Kenya Tax Reform 2025 Key Changes Every CFO Must Know

Kenya's tax landscape is undergoing significant reform, with the Finance Act 2024 introducing changes that every CFO and tax director in the country needs to understand and respond to. This analysis highlights the most critical provisions and their practical implications for corporate taxpayers.

Corporate Income Tax: Key Changes

The most significant change for corporate taxpayers is the revision to the deductibility of management and professional fees paid to non-resident associates. The Kenya Revenue Authority has significantly tightened the documentation required to support the deductibility of these payments, and is increasingly challenging arrangements where fees are paid without demonstrable substance in the recipient jurisdiction.

CFOs should ensure that all intercompany service arrangements are underpinned by written agreements, clear descriptions of the services provided, evidence of delivery, and pricing that is consistent with the arm's length standard. Arrangements that cannot meet this standard face the risk of disallowance on audit.

Digital Services Tax: Enhanced Enforcement

Kenya's digital services tax — applicable to non-resident companies providing digital services to Kenyan users — has been strengthened with new enforcement provisions. The KRA has enhanced its ability to detect and pursue non-compliant foreign digital service providers, and has issued updated guidance on the scope of the tax.

Kenyan companies that use digital services from non-resident providers should review their withholding tax obligations carefully. The obligation to withhold and remit tax on payments for digital services from non-resident providers rests with the Kenyan payer.

VAT: Treatment of Financial Services

The Finance Act 2024 has clarified the VAT treatment of certain financial services, with implications for banks, insurance companies, and other financial institutions. The Act has also introduced changes to the VAT refund process, with new timelines and documentation requirements that claimants should review carefully.

Transfer Pricing: Strengthened Documentation Requirements

Kenya's transfer pricing regulations have been updated to bring them closer to OECD guidelines. Multinationals operating in Kenya must now maintain a three-tiered documentation structure: a master file, a local file, and country-by-country reporting (for groups above the CbCR threshold).

The KRA has significantly increased its transfer pricing audit activity, and is showing particular interest in cross-border royalty payments, management fee arrangements, and the pricing of goods transfers within multinational groups. CFOs should ensure that their transfer pricing documentation is current, defensible, and consistent with the group's global transfer pricing policy.

What CFOs Should Do Now

The breadth of changes in the Finance Act 2024 makes a comprehensive tax health check essential for all corporate taxpayers. This should cover corporate income tax compliance and documentation, VAT compliance including any refund claims, transfer pricing documentation adequacy, digital services tax obligations, and withholding tax on cross-border payments.

Organisations that identify gaps should develop a prioritised remediation plan — addressing the highest-risk areas first. Early voluntary disclosure of errors, where appropriate, can significantly reduce the penalties and interest that arise on KRA audit.