The document is an updated version of the Kenya Income Tax Act, which incorporates major changes introduced by the Finance Act 2025. These amendments focus on expanding the tax base through digital and virtual economy taxes, revising corporate tax structures, and providing targeted incentives for local manufacturing and affordable housing.

Taxation of the Digital Economy and Virtual Assets:

• Virtual Asset Tax: A significant introduction is a 10% tax on income derived from the transfer or exchange of virtual assets (e.g., cryptocurrencies). This is classified as a "Virtual Asset Tax" and is separate from capital gains tax.

• Digital Service Tax (DST) Evolution: The scope of DST is broadened to explicitly cover services provided through digital marketplaces by non-residents, with specific clarifications on the taxability of digital content and platform subscription fees.

Corporate and Business Taxation:

• Minimum Top-up Tax: In line with global tax standards (OECD Pillar Two), a minimum top-up tax has been introduced for large multinational enterprises (MNEs) with annual revenues exceeding EUR 750 million to ensure they pay an effective tax rate of at least 15%.

• Loss Carry Forward: The restriction on the period for carrying forward tax losses (previously 10 years) has been removed, allowing businesses to carry forward losses indefinitely until they are fully utilized.

• Investment Allowance: Enhanced investment deductions of 100% are available for capital expenditure on hotel buildings and buildings used for manufacture, provided the investment is at least KES 2 billion.

Employment Income and Personal Relief:

• Affordable Housing Relief: Taxpayers who are eligible for the Affordable Housing Levy are granted a tax relief of 15% of their contributions, capped at KES 108,000 per year.

• Post-Retirement Medical Fund: Contributions made by an employee to a post-retirement medical fund are now deductible from their taxable income, up to a limit of KES 15,000 per month.

• Mileage Reimbursement: Standard mileage rates for reimbursement of employees using personal vehicles for official business are now exempt from tax, provided they follow the rates approved by the Automobile Association of Kenya.

Withholding Tax (WHT) Changes:

• Digital Content Monetization: Withholding tax on payments made to digital content creators (influencers, YouTubers, etc.) is set at 5% for residents and 20% for non-residents.

• Management and Professional Fees: The Act clarifies that WHT on management and professional fees applies to all payments made to non-residents, regardless of whether the services were physically rendered in Kenya.

Incentives and Special Regimes:

• Special Economic Zones (SEZ): Enterprises operating within SEZs continue to enjoy a preferential corporate tax rate of 10% for the first 10 years and 15% for the next 10 years.

• Family Trusts: Income of a registered family trust is now exempt from income tax, provided the trust is established for the purpose of maintaining the family of the settlor or for educational and medical purposes.

Administration and Compliance:

• Country-by-Country (CbC) Reporting: The Act strengthens the CbC reporting requirements for ultimate parent entities of MNEs headquartered in Kenya, requiring them to file detailed reports on their global allocation of income and taxes.

• Interest Ceiling: The "Thin Capitalization" rules have been refined; interest expense is deductible only up to 30% of EBITDA, with any excess interest being carried forward to subsequent years.