The 2025/2026 Kenyan Finance Act: A Complete Breakdown of Tax Changes for Businesses

Tax Compliance Kenya

For businesses in Kenya, tax compliance Kenya has become more important than ever. The 2025/2026 Finance Act introduces critical changes across corporate tax, VAT, PAYE, digital services tax, and transfer pricing rules. These updates have far-reaching implications for companies of all sizes — from SMEs to multinational corporations.

Failing to comply with these changes can lead to hefty penalties, interest charges, and reputational risk. Staying proactive and informed ensures that businesses remain compliant while optimizing their tax planning strategies.

At Adamjee Auditors, we help businesses across Nairobi, Mombasa, Kisumu, Nakuru, and other regions maintain tax compliance in Kenya. Our services, including audit and assurance, tax compliance, bookkeeping, payroll, and CFO advisory services, provide expert guidance on the full spectrum of financial and regulatory requirements.

Key Tax Updates and Amendments for 2025/2026

The Finance Act 2025 brings multiple updates that directly affect tax compliance in Kenya. Companies must update their systems, policies, and reporting practices to remain compliant.

Corporate Income Tax Changes

• Resident companies: 30% corporate tax rate remains.

• Non-resident companies: 37.5% corporate tax continues.

• Minimum top-up tax: Newly introduced for companies with very low taxable income relative to turnover.

• Loss carry-forward: Restrictions apply to certain business categories; supporting documentation is required.

Example: A Nairobi SME with a taxable loss of KES 2 million must ensure the loss qualifies for carry-forward under the new rules. Failure to do so could increase their effective tax liability.

VAT Amendments & e-TIMS

• VAT now applies to non-resident digital services providers.

• Electronic Tax Invoice Management System (e-TIMS) is mandatory for real-time invoicing.

• VAT-exempt categories clarified; businesses must update accounting software to comply.

Practical Tip: Integrate bookkeeping and invoicing systems with e-TIMS to avoid penalties. Our Bookkeeping for Small Business and Payroll Services Kenya ensure seamless integration.

PAYE (Pay As You Earn) Scale Revisions

• PAYE brackets updated to reflect inflation and statutory changes.

• Non-taxable per diem allowance increased from KES 2,000 to KES 10,000 per day.

• Certain gratuity payments under private schemes are now exempt from tax.

Example: An employee sent on a week-long project from Nairobi to Kisumu can receive up to KES 70,000 per diem tax-free. Payroll systems must reflect this accurately to maintain compliance.

Transfer Pricing & Related Party Rules

• Broader definition of related persons affects intra-group transactions.

• Mandatory Country-by-Country Reporting (CbCR) for multinationals.

• Introduction of Advance Pricing Agreements (APAs) to mitigate audit risk.

Adamjee Auditors helps companies align transfer pricing policies with KRA requirements, ensuring tax compliance Kenya.

Excise and Stamp Duty

• Revisions on excise duties for luxury and environmentally sensitive items.

• Updates to exemptions and capital allowance rules.

Example: Companies importing luxury vehicles must recalculate excise duties under new rates to avoid fines.

Understanding Your Business’s Core Tax Obligations

Maintaining tax compliance Kenya requires clear understanding of monthly, quarterly, and annual obligations.

Monthly Obligations

• PAYE remittances and reporting via KRA iTax.

• VAT filings and e-TIMS updates.

• NSSF & NHIF contributions.

• Housing levy remittance.

• Withholding tax obligations on resident and non-resident payments.

Quarterly and Annual Obligations

• Filing of corporate income tax returns.

• Submission of audited financial statements.

• Transfer pricing documentation and CbCR for multinational groups.

• VAT reconciliation to ensure accurate reporting.

Non-compliance costs: penalties, interest, audits, and reputational damage.

Adamjee Auditors provides guidance and audit representation to reduce compliance risk.

Sector-Specific Implications

• SMEs and startups: Simplified per diem, PAYE updates, and VAT registration thresholds.

• Multinationals: Transfer pricing compliance, CbCR, and APA documentation.

• Exporters and importers: Excise duty, certificates of origin, and digital services tax compliance.

Essential Bookkeeping Practices

• Maintain clean and auditable records for all tax categories.

• Leverage automated payroll systems to reflect per diem and PAYE updates.

• Monthly reconciliation ensures data accuracy before KRA submissions.

• Maintain documentation for audits, including invoices, contracts, and transfer pricing records.

Frequently Asked Questions

1. What is the KRA iTax portal?
   An online system for filing returns, paying taxes, and reporting compliance.

2. When is corporate tax due?
   Six months after financial year-end.

3. What records are needed for a KRA audit?
   Invoices, payroll, transfer pricing documents, board minutes, certificates of origin.

4. Does the Finance Act increase corporate tax rates?
   No, the focus is on compliance and expanding the tax base.

5. How should SMEs handle the new per diem allowance?
   Reflect the KES 10,000 limit in payroll systems and maintain supporting documentation.

Partner with Kenya’s Trusted Tax Advisors

Proactive planning and expert guidance ensure compliance and strategic growth. Adamjee Auditors provides audit, tax, bookkeeping, payroll, and CFO advisory services tailored for Kenyan businesses.

Contact us today: Contact Adamjee Auditors

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