KENYA Law and Practice Contributed by: Ombo Malumbe, Jack Ong’anya and Faith Ngarama O’Bang Law (Ong’anya Ombo Advocates LLP)
providers deriving income from Kenyan users without a local permanent establishment. The Kenya Revenue Authority (KRA) maintains an aggressive focus on the classification of payments to prevent tax leakage. A primary area of scrutiny is “management and professional fees”, which attract a high 20% WHT for non-residents, leading the KRA to frequently challenge service agreements that might be used to repatriate profits under lower-taxed labels. Furthermore, the KRA strictly enforces “deemed inter - est” on interest-free loans from non-resident-related parties, calculating a market-based rate to apply the 15% WHT. Compliance is now heavily monitored through eTIMS data validation, ensuring that busi - nesses can only claim deductions for outbound pay - ments if they have properly remitted the required with - holding tax. 4.2 Key Treaty Jurisdictions for Inbound Investment Kenya presently has 14 active double tax agreements (DTAs). Other DTAs are either under consideration, negotiation, or have been concluded but not signed and ratified. These DTAs are essentially meant to man - age the possible taxes applied on cross-border trans - actions. The country receiving the tax is influenced by factors such as IP structuring for licensing, accessibil - ity to investors, and socio-political factors. Therefore, an entity is advised to assess its commercial interest before exploring the structures under DTAs. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices A DTA’s use is limited to the parties to that DTA. A per - son needing any consensus with the Commissioner on an item where a DTA does not apply will have to reach out directly to the Commissioner. This is even more important where there is a grey area and the use of a DTA, or international agreement, will help in providing a solution. 4.4 Transfer Pricing Issues for Inbound Investors As of 2026, the biggest hurdle is that the Kenya Rev - enue Authority (KRA) now strictly scrutinises “intra - group” payments like management fees, royalties, or loans between a parent company and its Kenyan
subsidiary. To avoid expensive audits and disputes over whether these prices are “fair” (the arm’s length principle), the government has introduced advance pricing agreements (APAs). For a KES5 million fee, a company can now pre-agree on its tax prices with the KRA for five years, providing total legal certainty. However, the trade-off is much heavier paperwork: large companies must now file three detailed annual reports (master, local, and country-by-country files) to prove they are not hiding profits, with the KRA using eTIMS to cross-check these transactions in real time. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements As of 2026, the Kenya Revenue Authority (KRA) no longer accepts “limited risk” labels at face value. Instead, they use a “substance over form” rule to ver - ify if a local company’s daily activities truly match its low-risk contract. If a company claims to be low risk to justify low profits but actually manages its own mar - keting or inventory, the KRA will reclassify it as a “full distributor” and tax it on much higher profit margins. To gain certainty, businesses can now pay a KES5 mil - lion fee for a new APA, which secures their tax position for five years and prevents these challenges. 4.6 Local Transfer Pricing Rules and OECD Standards While Kenya is not a formal member of the OECD, it is an active participant in the OECD/G20 Inclusive Framework on BEPS and has fully aligned its laws with international standards. As of 2026, the KRA pub - lished Draft Income Tax (Transfer Pricing) Rules, 2023, to replace the existing 2006 Rules, but as of 2026, those draft rules have not yet been gazetted and the Income Tax (Transfer Pricing) Rules, 2006, remain the operative instrument. A major precision for this year is the launch of the APA regime, which allows investors to pre-agree on their tax pricing with the KRA for up to five years (subject to a KES5 million fee). Furthermore, Kenya now enforces the OECD’s three-tiered report - ing – master file, local file, and country-by-country reports – to ensure maximum transparency in cross- border transactions.
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