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[ESTABLISHING A BUSINESS ENTITY IN KENYA]
or digital infrastructure and is verified by the Kenya Revenue Authority during audit. A significant incentive introduced in 2025 is the full exemption from the otherwise applicable 5% withholding tax on dividends paid by NIFCA- certified companies, provided at least KES 250 million of the profits is reinvested in Kenya in the same year of income. Reinvested earnings also benefit from broader dividend exemptions under the regime, markedly improving post-tax cash flows for financial institutions, asset managers, funds, and venture capital vehicles operating within the NIFC. To encourage the establishment of new financial services firms and scale-ups, NIFCA-certified entities that either invest a minimum of KES 3 billion within the first three years or maintain at least 70% Kenyan nationals in senior leadership positions qualify for a graduated corporate income tax rate of 15% for the first three years and 20% for the following four years, instead of the standard resident rate of 30%. Large Category A licensees committing equivalent scale benefit from 15% corporate tax for the first ten years and 20% for the subsequent ten years. The previously broad capital gains tax exemption on transfers of property located in Special Economic Zones has been significantly restricted from 1 July 2025. Only licensed SEZ developers, operators, and enterprises now qualify; financial institutions and other investors holding SEZ real estate in their portfolios are subject to the whole capital gains tax regime on disposal. Tax loss carry-forwards, previously indefinite, are now restricted to five years with effect from 1 July 2025, and capital losses may no longer be offset against future capital gains. Venture capital, private equity, and derivatives funds operating in high-risk or long-gestation sectors are therefore encouraged to accelerate profit realisation or restructure holdings before accumulated losses expire.
The 3% Digital Asset Tax has been repealed and replaced by a broader Significant Economic Presence (SEP) tax regime, effective 1 July 2025, with complete application from 1 January 2026. Non-resident providers of digital or online services, including cloud services, SaaS, online trading platforms, and fintech offerings, are now liable to a 3% tax on gross Kenyan turnover, with no minimum threshold, and must register, appoint a local tax representative, and file monthly or quarterly returns. Finally, in preparation for the OECD Pillar Two global minimum tax rules and to reduce transfer pricing disputes, Kenya introduced a formal Advance Pricing Agreement framework, effective 1 January 2026. Unilateral, bilateral, and multilateral APAs valid for up to five years (with possible four-year rollback) are now available, offering NIFCA-certified entities and multinational financial groups certainty on arm’s-length pricing for intra-group funding, management fees, intellectual property licenses, and derivative transactions. Barriers to entry of an offshore party In the Kenyan jurisdiction, foreign investments are obligated to adhere to the stipulations enshrined within the Investment Promotion Act No. 6 of 2004. The fundamental intent behind the enactment of this legislation is the facilitation and encouragement of investment by means of rendering assistance to prospective investors in securing licenses essential for investment purposes. Furthermore, the Act extends support and provides indispensable incentives to these potential investors. At its core, the Act delineates the prerequisites that must be satisfied to obtain authorisation for investment within Kenya. It thus serves as the authoritative repository of conditions and mandates that individuals or entities must successfully fulfil to garner the privilege of investing within the Kenyan jurisdiction.
ILN Corporate Group – Establishing a Business Entity Series
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