Kenya's Parliament will review proposed tax reforms that could save businesses millions by exempting internal corporate restructuring from capital gains tax, provided ownership proportions and shareholder relationships remain unchanged.
Kenya’s National Assembly is set to consider new legislation that would eliminate capital gains tax on internal company reorganisations, potentially saving businesses millions in restructuring costs.
The Income Tax (Amendment) Bill, 2026, tabled on 2 April 2026 by Member of Parliament Kimani Kuria, proposes significant changes to how corporate asset transfers are taxed when companies reorganise their internal structure.
What qualifies as an internal reorganisation
Under the proposed law, an internal reorganisation means restructuring a company’s ownership or control without transferring property to external parties. The bill specifically targets situations where companies need to redistribute assets among existing shareholders or restructure subsidiary relationships.
For the tax exemption to apply, companies must meet strict conditions. Property transferred to shareholders must be distributed proportionally based on their existing shareholding percentages immediately before the transfer. If shares are being transferred, they must relate to a subsidiary of the transferring company.
Key tax relief provisions
The Income Tax (Amendment) Bill, 2026, introduces this definition to facilitate tax-free corporate restructurings under specific conditions.
The following provisions and requirements apply:
- Exemption from capital gains tax: the Bill seeks to amend the Eighth Schedule of the Income Tax Act to exempt the transfer of property from a company to its shareholders from capital gains tax, provided it is part of an internal reorganisation. This exemption also extends to the transfer of property back to the company by shareholders as consideration for that initial transfer.
- Proportionality requirement: For the exemption to be valid, the property must be transferred to the shareholders in proportion to their existing shareholding in the company immediately before the transfer occurs.
- Subsidiary shares: If the property being transferred consists of shares, those shares must relate to a subsidiary of the company that is undertaking the transfer.
- Not deemed a distribution: The Bill further clarifies that a transfer of property meeting these reorganisation criteria shall not be deemed a distribution for the Income Tax Act.
