On 8 July 2022, the Kenyan Finance Act 2022 was gazetted which was signed into law by the President on 21 June 2022. The law introduced a number of changes to the transfer pricing regulatory framework in Kenya that will have far-reaching implications for Kenyan taxpayers.
The Act amended Section 18(A) of the ITA to expand the scope of transactions within the scope of transfer pricing legislation in Kenya. Effective January 1, 2023, transactions between residents and the following individuals who are in a preferred tax regime is required to carry out such transactions at arm’s length price – i. a related resident; ii. a non-resident person; iii. an affiliate of a non-resident person; and iv. a permanent establishment of a non-resident person.
The Act repealed and replaced Section 18B of the Income Tax Act which was added by the Finance Act 2021 for the introduction country-by-country (CbC) reporting requirements for ultimate parent companies of multinational corporations in Kenya that exceed a prescribed gross turnover threshold. The Finance Bill 2022 introduces a new Section 18B, as well as new Sections 18C, 18D, 18E and 18F that provide more detailed CbC reporting requirements, as well as master and local file requirements.
The CbC report, local file and master file requirements apply to returns for income year 2022 and subsequent years of income.
