Introduction
The Finance Act 2025/2026 was assented to by the President and introduced meaningful amendments across Kenya's tax legislation. This article summarises the key changes that businesses must factor into their tax planning and compliance calendars.
Corporate Income Tax Changes
Minimum Top-Up Tax
Kenya has enacted the Qualified Domestic Minimum Top-up Tax (QDMTT) in alignment with the OECD Pillar Two global minimum tax framework. Large multinational entities with consolidated annual revenues exceeding EUR 750 million will be subject to a minimum effective tax rate of 15%.
Digital Economy Levy
The Significant Economic Presence (SEP) tax has been restructured. Non-resident digital service providers with annual revenues from Kenyan users exceeding KES 5 million are subject to a 3% turnover tax withheld at source.
VAT Amendments
- The threshold for mandatory VAT registration has been increased from KES 5 million to KES 8 million annual taxable supplies
- New exemptions have been introduced for several categories of agricultural inputs and medical equipment
- The reverse charge mechanism has been extended to additional categories of imported services
Employment and PAYE
- The Tax Bands have been adjusted for inflation — employees earning up to KES 32,333 per month are now in the lowest bracket
- The affordable housing levy remains at 1.5% of gross salary with a matching employer contribution
- NSSF Tier II contributions are now fully deductible for both employer and employee
Next Steps for Businesses
We recommend all businesses undertake a Finance Act impact assessment to quantify their revised tax obligations. Our advisory team is available to assist with modelling the impact of these changes on your effective tax rate.