Before registering a limited company in Kenya, its important to know how much it will cost you to run the same company. It costs money to just own a company with no registered office. Having this knowledge in handy will prepare a new entrepreneur on what to expect.
I will not delve into the cost of registering business because it variable and is done once. However, you can see a breakdown of business registration costs on the Business Registration Service portal.
In this blogpost, I will share with you the cost of running a a registered limited company in Kenya. The information I will be sharing is based on my experience running a company Trendline Network Limited for now 5 years. Trendline Network Limited is a videography company based in Nairobi.
In the year 2019 towards the end, I closed down our physical offices and started operation from home little before Covid lockdown came. In the year 2020, we did only one job. It was the lowest year in business and we made only losses.
Operation costs
So, how did I manage the costs as the only remaining director of the company?
First thing I did was deciding to handle business the freelance way. I paid whoever worked with me per task completed and not per month. This thus gave me a space to continue looking for business opportunities while maintaining the company. When you go this route, you will save money and still maintain good relationship with your team.
While business have not looked up yet, I have saved time and money.
Let’s dive in further and breakdown company operation costs. Here is a list.
Tax and Accounting Costs
Limited company is an independent entity with its own Tax PIN. You as the director is therefore responsible for any activity that takes place within your company. You have to ensure that everything is accounted for. If you succeed to get business with a large organization, the company will expect you to charge them VAT.
While KRA maintains that only registered traders with an annual turnover of KShs. 5 million and above are required to charge VAT. And that, there are instances where a person with less than KShs. 5 million is allowed to register on a voluntary basis, you will find your company forced to register for this obligation in order to get business with reputable organization.
VAT obligation is the price you have to pay. When you have VAT obligation under your PIN, you will be required to remit tax monthly before 20th even if you had zero transaction during the month. According to KRA, ‘failing to comply is an offence subject to a penalty of Ksh 10,000 for every tax period failure occurs. This is in addition to other penalties prescribed in law.
Good news is, you can do this yourself or you can hire someone to do it for you. If you hire, it will cost anything from Ksh.500-3000 a month. Annually, this translates to between Ksh.6000-36,000 annually.
Audit Cost
Annually, you company needs to be audited in order to remit income tax. This gives you an upper hand in getting business through the tendering process. One of the mandatory requirements when tendering is having audited accounts ready.
This is for the purposes of remitting annual income tax. Depending who you are dealing with and the amount of work required, the minimum cost I have paid an auditor was Ksh. 10,000. This was when the annual sales was less than Ksh. 50,000.
So when you combine this with Tax and accounting cost, it will cost a minimum of Ksh.16,000 annually.
Tendering Cost (For Those Who Get Business Through Tendering )
On average, when you download and print a tender online, it costs between Ksh.150-250 to print based on the number of pages. You will have to make copies and attach various documents, bind and submit. At the end, you will spend between Ksh.500-1000 to have the tender document ready for submission.
You will also have to gather for transport cost or employ courier services to deliver the tender document. This will cost Ksh. 200-500 within Nairobi area and more outside.
If you apply for 4 Tenders a month, you will spend a minimum of Ksh.2400. This is on occasions where you are doing everything yourself with no assistant.
Conclusion
Its important to note that there are other additional costs of running a business like renting a office space, paying for business permit, paying annual fees for membership to various professional entities like media council of Kenya, The society of professional consultants e.t.c.
I hope this post sheds a light on the basic cost of running and operating a registered company in Kenya without a physical location.
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Until next time, take care.
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