The Finance Act, 2026 introduces the below changes to the Income Tax Act:
1. Updated Definitions (Section 2)
The Act updates several key terms to capture digital transactions
-Management or Professional Fee: Now explicitly includes interchange fees and merchant service fees from transactions using a card for payment
-Royalty: The definition is completely replaced to include payments for access, participation, or usage rights in a proprietary digital payment card network or platform, regardless of whether the payment is periodic or transaction-based
2. Employment Income (Section 5)
-National Carrier Exemption: Income of non-residents employed by or engaged through a designated national carrier (resident air transport operator) is not deemed to accrue in Kenya if it relates to duties performed outside Kenya and the carrier’s international operations
-Gratuity Exemption: Contributions to a gratuity are excluded from gains or profits if the contract of service is for at least three continuous years (or extended beyond three years) and the amount does not exceed 31% of the emoluments earned during that period
3. New and Adjusted Tax Heads
-Non-Resident Rental Income Tax (Section 6B): A new final tax is imposed on non-residents deriving income from Kenyan property. They must register via a simplified framework and remit the tax by the 20th day of the following month
This does not apply if the rent is already subject to the standard withholding tax
-Repatriated Income (Ninth Schedule): The non-resident tax rate for repatriated income by mining licensees and petroleum contractors is set at 15%
-Winnings and Scrap Metal: These are added as specific categories of income deemed to accrue in Kenya
4. Trust and Estates (Section 11)
-Section 11 is repealed and replaced with a simplified regime:
Trustee Liability: Income received by a trustee, executor, or administrator is deemed the income of that person
-Single Taxation: Qualifying dividends or interest included in the trustee’s income are not subject to further tax, and beneficiaries are not liable for tax once the trustee has paid tax on the chargeable income
5. Corporate and Business Taxation
-Non-Resident Corporate Rate: The corporate rate for a non-resident company with a permanent establishment is reduced to 30%
-Bad Debt Guidelines: For banks and financial institutions, “bad debts” now include the principal, interest, and any other related amount, provided they follow Commissioner-issued guidelines
-Investment Deficits: Investors who had invested at least Ksh. 10 billion before July 1, 2025, can treat deficits as having occurred in the 2025 year of income and may apply deductions beyond the standard five-year limit until the deficit is extinguished
-Lending and Leasing: Clarifies that interest restriction rules apply to entities involved in “lending or leasing business, or both”
6. Capital Gains Tax (CGT)
-Non-Resident Share Alienation: A new category of taxable gains is introduced for non-resident persons alienating shares that derive value from Kenya or result in a change of group membership or ownership of property in Kenya
-REIT Exemption: Capital gains relating to the transfer of property to a registered Real Estate Investment Trust (REIT) are now exempt
7. Administrative and Compliance Changes
These changes largely take effect on January 1, 2027:
-Individual Return Deadline: Individuals must furnish returns and self-assessments by the last day of the fourth month following the end of the year of income (typically April 30th)
-Corporate Return Deadline: Non-individual taxpayers must file by the last day of the sixth month following the end of their accounting period
8. Revised Withholding Tax (WHT) Rates (Third Schedule)
-Scrap Metal: A WHT of 1.5% of the gross amount is introduced for both resident and non-resident sellers
-Winnings: A WHT of 20% is imposed on winnings for both residents and non-residents
