Does Kenya’s Transfer Pricing Regime Apply to My Foreign-Owned Subsidiary?

If your Kenyan company buys from, sells to, borrows from, or pays management fees to its foreign parent or an affiliate, Kenya’s transfer pricing rules apply to that relationship, regardless of the company’s size. There is no small-company exemption. What changes with size is how closely KRA is likely to look, and how much documentation you are expected to have ready.

The Legal Basis for Kenya Transfer Pricing Rules

Kenya applies the arm’s length principle through section 18(3) of the Income Tax Act, supplemented by the Income Tax (Transfer Pricing) Rules, 2006 (Legal Notice No. 67 of 2006, amended in 2011 and 2012). The rules require every related-party transaction, described as a “controlled transaction”, to be priced as if the parties were independent enterprises dealing at arm’s length. The OECD Transfer Pricing Guidelines are not formally binding in Kenya but are routinely relied on by KRA and the Tax Appeals Tribunal for interpretation.

Which Pricing Method Applies

The 2006 Rules recognise five accepted methods for determining an arm’s length price, and a taxpayer chooses whichever is most appropriate to the transaction, having regard to its nature and the function performed by each related party. The Commissioner may also prescribe an alternative method where none of the five can reasonably be applied. In practice, the Tax Appeals Tribunal and KRA have accepted the transactional net margin method, the resale price method, and the comparable uncontrolled price method depending on the facts; there is no single preferred method in Kenya.

Documentation: What You Actually Need to Have Ready

Kenya operates a self-assessment regime for transfer pricing. There is no annual transfer pricing filing requirement for most taxpayers, but Rule 10 requires every taxpayer with related-party transactions to prepare documentation supporting the arm’s length nature of those transactions, and to make it available to the Commissioner on request. That documentation must exist at the time the tax return is filed, not be assembled after an audit notice arrives. Failing to have it in place carries no standalone penalty, but it leaves a company unable to defend its pricing if the Commissioner challenges it, and any resulting adjustment is treated as additional tax under the Rules, attracting the same consequences as underpaid tax generally.

Country-by-Country Reporting: The Larger-Group Threshold

Sections 18B to 18F of the Income Tax Act introduced a three-tier reporting framework for multinational groups above a consolidated turnover threshold of KES 95 billion (broadly aligned with the OECD’s EUR 750 million BEPS Action 13 threshold). Groups above that threshold must file a Country-by-Country Report within twelve months of year-end, together with a CbCR notification, and must also maintain a Master File and Local File in the OECD’s standard format, filed annually with the income tax return. Most foreign-owned Kenyan subsidiaries sit well below this threshold and are not caught by it, but the underlying Rule 10 documentation duty applies regardless of size.

What’s Changing in Kenya Transfer Pricing

KRA published Draft Income Tax (Transfer Pricing) Rules, 2023 intended to replace the 2006 Rules and modernise documentation and method-selection requirements; as of this article, the draft has not yet replaced the 2006 Rules, which remain in force. Separately, the Finance Act 2025 provides for Advance Pricing Agreements, a mechanism allowing a taxpayer to agree its transfer pricing methodology with KRA in advance, in force from 1 January 2026. A subsidiary anticipating a significant related-party restructuring should consider whether an APA is worth pursuing before the transaction, rather than defending the pricing after the fact. For the wider context on structuring a Kenyan subsidiary against a branch, see our guide on Kenya market entry for foreign investors.