Franchising in Kenya: Legal Essentials for a Thriving Expansion in 2024

Thinking of franchising in Kenya? Don’t overlook the legal essentials that can make or break your success.

Franchising in Kenya: Legal Essentials for a Thriving Expansion in 2024

Franchising has become a powerful engine for business growth across Africa, and Kenya is no exception. With a rising number of international brands establishing a local presence and more Kenyan entrepreneurs embracing franchising, the model is rapidly gaining traction. But how can businesses in Kenya scale efficiently without building from scratch? The answer lies in franchising—an approach that allows firms to leverage trusted brands and proven systems.

However, the road to successful franchising isn't free of challenges. Navigating Kenya's complex legal landscape is crucial to protect intellectual property, remain compliant with tax and competition laws, and safeguard sensitive business data. This article unpacks the legal foundations that aspiring franchisees and franchisors in Kenya must understand to mitigate risks and unlock long-term success.

Understanding Franchise Agreements in Kenya

A franchise agreement in Kenya is a legal relationship where a franchisor—owner of a business system, brand, or intellectual property—grants a franchisee the right to operate under its name. This includes access to trademarks, business methods, products, and quality standards.

While Kenya has welcomed several high-profile international franchises like KFC, Domino's Pizza, McDonald's, Mr. Price, and Baby Shop, the franchise industry remains informally structured. Though a national legal framework is absent, the Kenya Franchise Association (KEFRA) exists to offer guidance and promote best practices.

Starting a Franchise in Kenya: 3 Critical Legal Pillars

1. Franchise Regulation and Contract Law

Kenya currently lacks specific franchise legislation. Instead, franchise arrangements are governed under a variety of existing laws, including:

  • The Law of Contract Act
  • The Competition Act
  • The Consumer Protection Act
  • The Trade Marks Act
  • The Copyright Act
  • The Central Bank Act
  • Intellectual Property Law principles

A key concern is compliance with Section 21(1) of the Competition Act, which prohibits agreements that prevent or restrict competition. If a franchise agreement is found to lessen competition, it may be deemed illegal, and the business risks significant penalties.

Additionally, under Section 31 of the Trade Marks Act, Kenya recognizes "license user agreements," where the franchisee operates as a licensed user of the franchisor's trademark.

2. Franchise Taxation in Kenya

Franchise operations generate various income flows, such as royalties, commissions, and management fees. These attract different tax obligations:

Withholding tax on royalties:

  • 5% for resident franchisors
  • 20% for non-resident franchisors

Technical and professional service fees:

  • 10% for residents
  • 20% for non-residents

VAT (Value Added Tax):

A 16% VAT applies to all franchise services, including those provided by non-residents, in which case it's treated as an imported taxable service, payable by the Kenyan franchisee.

Moreover, Section 33H(1) of the Central Bank Act mandates that any payments between residents and non-residents must be routed through authorized financial institutions.

These tax implications significantly affect royalty structures, especially when agreements do not include gross-up clauses that compensate franchisors for tax deductions.

3. Protecting Intellectual Property and Data

Strong intellectual property (IP) and data protection frameworks are essential in any franchise model to preserve brand identity and ensure legal compliance.

• Trademark and Brand Protection

The Kenya Industrial Property Institute (KIPI) oversees trademark registrations and brand searches. Proper registration gives franchisors exclusive rights for 10 years and the ability to take legal action against infringements.

Franchise agreements should include clauses covering:

  • Trademark use
  • Non-compete obligations
  • Confidentiality
  • Quality control and brand consistency

Franchisors also retain the right to audit franchisees to ensure compliance.

• Enforcement of IP Rights

Trademark infringements, counterfeiting, and misuse of unregistered marks can be prosecuted under the Trade Marks Act and Copyright Act, with remedies including:

  • Monetary damages
  • Injunctive relief
  • Account of profits

These enforcement tools are crucial for franchisors to maintain brand integrity and secure compensation if franchisees breach terms or continue operations after contract termination.

• Data Protection

With the rise of digital commerce, data protection is now central to franchise law. Kenya's Data Protection Act requires all parties to:

  • Handle customer and operational data securely
  • Define how data is collected, shared, and stored
  • Implement protocols for data breach management
  • Ensure lawful cross-border data transfers

A well-drafted franchise agreement should clearly specify data handling responsibilities and compliance expectations for both parties.

Conclusion: The Future of Franchising in Kenya

Kenya's franchise sector has matured significantly in recent years, despite the absence of a dedicated franchise law. Historically dominated by foreign players, the landscape is evolving thanks to stronger intellectual property laws and growing legal awareness among local entrepreneurs.

As the regulatory environment continues to improve, franchising presents a strategic growth opportunity for both domestic and international brands. Businesses that prioritize legal compliance, IP protection, and transparent partnerships are best positioned to thrive in Kenya's dynamic and fast-growing market.

By the editorial team of AfricaFranchise.com