Service Agreement (Kenya)

A Service Agreement in Kenya defines the scope of work, fees and deliverables governing the provider's services to the client.

A Kenya Service Agreement is distinct from a contract of employment. The Employment Act No. 11 of 2007, which is the primary legislation governing employment relationships in Kenya and is administered by the Ministry of Labour and Social Protection, applies only where the service provider is an employee. An independent contractor providing services under a Service Agreement is not entitled to the protections of the Employment Act — minimum wage, leave entitlements, redundancy pay, or NSSF and NHIF contributions — unless a court or tribunal recharacterises the relationship as employment based on control, integration, and economic reality tests developed in Kenyan case law. The distinction is critical and the Service Agreement should expressly state that the relationship is one of independent contractor and client.

The Kenya Revenue Authority (KRA) under the Income Tax Act Cap. 470 and the Value Added Tax Act No. 35 of 2013 treats service providers and employees differently. A service provider operating as a sole proprietor or company must declare service income and pay tax as applicable. Where the service fee exceeds KES 24,000 per month, the client may be required to withhold 5% Withholding Tax on payments made to an individual resident service provider under the Income Tax (Withholding Tax) Rules, and remit it to KRA through the iTax portal. Service providers registered for VAT under the Value Added Tax Act No. 35 of 2013 must charge 16% VAT on taxable services.

Intellectual property created in the course of providing services is governed by the Copyright Act Cap. 130 as amended. Under Section 31 of the Copyright Act Cap. 130, copyright in a commissioned work — a work created by an independent contractor at the request and expense of a client — vests in the commissioning party unless there is an agreement to the contrary. A Service Agreement in Kenya should expressly address the ownership of intellectual property developed during the engagement to avoid disputes after termination.

The Consumer Protection Act No. 46 of 2012 administered by the Competition Authority of Kenya (CAK) imposes requirements on service suppliers dealing with consumers — including prohibitions on unfair contract terms, misleading representations, and unconscionable conduct. Where the client is a consumer (an individual acquiring services for personal use), the CAK has jurisdiction to investigate and sanction unfair terms in a standard-form Service Agreement.

The Data Protection Act No. 24 of 2019, administered by the Office of the Data Protection Commissioner (ODPC), applies where the service provider processes personal data on behalf of the client. In such cases the Service Agreement must include data processing terms setting out the purpose of processing, security measures, data breach notification obligations, and the rights of data subjects under Section 26 of the Data Protection Act No. 24 of 2019.

Competition law considerations apply to certain Kenya Service Agreements. The Competition Act No. 12 of 2010, administered by the Competition Authority of Kenya (CAK), prohibits agreements between service providers that restrict, prevent, or distort competition — for example, market-sharing arrangements or agreements that fix prices for services. Exclusive dealing provisions and post-termination non-compete clauses in Service Agreements are subject to CAK scrutiny where the parties have market power. The CAK has jurisdiction to investigate and sanction anti-competitive provisions under the Competition Act No. 12 of 2010 regardless of whether the parties are domiciled in Kenya. Additionally, the Public Procurement and Asset Disposal Act No. 33 of 2015, administered by the Public Procurement Regulatory Authority (PPRA), requires that all government entities procure services through competitive tendering and execute written contracts that comply with PPRA standard form terms. Non-compliance with the PPRA framework by a government entity or a service provider can render the contract voidable and expose the contracting officer to personal liability under the Act.

A Service Agreement in Kenya is required whenever one party engages another to perform professional or technical services and the parties wish to record the scope, fees, and obligations in a legally enforceable document.

A Service Agreement is needed when a business engages an independent contractor — a consultant, IT developer, designer, accountant, or logistics provider — to perform a defined project or ongoing services. Without a written agreement, the scope of work, fee structure, and intellectual property ownership are undefined, creating disputes that must be resolved under the general principles of the Law of Contract Act Cap. 23, which may not reflect the parties' actual intentions.

A Service Agreement is required when the engagement involves confidential information — trade secrets, client lists, financial data, or proprietary processes. A written Service Agreement with a properly drafted confidentiality clause provides contractual protection enforceable under the Law of Contract Act Cap. 23 and supports a claim for an injunction from the High Court of Kenya in cases of threatened breach.

A Service Agreement is needed when the client and service provider have different expectations about deliverables, timelines, and fees. A clear written scope of work prevents scope creep — the addition of uncompensated work — and provides the documentary basis for a variation order or change request process.

A Service Agreement is required when the engagement involves the creation of intellectual property — software, marketing materials, designs, reports, or other copyright works. The Copyright Act Cap. 130 as amended allocates copyright to the author by default; a written Service Agreement is the only mechanism by which the client can secure ownership of works created by an independent contractor.

A Service Agreement is needed for KRA compliance. The Kenya Revenue Authority requires service providers earning income to declare that income under the Income Tax Act Cap. 470. A written Service Agreement provides documentary evidence of the nature of the income — service fees rather than employment income — for tax classification purposes. It also supports the client's VAT input claim where the service provider charges VAT under the Value Added Tax Act No. 35 of 2013.

A Service Agreement is required when the services are procured by a government entity or parastatal under the Public Procurement and Asset Disposal Act No. 33 of 2015, administered by the Public Procurement Regulatory Authority (PPRA). The Act requires written contracts for all government procurement above the threshold set in the Public Procurement and Asset Disposal Regulations 2020, and the contract must incorporate mandatory clauses on anti-corruption, conflict of interest, and audit rights.

A Kenya Service Agreement under the Law of Contract Act Cap. 23 must include the following essential elements to be enforceable and commercially complete.

Parties and Identification: Full legal names, addresses, and KRA PINs of the service provider and the client; for corporate parties, the BRS registration number and registered office address; and the date of the agreement.

Scope of Services: A precise description of the services to be performed — either in the body of the agreement or in a Schedule of Services — including deliverables, milestones, and any services expressly excluded. Vague scope descriptions are the most common source of contract disputes in Kenya and should be avoided.

Fees and Payment Terms: The fee structure — fixed fee, time-and-materials at an agreed daily or hourly rate, or milestone-based payments; the currency (Kenya Shillings (KES) or USD); payment due dates; invoice requirements; and the late payment interest rate under the Law of Contract Act Cap. 23. Where the service provider is VAT-registered under the Value Added Tax Act No. 35 of 2013, the agreement should state whether fees are exclusive of VAT, and the applicable rate is 16%.

Withholding Tax: The agreement should acknowledge that where required by the Income Tax Act Cap. 470, the client will withhold 5% Withholding Tax on payments to a resident individual service provider and remit the withheld tax to KRA, providing the service provider with a withholding tax certificate for income tax credit purposes.

Term and Termination: The commencement date, the duration of the engagement or the completion milestone, the notice period required to terminate for convenience, and the consequences of termination — including fees for work completed to date, return of materials, and survival of confidentiality obligations.

Intellectual Property: Ownership of pre-existing intellectual property (background IP retained by each party) and new intellectual property created during the engagement (foreground IP assigned to the client under Section 31 of the Copyright Act Cap. 130 as amended, or licensed where assignment is not appropriate).

Confidentiality: Mutual obligations to keep the other party's confidential information secret during and after the engagement; permitted disclosures (legal advisers, employees on a need-to-know basis); and the post-termination duration of the confidentiality obligation.

Data Protection: Where the service provider processes personal data on behalf of the client, the data processing terms required under the Data Protection Act No. 24 of 2019 and the Data Protection (General) Regulations 2021, including the lawful basis for processing, security measures, sub-processor controls, and data breach notification within 72 hours to the ODPC.

Indemnity and Limitation of Liability: The service provider's indemnity for claims arising from negligence or wilful misconduct; the client's indemnity for claims arising from the client's instructions; exclusion of consequential loss; and a cap on aggregate liability typically set at the total fees paid under the agreement.

Governing Law and Dispute Resolution: The agreement is governed by the laws of Kenya. Disputes may be resolved by mediation before the Nairobi Centre for International Arbitration (NCIA) mediation service, arbitration under the Arbitration Act No. 4 of 1995, or litigation before the Commercial Division of the High Court of Kenya. The forms-legal.com Kenya Service Agreement template includes all mandatory provisions under the Law of Contract Act Cap. 23 and the Data Protection Act No. 24 of 2019.

Non-solicitation and non-compete provisions are often included in Kenya Service Agreements to protect the client's business interests after the engagement ends. A post-termination non-solicitation clause prevents the service provider from approaching the client's employees or customers for a defined period. Under Kenyan common law as received through the Law of Contract Act Cap. 23, restrictive covenants are enforceable only to the extent that they are reasonable in scope, duration, and geographic area, and protect a legitimate business interest. Unreasonably wide restrictions will be severed or struck down by the High Court of Kenya under the restraint-of-trade doctrine. A 12-month non-solicitation of key employees and a 6-month non-solicitation of active clients are generally considered reasonable in the Kenyan market.