Corporate tax for Kenyan businesses changed more in 2025 and 2026 than in the previous decade combined, and several of the changes carry real penalty exposure for companies still working off older assumptions. The headline corporate income tax rate itself is stable, but the compliance mechanics around it, transfer pricing, electronic invoicing, and a new minimum tax for large multinational groups, have shifted substantially, and the cost of getting them wrong has gone up.

The Basic Framework

The standard corporate income tax rate is 30% for resident companies and, since the repeal of the older 37.5% branch rate, also 30% for non-resident companies operating through a Kenyan branch or permanent establishment. A resident company is taxed on its worldwide income, including profits from business carried on partly outside Kenya, which the Income Tax Act deems to have accrued in Kenya in full where the business is carried on partly within and partly outside the country. A non-resident company without a Kenyan branch is taxed only on Kenyan-sourced income, typically collected through withholding tax rather than a corporate return. Preferential rates exist for specific categories of investment: manufacturing companies can access a reduced 15% rate under qualifying conditions, Special Economic Zone enterprises get 10% for their first ten years and 15% after that, and Export Processing Zone companies get a ten-year tax holiday followed by a 25% rate.

Withholding Tax: The Part That Actually Catches Businesses Out

Withholding tax is where most disputes and penalties originate, because the rate depends on both the type of payment and the residence of the recipient, and getting either wrong creates liability for the shortfall. Dividends paid to residents attract 5% withholding tax, rising to 10% for non-residents. Interest paid to a non-resident attracts 15%. Royalties and management or professional fees paid to a non-resident attract 20%, against only 5% for the equivalent payment to a resident. A business that withholds the resident rate on a payment that should have attracted the non-resident rate remains liable to the Kenya Revenue Authority for the shortfall, plus interest and penalties, regardless of what was actually agreed with the payee. Double taxation agreements can reduce these rates, but only where a DTA with the recipient’s country of residence is actually in force, so the rate cannot simply be assumed from the general treaty network without checking the specific agreement applies to the specific payment type.

Transfer Pricing and the New Advance Pricing Agreement Regime

Kenya applies the arm’s length principle to related-party transactions, but enforcement has become considerably more formulaic. Interest-free loans from a non-resident related party are not tax-free: the KRA applies a prescribed deemed interest rate, currently 8% for the first half of 2026, and charges 15% withholding tax on that deemed amount even though no interest was actually paid. Interest deductions for foreign-controlled entities are capped at 30% of EBITDA. Deductions for management and administrative fees paid to a related party now face a “benefit test” requiring the local entity to demonstrate specific economic value received, rather than the older, looser “wholly and exclusively” standard, and a branch is more restricted than a subsidiary in this respect since a branch cannot deduct internal recharges from its own head office at all. For groups wanting certainty on transfer pricing methodology rather than litigating it after an audit, an Advance Pricing Agreement regime became available from 1 January 2026, covering up to five years and requiring a non-refundable application fee of KES 5 million together with a mandatory pre-filing meeting with the Commissioner of Domestic Taxes.

eTIMS: The Compliance Change With the Sharpest Teeth

As of 1 January 2026, an expense that is not backed by a valid eTIMS-compliant invoice, transmitted in real time by the supplier, is disallowed in full when computing taxable income, regardless of whether the underlying payment was genuine and properly documented in every other respect. This is a mechanical, automatic disallowance rather than a discretionary audit finding, and it interacts badly with withholding tax compliance: a business that correctly withholds tax on a payment but cannot produce a valid eTIMS invoice for the underlying expense loses the deduction anyway, which inflates taxable profit and the resulting tax bill. Businesses should treat supplier eTIMS compliance as a condition of doing business, not a bookkeeping detail, since the financial consequence of getting this wrong now lands on the buyer’s tax return rather than the non-compliant supplier.

The Domestic Minimum Top-Up Tax for Large Groups

Kenya has adopted a Qualified Domestic Minimum Top-Up Tax, a partial implementation of the OECD’s Pillar Two framework, applicable to Kenyan entities that are part of a multinational group with consolidated annual turnover of at least EUR 750 million in at least two of the preceding four years. Where such a group’s Kenyan entity has an effective tax rate below the 15% global minimum, a top-up tax applies to bring it up to that floor. The first payments under this regime are expected around 30 April 2026 for groups with a 31 December year end. This will only affect a small number of large multinational groups operating in Kenya, but for those it does affect, it is a new, non-negotiable compliance obligation layered on top of the ordinary corporate tax return.

Practical Points for Structuring and Compliance

A few recurring mistakes account for most avoidable tax exposure: failing to register for the correct tax within the required timeframe, missing quarterly instalment payments, treating withholding tax as satisfied by deduction alone without confirming the eTIMS documentation trail behind it, and assuming a DTA rate applies without checking the treaty is actually in force and covers the specific payment. Businesses investing in Kenya through EPZ, SEZ, or manufacturing incentive regimes should also confirm the qualifying conditions attaching to the preferential rate are genuinely met on an ongoing basis, not just at the point of initial approval, since these regimes typically carry conditions that can be reviewed. For businesses already structured around EPZ manufacturing incentives, see our guide to pharmaceutical manufacturing licensing and EPZ incentives, and for oil and gas sector-specific tax rules, see our guide to oil and gas exploration licensing. Businesses evaluating the tax treatment of a cross-border acquisition or restructuring should also see our guide to mergers and acquisitions, since transfer pricing and withholding tax exposure often surface for the first time during acquisition due diligence rather than at the point a group first sets up in Kenya.

For advice on corporate tax structuring, transfer pricing documentation and Advance Pricing Agreements, eTIMS compliance, and cross-border withholding tax planning, consult our corporate and commercial practice. We advise businesses across Kenya from our offices at Nextgen Mall, Nairobi.