On 7 November 2019, the Kenyan president approved a law of the parliament, the Finance Act of 2019. The act proposes significant changes to various tax laws in Kenya, including the Income Tax Act, the Capital Markets Act and the Banking Law.

Key changes of the act are summarized below:

• Taxation of the digital economy-The Act has introduced a new paragraph under Section 3 of the Income Tax Act, which states that income generated through a digital marketplace is chargeable to tax and is effective from 7 November 2019.
• Dividends distributed out of untaxed gains or profits-The law has clarified that income that is exempt under the Income Tax Act will not be subject to any further tax if dividends are distributed from such income.
• Non-resident ship owners to pay tax on demurrage charges-The Act amended ITA by introducing a provision under Section 9 (1) which clarifies that all income of a non-resident ship owner, including demurrage, falls within the scope of the taxable income of a non-resident ship owner.
• Income of a resident person or a nonresident person with a permanent establishment (PE) in Kenya-The Act amended the type of income deemed to have accrued or been derived from Kenya by removing demurrage charges and adding a reinsurance premium.
• Thin capitalization-The Income Tax Act has been amended in Section 16(2)(j) by introducing a provision that excludes companies implementing projects under the affordable housing scheme from the interest deductibility restrictions because of thin capitalisation. This provision will be applicable from 1 January 2020.
• Companies operating a plastics recycling plant will be considered to a reduced corporate income tax rate of 15% for the first 5 years upon commencement of its operations.
• The proposal included in the Finance Bill 2019 to hike the rate of capital gains tax from 5% to 12.5% has been dropped. Therefore, capital gains tax (CGT) rate to be maintained at 5%.
• The exemption from CGT on transfers of property where the transfer is (a) a legal or regulatory requirement, (b) a result of a directive or compulsory acquisition by the government, (c) a case of a group reorganisation and restructuring where there is no third party involved or (d) in the public interest and approved by the CS Treasury, has been retained.
• Tax exemption extended to investee companies of Real Estates Investment Trusts (REITs).
• Section 72D of the Income Tax Act, which provided for a penalty of 20% on late payment of tax, has been repealed.