Kenya has brought into force the Income Tax (Transfer Pricing) Rules, 2026, setting binding guidelines for determining arm’s length prices in transactions between related or connected persons and revoking the Income Tax (Transfer Pricing) Rules, 2006.
Kenya’s Income Tax (Transfer Pricing) Rules, 2026 (the 2026 TP Rules) took effect on 12 August 2026, replacing the Income Tax (Transfer Pricing) Rules, 2006 (the 2006 TP Rules).
The rules were made by Cabinet Secretary for the National Treasury John Mbadi Ng’ongo. He acted under section 18(8) read with section 130 of the Income Tax Act (Cap. 470). Their stated objective is to provide binding guidelines for determining arm’s length prices in transactions between related or connected persons.
Scope of the rules
Under Rules 4 and 5, the rules apply to transactions specified under sections 18, 18A, 18B, 18C, 18D, 18E and 18F of the Act. Transactions subject to price adjustment include:
- the purchase, sale, transfer or use of tangible or intangible property;
- the provision or receipt of services;
- long-term or short-term borrowing, lending, guarantees, marketable securities, advance or deferred payments, receivables, or any business debt;
- all related-party insurance and reinsurance arrangements;
- business restructurings or reorganisations entered into with a related person, regardless of any immediate or future tax impact; and
- cost distribution arrangements, derivative transactions and any other transaction affecting profit or loss.
Approved methods
Rule 6 requires taxpayers to select and apply the most appropriate method, based on the nature of the transaction, the class of transaction and the functions performed. The approved methods are the Comparable Uncontrolled Price (CUP) Method, the Resale Price Method, the Cost-Plus Method, the Profit Split Method and the Transactional Net Margin Method (TNMM).
The Commissioner may also approve any other method if none of these five can determine an arm’s length price.
The rules contain a special provision for imported or exported commodities, covering agricultural, mineral, gas and oil commodities and derivatives, that have publicly quoted market prices. The publicly quoted price on the shipping date is used as the taxable sale price. That price is calculated as the 31-day average of publicly quoted prices, covering 15 days before and 15 days after the shipping date.
Where the actual agreed contract price is higher than the publicly quoted price for exports, or lower for imports, the agreed price applies in calculating taxable income.
Documentation and disclosure
Under Rules 8 and 9, taxpayers engaging in controlled transactions must develop an arm’s length transfer pricing policy, compute transfer prices accordingly and maintain comprehensive supporting documentation. All documentation must be prepared in, or translated into, English at the time the transfer price is established.
On request, taxpayers must submit detailed documentation to the Commissioner, including:
- the global organisation structure, the identities of connected persons, descriptions of transactions, currency, contractual terms, and signed copies of contracts and agreements;
- a detailed analysis of functions, assets and risks for all parties, comparable search procedures, the rationale for selecting or rejecting comparables, and comparability adjustments;
- the justification for the selected transfer pricing method, the selection of the tested party, key pricing drivers such as location savings, intangibles and market premiums, and the reasons for any multi-year analysis;
- audited annual financial statements, segmented financial reports showing allocation keys, turnover and costs, financial data of foreign tested parties, and schedules linking transfer pricing data to the annual accounts; and
- details of any foreign Advance Pricing Agreements, together with third-party reselling agreements and invoices for commodity exports.
Compliance and enforcement
Under Rules 10 and 11, the provisions of the Tax Procedures Act (Cap. 469B) on fraud, failure to furnish tax returns and underpayment of tax apply directly to transfer pricing. Any tax due and unpaid under a transfer pricing arrangement is deemed additional tax under section 38 of that Act.
