New law limits SEZ incentives to employee housing and industrial projects

The government has announced plans to tighten regulations governing Special Economic Zones (SEZs) by withdrawing housing incentives for real estate developers whose projects are not directly tied to employees working within the zones.

Investment Promotion Principal Secretary Abubakar Hassan Abubakar said the proposed amendments in the Business Laws (Amendment) Bill, 2025, will make it clear that only staff housing linked to SEZ enterprises will continue to benefit from fiscal incentives.

“We have seen residential buildings coming up in some SEZs, but our position is that such developments should not enjoy SEZ incentives unless they are meant to accommodate employees working within the zone,” said Abubakar.

The move targets speculative developers who have been putting up commercial and residential projects under the cover of SEZ-linked development, which officials say risks undermining the core objectives of the program.

The new provisions aim to safeguard SEZ incentives so that they support industrial and service enterprises instead of general real estate ventures.

The proposed bill contains five key amendments to the SEZ regime.

Apart from ring-fencing housing benefits, the reforms also address tax stability for investors, admission of specialised educational institutions, support for Business Process Outsourcing (BPO) companies, and expansion of capital gains tax exemptions.

Speaking during the opening of the country’s first SME-focused SEZ, the Kifaru Exim facility at Tatu City, Abubakar noted that the government is keen to ensure local investors gain from incentives under the SEZA Authority.

“This investment solves a critical challenge for SMEs by providing ready industrial spaces and linking them to fiscal incentives available in SEZs. It marks a turning point in building our industrial base and creating jobs for Kenyans,” he said.

The PS further revealed that the government has already introduced 15 key reforms in the SEZ program over the past three years.

The latest round of changes under the Business Laws (Amendment) Bill 2025 is meant to provide clarity on incentives, expand opportunities for outsourcing firms and specialised training institutions, and give investors more predictability.

“The President has directed us to keep refining the SEZ framework to make it globally competitive. Stability of incentives, industrial spaces, and access to financing remain our priority areas,” Abubakar added.

Kenya Association of Manufacturers CEO Tobias Alando welcomed the launch of the Sh500 million Kifaru Exim facility, describing it as a major boost for industrial growth and an opportunity to expand space for small and medium-sized enterprises.