The Finance Act, 2026 introduces important changes to Kenya's tax and compliance framework. Although the legislation does not amount to a broad increase in headline tax rates, its practical effect is significant.
The changes create new tax points, expanded reporting obligations, stronger tax-administration powers and additional compliance requirements affecting ordinary commercial transactions.
The most significant areas include:
Withholding tax on specified card-payment and merchant-service fees
A new tax regime for non-resident rental income
Expanded capital gains tax exposure on offshore transactions involving Kenyan assets or value
New reporting obligations for virtual asset service providers
Changes affecting VAT, outsourced labour and exempt supplies
New documentation requirements for importers
Pre-populated tax returns and enhanced KRA data-driven compliance
A tax amnesty for qualifying historical tax debts
Changes affecting multinational groups, transfer pricing and country-by-country reporting
Tax incentives and exemptions affecting certain investments, including qualifying REIT structures
Most of the principal provisions took effect on 1 July 2026, while certain import-document requirements begin on 1 September 2026 and specified changes to individual tax returns take effect on 1 January 2027.
The most important change is not simply the amount of tax businesses may pay.
The Act increasingly makes data, documentation, systems and transaction processes part of tax compliance itself.
A business may calculate its principal tax correctly and still face exposure because:
an information return was incomplete;
a withholding-tax obligation was allocated incorrectly;
required customs documentation was not retained;
a KRA-generated return was accepted without reconciliation;
or contractual arrangements failed to reflect the applicable tax treatment.
The practical implication is clear:
Businesses should translate the Finance Act 2026 into changes to contracts, payment workflows, accounting systems, reporting procedures and internal compliance controls.
The Act therefore requires attention from more than the tax department. Boards, finance teams, legal teams, procurement, compliance, technology and operations may all need to respond.
1. Withholding Tax on Card-Payment Fees
The Finance Act, 2026 expands the definitions of certain payments that may attract withholding tax.
Specified payments relating to proprietary digital payment card networks, interchange fees and merchant-service fees may now fall within withholding-tax provisions.
The applicable rates identified in the article are:
5% for resident recipients
20% for non-resident recipients
(subject to applicable double-taxation treaty relief.)
Who should review this?
Particular attention is required from:
1. Banks
2. Payment service providers
3. Fintech companies
4. Merchants
5. Card-network participants
6. Businesses making cross-border payments
Businesses should map their payment flows and review contractual provisions dealing with withholding tax, gross-up obligations, tax residence and treaty relief.
2. New Tax Rules for Non-Resident Rental Income
The Finance Act introduces a specific final tax regime for non-resident rental income from property situated in Kenya.
A non-resident property owner is required to register under the applicable framework and file and pay the tax monthly, generally by the 20th day of the following month.
The statutory rates identified in the article are:
30% of gross rent for immovable property
15% of gross rent for movable property
The precise registration and filing mechanics remain an area requiring further KRA implementation guidance.
Why this matters for property investors
Foreign property owners should establish:
Who receives the rental income?
Whether a resident agent is involved.
Whether withholding tax has already been accounted for.
Who is responsible for monthly filing.
What documentation demonstrates compliance.
A foreign investor should not assume that appointing a Kenyan property manager automatically eliminates its own compliance obligations.
3. Offshore Transactions and Capital Gains Tax
The Act broadens the Kenyan tax nexus relevant to certain offshore disposals.
This could affect transactions involving:
Kenyan subsidiaries
Kenyan assets
multinational groups
investment funds
acquisitions
disposals
restructurings
mergers
demergers
refinancing transactions
A Kenyan tax review should therefore be incorporated into transactions involving offshore share transfers where there is a Kenyan connection.
The article also highlights the need to examine tax treaties, beneficial ownership, exemptions and anti-avoidance rules rather than assuming that an offshore transaction is outside Kenyan tax.
4. Virtual Assets and Cryptocurrency Businesses
The Finance Act 2026 is particularly significant for Kenya's growing digital-asset sector.
The tax framework must be considered alongside the Virtual Asset Service Providers Act, 2025, including licensing, AML/CFT, consumer protection and data-governance requirements.A tax registration is not the same thing as a VASP licence, and obtaining a VASP licence does not eliminate separate tax-reporting obligations.
VASP reporting obligations
From 1 July 2026, qualifying virtual asset service providers are subject to annual information-reporting requirements covering reportable users and controlling persons.
The framework also provides for international exchange of virtual-asset information.
This means VASPs need robust systems for:
customer identification;
tax residence;
controlling-person information;
wallet attribution;
transaction records;
AML/CFT compliance;
data protection;
& cross-border information handling.
The article notes significant statutory penalties for failures involving information returns.
5. VAT Changes Affecting Outsourced Labour
The Act changes the treatment of certain employee-related costs incurred by labour-outsourcing and employee-placement providers.
Where qualifying payroll costs are treated as disbursements, VAT applies to the service fee rather than automatically applying to the entire payroll pass-through.
Businesses should therefore ensure that their:
contracts;
invoices;
payroll arrangements;
& accounting systems.
clearly distinguish employee costs from the provider's service fee.
6. New Import Documentation Requirements
From 1 September 2026, importers will face an additional documentation requirement relating to export declarations or equivalent customs documentation.
The document should be retained for the prescribed period.
This is particularly relevant to:
importers;
manufacturers;
procurement departments;
customs agents;
& international suppliers.
Businesses should incorporate the required documentation into their procurement and customs-clearance processes before the September commencement date.
7. KRA Prepopulated Tax Returns
The Finance Act introduces a stronger data-driven compliance environment.
KRA may generate tax returns using information available to it, with taxpayers required to review, confirm or amend the information within the applicable statutory framework.
Businesses should therefore not automatically approve pre-populated returns.
Instead, taxpayers should reconcile KRA's information against:accounting records;invoices;bank records;tax invoices;withholding certificates; andother supporting documentation.
This creates a new compliance requirement around data accuracy and reconciliation, not simply tax calculation.
8. Tax Amnesty for Historical Tax Debt
The Finance Act 2026 introduces a tax-amnesty window covering qualifying historical tax debt.
The identified period runs from:
1 July 2026 – 31 December 2026
and applies subject to the statutory conditions.
Businesses with historical tax liabilities should therefore assess whether they qualify before the deadline, rather than assuming that the opportunity will remain available indefinitely.
9. Changes Affecting Multinational Groups
Multinational businesses should review:
transfer pricing;
country-by-country reporting;
ultimate-parent-entity status;
intercompany agreements;
beneficial ownership;
group reorganisations;
Kenyan tax nexus;
& supporting documentation.
Transfer-pricing compliance should not be treated as a year-end exercise.
The underlying legal ownership, commercial substance, intercompany arrangements, benefit tests and financial reporting should remain consistent throughout the year.
The most important part of this article should be the action section.
Finance Act 2026 Compliance Checklist
1. Conduct an impact assessment - Create a provision-by-provision register identifying:the relevant provision;affected transactions;commencement date;responsible person;required system change; andevidence required for compliance.
2. Review payment flows - Reassess:card payments;technology services;cross-border services;dividends;rental payments; andother payments potentially subject to withholding tax.
3. Review commercial contracts - Pay particular attention to:tax gross-up clauses;withholding provisions;tax cooperation clauses;residence certificates;invoicing provisions;change-in-law clauses; anddata-sharing obligations.
4. Review tax systems and data - Ensure that accounting and operational systems can capture the information required for new reporting obligations.
5. Review historical tax debt - Determine whether the business qualifies for the current tax-amnesty framework before the 31 December 2026 deadline.
6. Review offshore transactions - Any restructuring, acquisition, disposal or refinancing involving a Kenyan subsidiary or asset should receive an appropriate Kenyan tax review.
7. Train internal teams
The changes should be understood across:
Legal | Finance | Tax | Procurement | Compliance | Technology | Operations
The Act's requirements do not sit within one department.
Some aspects of implementation require further regulations or KRA guidance.
The article identifies particular areas including:
the detailed registration and filing mechanics for non-resident rental income;
virtual-asset information-return formats;
automatic exchange of virtual-asset information;
certain excise-duty implementation matters.
Businesses should therefore distinguish between what the legislation already requires and matters that remain dependent on future regulations or official guidance.
The Finance Act, 2026 should not be treated simply as another annual tax-rate update.
Its practical impact reaches into contracts, payment systems, investment structures, tax reporting, data governance, property ownership, international transactions and operational controls.
For businesses operating in Kenya, the appropriate response is to identify the provisions that apply to their transactions and convert them into concrete changes to contracts, systems, reporting calendars, transaction processes and compliance controls.
Early review is likely to be significantly more effective than attempting to correct compliance problems after they arise.
ELK Advocates advises businesses, investors and institutions on complex transactions, disputes and regulatory matters across Africa.
Our lawyers combine local knowledge with cross-border expertise to provide practical, commercially focused legal solutions.
Need advice on how the Finance Act 2026 affects your business?
