Kenya's Finance Bill 2026 introduces sweeping tax reforms, including expanded digital taxation, stricter multinational compliance, increased rental income tax to 10%, new excise duties on luxury goods and mobile phones, cryptocurrency regulation, and a tax amnesty for historical debt settled by 31 December 2026.
Kenya’s government released the Finance Bill, 2026, proposing amendments across key tax laws, including the Income Tax Act (Cap. 470), VAT Act (Cap. 476), Excise Duty Act (Cap. 472), Stamp Duty Act (Cap. 480), Tax Procedures Act (Cap. 469B), and the Miscellaneous Fees and Levies Act (Cap. 469C).
The proposed legislation covers a wide range of measures affecting individuals, corporations, and non-resident entities.
Corporate tax compliance and filing requirements
The Bill introduces specific measures for non-resident entities and multinational corporations. A new non-resident rental income tax has been established for income derived from Kenyan property. This will be a final tax, requiring non-residents to register through a simplified framework and pay the tax by the 20th day of the following month.
Multinational compliance
Transfer pricing regulations are becoming more stringent. The Bill refines the definition of an “ultimate parent entity” to better identify the top-tier constituent of a multinational group. This alignment ensures that Country-by-Country reports accurately reflect group ownership and interest, closing loopholes in cross-border profit shifting.
Strategic incentives and repatriation
To encourage investment, the non-resident tax rate for repatriated income for specific licensees and contractors has been set at 15%. Conversely, the corporate tax rate for non-resident companies in certain categories has been adjusted from 37.5% to 30%.
Corporate and sectoral tax changes
The corporate tax rate for non-resident petroleum contractors drops from 37.5% to 30%, aligning with the standard rate. Meanwhile, a new 15% tax applies to repatriated income earned by non-resident mining operations with permanent establishments in Kenya.
Two preferential treatments have been eliminated: The 5% withholding tax rate on dividends paid to East African Community citizens, and the exemption for national carriers paying non-residents for specialised technical services.
Expanded tax base and new definitions
The definition of “royalty” has been broadened to capture payments for digital platforms, payment networks, card schemes, and related systems. This includes fees for access, participation, or usage rights, whether periodic or transaction-based. Regular payments for software distribution will also fall under this category.
Capital gains tax now extends to non-residents selling shares that derive value from Kenya or result in changes to the group membership of Kenyan-resident companies.
Rental income and withholding taxes
Residential rental income tax increases from 7.5% to 10% of gross monthly receipts. The government has also reintroduced a 20% withholding tax on winnings and a 1.5% rate on scrap metal transactions for both residents and non-residents.
Foreign landlords now face direct tax obligations, requiring registration, return filing, and payment by the 20th of each month, supplementing existing tenant withholding mechanisms.
VAT and dividend distribution rules
VAT exemptions are being removed from digital financial services—including payment processing and merchant acquiring—as well as from construction materials for tourism facilities, recreational parks, and affordable housing projects. However, scrap metal transactions gain a VAT exemption.
New deemed dividend rules require tax authorities to treat at least 60% of a company’s after-tax profits as distributed to shareholders if the company hasn’t made distributions within 12 months of the year-end.
The bill also clarifies that non-deposit taking institutions qualify for exemption from the 30% EBITDA interest deduction restriction when engaged in “lending or leasing business, or both.” Additionally, the 10% capital deduction for industrial buildings must now be claimed in equal annual instalments over the asset’s lifespan.
Luxury, pollution, and the “activation” tax
A 25% excise duty will be charged on the excisable value of telephones for cellular and wireless networks. Uniquely, this tax is not due at the point of sale but at the time of the activation of the phone.
Targeting “sin” and luxury goods
The Bill revises rates for tobacco and luxury items:
- Cigars and cigarillos: KES 18,000 per kg.
- Manufactured tobacco substitutes: KES 12,550 per kg.
- Antique and classic vehicles: For vehicles at least 30 years old and valued over KES 10 million, a staggering 50% excise duty is proposed.
- Sugar-sweetened juices: Fruit and vegetable juices with added sugar will attract a duty of KES 20 per litre, while unfermented juices without added sugar stay at KES 14.14 per litre.
Environmental levies
To discourage pollution, coal will now attract an excise duty of 5% of its excisable value, and certain plastic articles (tariff 3923.30.00) will be taxed at 10%.
Stamp duty and virtual currency
The Bill officially brings the world of crypto into the tax net. Virtual Asset Service Providers (VASPs) are now required to file annual information returns regarding their users. Failure to file these returns carries a heavy penalty of KES 1 million per instance.
Property and REITs
In a move to boost the real estate sector, the Bill provides a Stamp Duty exemption for the transfer of beneficial interest in property into a Real Estate Investment Trust (REIT). Similarly, capital gains relating to such transfers are also exempt from income tax.
Amnesty and automation
Taxpayers struggling with historical debt have been given a lifeline. The tax amnesty for interest and penalties on tax due before 31 December 2025 has been extended. If the principal tax is paid by 31 December 2026, all associated penalties and interest will be waived.
To simplify compliance, the Commissioner is now authorised to use technology to generate prepopulated tax returns. While this makes filing easier, the Bill also introduces a strict penalty for failing to comply with electronic tax systems (like electronic invoicing), which can be as high as two times the value of the tax due.
