The Finance Act, 2026 has significantly expanded Kenya’s Capital Gains Tax (CGT) regime by bringing into scope gains derived by non-residents from the disposal of shares that derive their value from Kenya. The amendment also applies where an offshore transaction results in a change in the ownership of, or interest in, property located in Kenya or the group membership of a Kenyan resident company.
The intention behind the amendment is to bring into tax taxpayers who creatively use offshore transactions to silently transfer the ownership of companies or properties situated in Kenya without drawing the attention of the taxman.
However, the provision is drafted broadly. Unlike other provisions of the Eighth Schedule, it does not prescribe a minimum value threshold. As a result, a non-resident disposing of shares in an offshore company could be subject to Kenyan CGT simply because that company is associated with a Kenyan subsidiary or property, regardless of how insignificant the Kenyan investment may be. By contrast, other jurisdiction like India has since moderated their rules to exclude genuine commercial transactions which includes exclusion of small shareholders. The Kenyan provision fails to give these limitations hence giving it a broader reach as compared to international precedents.
Uncertainty and Double Taxation
The amendment also provides no guidance on how gains should be apportioned where only part of the value of the offshore company is attributable to Kenya. This creates uncertainty and increases the risk of double taxation, particularly where the gain is also taxed in the investor’s country of residence or in the jurisdiction where the transaction occurs.
For multinational groups with layered ownership structures, offshore share transfers, often undertaken several levels above the Kenyan entity, may unexpectedly trigger Kenyan tax obligations. More importantly, unsuspecting non-resident investors may find themselves within Kenya’s CGT net simply because the shares they are disposing of derive some value, however remote, from a Kenyan entity. In many cases, such investors may have no direct dealings in Kenya and may be unaware that their offshore transaction has Kenyan tax implications.
What Businesses Should Do
Multinational groups with Kenyan operations should closely monitor changes in the ownership of their non-resident shareholders and assess whether offshore restructurings or share transfers could have Kenyan CGT implications. This is particularly important because the Commissioner may appoint the Kenyan entity as a tax representative under Section 15A of the Tax Procedures Act and require it to account for the CGT, together with any applicable penalties and interest.
As demonstrated in the case of Naivas Kenya Limited v Commissioner of Domestic Taxes, The Tax Tribunal allowed an appointment of a Kenyan operating company to collect taxes as a representative of Its Mauritian parent company for sale of offshore shares. This means that Kenyan company may ultimately bear the responsibility of accounting for tax arising from transactions undertaken by its non-resident associates. Businesses should therefore establish governance procedures to track changes in ownership across the group and ensure that any Kenyan tax implications are identified and addressed before cross-border transactions are implemented. Failure to do that means that a Kenyan entity might be left to bear the burden of accounting and pay penalties and interests for its non-resident associates.
The Way Forward
As Kenya seeks to protect its tax base and curb the use of offshore structures for tax avoidance, it is equally important that the tax laws enacted are clear, targeted and proportionate. The objective should be to address the intended tax risk without inadvertently bringing within the tax net genuine commercial transactions or unsuspecting taxpayers.
As the courts have previously observed, tax legislation should not operate like a trawler that sweeps up everything in its path. Rather, it should be carefully crafted to target the specific transactions it seeks to regulate, thereby safeguarding revenue while promoting certainty, fairness and investor confidence.
For further guidance on how these changes may affect your business, please contact CMC Advocates.
