Multinationals face new 15pc minimum tax in fresh crackdown

The government will enforce a minimum 15 per cent tax on large multinational corporations from next year.

This is in line with new Treasury regulations targeting rogue foreign companies accused of reducing their local tax bills by making payments to overseas affiliates.

The tax manoeuver is a widespread vice also known as shifting profits or transfer pricing to avoid paying their fair share of taxes. 

The Income Tax (Minimum Top-Up Tax) Regulations, 2025 and Income Tax (Advance Pricing Agreement) Regulations, 2025, signed by National Treasury Cabinet Secretary John Mbadi and reviewed by The Standard, mark Kenya's most aggressive move yet to combat corporate tax avoidance by global firms operating within the country by ensuring they pay appropriate taxes on their Kenyan operations. 

The regulations implement provisions introduced by the Tax Laws Amendment Act of 2024, which came into effect on December 27, 2024, and set clear timelines and procedures for enforcement. 

"Minimum top-up tax and APA were introduced through the Tax Law Amendment Act of 2024, which came into law on December 27th, 2024," said Samuel Mwaura, a tax partner at Grant Thornton Kenya.

"The intention for Minimum top-up tax was to bring into the tax bracket the multinational entities to at least pay corporate tax in Kenya at a rate of 15 per cent for income generated in Kenya if their global income is at least Sh95 billion in the last 4 years." 

The new rules specifically target profit-shifting strategies that have allowed multinational companies, particularly in banking, ICT, telecommunications, agriculture, technology, pharmaceuticals and consumer goods sectors, to report minimal profits in Kenya despite significant operations.  

Common methods include charging Kenyan subsidiaries inflated fees for intellectual property, management services, or internal loans from related entities in tax-friendly jurisdictions like Mauritius, Luxembourg or the Netherlands. 

Several multinational companies have faced public scrutiny and legal challenges in Kenya for reporting consistent losses or minimal profits despite visible market presence and growing customer bases.  

The new minimum tax ensures these companies cannot reduce their Kenyan tax burden below the 15 per cent threshold, regardless of their internal accounting arrangements. 

"The regulations give guidelines and eliminate any ambiguity in implementation and who qualifies," Mwaura added. 

The regulations establish clear timelines for compliance, with the minimum tax applying to income years beginning January 1, 2025.  

Affected companies must notify the Kenya Revenue Authority (KRA) within specific deadlines and file comprehensive returns detailing their global operations and tax payments. 

Companies meeting the 750 million euro (Sh111 million) global revenue threshold must submit their first top-up tax returns by mid-2026, covering the 2025 financial year.  

The rules provide transitional measures but leave little room for delay, with penalties applying for non-compliance. 

The complementary Advance Pricing Agreement (APA) framework allows companies to get pre-approval for their transfer pricing methods, potentially reducing future disputes with tax authorities. 

"On APA, it is a step in the right direction and will eliminate constant fights with KRA in regards to Transfer Pricing audits where KRA tends to doubt rates applied for multinational on related party transactions," Mwaura explained. 

“Once an advance pricing agreement is agreed between a taxpayer and KRA, then that will stand for a maximum of five years unless the taxpayer has a significant change in business transaction and feels they need to notify KRA to change the agreed pricing.” 

The APA process requires a Sh5 million application fee and mandates detailed documentation, but offers companies certainty for up to five years, reducing the risk of costly audits and disputes. 

Starting January 2025, multinational companies operating in Kenya will therefore face a mandatory 15 per cent minimum effective tax rate on Kenyan operations. 

The regulations include a "substance-based income exclusion" that provides partial relief for companies with substantial payroll costs and tangible assets in Kenya, though these benefits will phase out over 10 years. 

The new tax regime comes as the Kenya Kwanza administration seeks to increase tax revenues to reduce budget deficits and manage its public debt, which has crossed the Sh11 trillion mark.  

The Ruto government has increasingly focused on ensuring multinational companies contribute appropriately to national revenues, particularly as digital businesses expand their presence in Kenya without corresponding tax payments. 

KRA has intensified its focus on transfer pricing in recent years, with several high-profile cases against multinational companies resulting in additional tax assessments. The new framework provides clearer rules but also stronger enforcement mechanisms. 

"Please note the pricing must be agreed by KRA for it to be used in future," Mwaura emphasised, highlighting the KRA's strengthened oversight role.