indemnities, and dispute resolution.

By contrast, an assignment transfers full ownership of IP rights, extinguishing the original owner’s title in return for upfront or ongoing compensation. Cross-licensing, where parties exchange reciprocal rights to each other’s catalogues, enables broader distribution and collaborative ventures.

In all cases, well-drafted agreements help creators and rights holders navigate digital markets, secure sustainable income, and adapt to new distribution models and regulations. CMOs negotiate licences with radio stations, venues, and digital platforms, and allocate royalties based on usage data. Streaming services increasingly use automated systems to track plays and make payments, often through CMOs or direct contracts with rights holders.

Case Law

Recent court decisions have clarified how Kenyan IP law applies in practice. In Music Copyright Society of Kenya v Kenya Copyright Board & Others [2024] KECA 1172 (KLR), the Court considered whether the Music Copyright Society of Kenya (MCSK) was a CMO. MCSK argued that it was not, while KECOBO maintained that licensing as a CMO was necessary for MCSK to administer its members’ rights. The Court ruled in favour of KECOBO, finding that MCSK fits the definition of a CMO under the Copyright Act.

It also held that the collective management framework is a reasonable limit to the freedom of association and the right to property.

The decision highlights the importance of CMOs for the effective management and licensing of copyright works, especially where individual enforcement is impractical. In contrast to rights relating to other creative areas like books and other literary works, musical works are used by many users at different times and places, making individual monitoring and remuneration collection unfeasible.

Direct enforcement of their rights would be beyond the individual right holders, as it would be a logistical horror. The collective management thus provides a practical solution by enabling rights holders to exercise their rights indirectly through CMOs.

In Kimani v Safaricom Ltd & Others [2023] KEHC 20085 (KLR) (the Bamboo Case), the plaintiff, a popular Kenyan artist known as Bamboo, sued over the unauthorised use of his songs “Mama Africa”, “Yes Indeed”, and “Move On”. The High Court held that digital platforms cannot rely on indemnity clauses to shield themselves when distributing unlicensed music. The Court found the defendants had infringed Bamboo’s copyright and awarded him KES 1.5 Million per song as general damages.

The case underscores the need for musicians to secure proper contracts before their works are used, and for distributors to conduct due diligence on licensing. It also affirms that artists whose rights are infringed are entitled to seek legal redress and compensation.

In Omare v Safaricom Limited & another [2024] KEHC 875 (KLR) (the Omare Case), the High Court dismissed gospel musician Moffat Achoki Omare’s copyright infringement claim against Safaricom and Liberty Afrika Technologies. The claim concerned the alleged unauthorised distribution of his songs on the Skiza platform. The Court found that Omare had assigned his performing and mechanical rights to MCSK. MCSK then licensed Liberty Afrika, which licensed Safaricom. This chain of authorisation insulated both companies from liability.

Unlike in the Bamboo case, where the defendants were found liable for distributing works without proof of licence or assignment, the Court found no infringement because the entire authorization process chain of authorisation was properly documented. Omare did not challenge MCSK’s royalty distribution or prove any unauthorized by MCSK nor proved any unauthorised use of his works. The Court dismissed the suit with costs and reaffirmed the legal importance of formal intellectual property assignments.

Outro

Effective protection and strategic exploitation of musical IP underpin both creative vitality and economic success. Through structured licensing, assignments, collective management, and enforcement, rights holders can turn artistry into sustainable income.

Micro, Small and Medium Sized Enterprises (“MSMEs”) are touted as the foundational block of global economy. Indeed, MSMEs play a critical role in acceleration of sustainable growth and innovation in developed and developing economies around the world. To create awareness and highlight the crucial contribution of MSMEs in propelling economic growth, spurring technological innovation and expansion of the job economy globally, the United Nations General Assembly on April 2017 via resolution (A/RES/71/279) designated June 27^th as MSME day.

The MSME day is dedicated to the recognition and uplifting of businesses that form the backbone of global and local economies. This demonstrates the important role MSMEs play in enhancing technological innovation, expanding the economic empowerment space for women, youth and vulnerable groups, enhancing technological innovation, entrenching entrepreneurship culture and mitigation of job creation crisis especially in developing countries like Kenya.

With this perspective as our backdrop, then it is important to appreciate the thinking that informed the theme of this year’s MSME day – enhancing the role of Micro-Small and Medium-sized Enterprises (MSMEs) as drivers of Sustainable Growth and Innovation.

This year’s theme highlights the role of MSMEs as conduits of accelerating sustainable growth and innovation, the theme resonates with the imperative need to create an environment that supports MSMEs to effectively perform their roles, both those in the formal and informal economic sectors and demonstrates MSMEs potential, in pursuit of achieving the United Nations Sustainable Development Goals (SDGs). This, therefore, reinforces the need to create legislative and policy frameworks that are primarily tailored to empower MSMEs and accentuate their role is critical.

This begs the question, how has the role of MSMEs been enhanced in Kenya through legislative and policy frameworks?

Policy and Legislatives Interventions for MSMEs in Kenya

Policy Interventions Background

In Kenya, MSMEs are without any equivocation the bedrock of the economy. According to data from the Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSMEs), MSMEs contribute to about 30% of Kenya’s Gross Domestic Product (GDP), and account for over 90% of business enterprises in the private sector and 93% of the total labour market. These statistics lends credence to the pivotal role MSMEs play in economic development in Kenya, it underscores the importance of pursuing legislative, policy and institutional initiatives that are specifically tailored to enhance the role of MSMEs in pursuit of achieving sustainable growth and innovation.

Kenya has been on trajectory of formulating policy interventions that were designed to enhance the role of MSMEs. A case in point is the Sessional Paper No. 10 of 1965 on African Socialism and its application to planning in Kenya, which was a conceptual framework that led to establishments of Kenya Industrial Estates (KIE). KIEs primary role was to afford promotion of indigenous enterprises through funding and capacity building of MSMEs. The upshot of this was mushrooming of MSMEs in Kenya.

Since then, Kenya has formulated various policies interventions which focus on entrenching recognition of the critical role of MSMEs in spurring economic development in Kenya. The country has had policy papers that assign priority in creation of an enabling business environment for MSMEs in Kenya, through expanding access to funding in the Jua Kali sector, policy interventions that are heavily inclined towards formulating initiatives that enhance inclusion of MSMEs in public procurement, with the objective of creating availability of markets for MSMEs products or services.

On innovation, Sessional Paper No. 2 of 2005 on Development of Micro and Small Enterprises for Wealth and Employment Creation for Poverty Reduction outlined a policy framework that encouraged research with the aim of entrenching uptake of innovation, to enable MSMEs in Kenya scale their share of export and domestic markets in the country. Additionally, on 27th June 2021, the government launched Sessional Paper No. 05 of 2020 on Kenya Micro and Small Enterprises Policy for Promoting Micro and Small Enterprises (MSEs) for Wealth and Employment Creation. This policy framework focuses on technological advancement in the MSEs sphere in Kenya, with the aim of facilitating growth and development of MSEs that can compete efficiently, with their peers in the region and across the world.

The current policy framework Micro, Small Enterprise (MSE) 2020 Policy was formulated with the foresight to address the following challenges that are afflicting MSMEs in Kenya: expanding MSMEs access to the domestic and global market, implementation of programs that are tailored to develop the MSME sector and improving the ease of access to affordable and decent infrastructures among other challenges. Addressing these challenges will have the twin objective of promoting sustainable growth and promoting innovation in line with this year’s theme.

Currently, the State Department for Micro, Small and Medium Enterprises (MSMEs) Development is embarking on consultative process and conducting public participation forums across the country for the draft MSME Policy 2025, which will review the MSME Policy 2020 and propose various amendments to the Medium and Small Enterprises Act, CAP 499C.

In summary, despite the bottlenecks that MSMEs face such as inhibited financial inclusion, poor work conditions, global funding issues, supply chain bottlenecks and political tensions that disrupt business, it is clear that there is an enabling legislative and policy framework in place, designed to enhance the role of MSMEs in sustainable growth and innovation.

Legislative Interventions

Legislative and regulatory support are critical in enhancing the performance of MSMEs to undertake their roles efficiently and effectively while being able to mitigate the various challenges they are faced with.

Kenya has created a legislative environment where MSMEs can sustainably operate with the necessary legal intervention required to assist them navigate the numerous legal and economic challenges at their various stages of their development.

The Impact of the Regulatory Landscape on MSMEsin Kenya

Regulatory compliance is a major challenge for various MSMEs. This process requires the registration and formalization of business entities including entity incorporation, registration of the relevant operational licenses at a governmental and sectoral level.

Excessive regulatory compliance requirements can be a hindrance to the growth and development of MSMEs in Kenya. The multi-layered compliance requirements have the effect of inhibiting the pace of development of enterprises and frustrating the achievement of sustainable growth and innovation. This buttresses the need for legislation and policy that are designed to ease of compliance for MSMEs.

For instance, if an MSME is required to comply with multiple licensing requirements during registration, their competitiveness in the domestic, regional or even global market are inhibited. The need to simplify compliance requirements for MSMEs, cannot be underscored adequately.

However, there have been concerted efforts to ease compliance requirements especially from the MSME perspective.

i)  The Effect of Unified Business Permit (UBP) in expanding the ese of compliance by MSMEs

County governments have implemented the uptake of a Unified Business Permit (UBP) as opposed to multiple business permits, to mitigate against the complexity of navigating compliance requirements by MSMEs.

The use of UBP is a marked departure and reprieve for MSMEs, as previously they had to seek multiple permits with respect to a single entity. The UBP eases compliance of registration of MSMEs by consolidating various permits into a single permit.

The attendant effect of this is that it simplifies business permits registration processes by MSMEs and affords convenience in application of permits. This boosts the functioning of MSMEs and their competitiveness and has the ripple effect of enhancing the role of MSMEs, in attaining sustainable growth and innovation.

ii) Various tax laws changes that afford MSMEs latitude to meet tax obligations

For many MSMEs, especially those operating in the informal or semi-formal sectors, navigating the tax landscape can be daunting and confusing.

However, Kenya has implemented tax changes with the objective of improving tax obligations compliance by MSMEs operating in Kenya, thereby creating a tax environment that is good for development of MSMEs.

In consideration of the fact that the bulk of MSMEs operate in the informal sector without access to formal accounting. For example, Turn Over Tax (TOT) was introduced to facilitate payment of taxes by small business, whose annual turnover is between KES1,000,000 – KES 25,000,000.

TOT simplifies tax compliance for MSMEs, which has the attendant effect of encouraging compliance among MSMEs which previously struggled to navigate complex tax obligations.

Additionally, the Kenya Revenue Authority (KRA) in effort to enhance tax compliance by MSMEs, recently launched the Micro & Small Taxpayers (MST) department. This Department addresses challenges that MSMEs face in complying with their tax obligations, while pursuing the objective of leveraging digital tools in payment of taxes and simplifying tax compliance by MSMEs, while also providing customized tax assistance to MSMEs.

iii)Robust Intellectual Property (IP) laws afford MSMEs Global Competitive Edge

While MSMEs in Kenya continue to innovate and develop original brands, products and software, many do so without taking the necessary steps to secure their intellectual property rights for example, trademarks, patents, copyrights, or trade secret protection. This oversight can result in the loss of competitive advantage or exposure to intellectual property theft and infringement. Having robust intellectual property laws guarantee brand differentiation of products produced by MSMEs and which affords them a competitive edge in the global market.

iv)Data Protection

Regardless of their size of operation, MSMEs are required to comply with the Data Protection Act, CAP 411C, Laws of Kenya. This is particularly critical for businesses engaging in e-commerce or operating digital platforms that collect or process personal data online. Consequently, failure to comply with data privacy obligations can result in regulatory sanctions and erode consumer trust altogether.

v)Access to Finance

While Kenya has pioneered innovative funding platforms such as mobile-based microfinance and fintech innovation, many businesses are unable to fully benefit from them due to the lack of comprehensive legal documentation.

Financing agreements are often inadequately structured, with unclear repayment terms, limited collateral frameworks, or ambiguous shareholder arrangements in equity funding scenarios. Such gaps can potentially deter investors, and lead to contractual disputes.

Conclusion

The 2025 MSME Day reminds us that MSMEs are thriving and reshaping Kenya’s economic future. With supportive legal frameworks and collaborative partnerships, Kenyan MSMEs can continue to drive innovation, foster inclusion, and promote sustainable growth.

At Oraro & Company Advocates we celebrate the resilience and creativity of MSMEs and renew our commitment to providing the legal expertise they need to succeed. We continue to work with entrepreneurs to ensure that they have the opportunity and support to turn their concepts into thriving businesses that uplift families, communities, and the nation at large.