Kenya

Each company in a group is taxed as a separate entity in Kenya.

Transfer pricing

A company that has related-party transactions is required to ensure such transactions are at arm’s-length. The company is therefore required to prepare transfer pricing documentation to justify the pricing arrangements. The Commissioner is allowed to specify conditions and procedures on the application of the methods for determining the arm's-length price and to adjust the prices if they do not conform to the arm’s-length principle. The documentation should be prepared and submitted to the KRA upon request.

Country-by-country (CbC) reporting

The Finance Act, 2022 introduced rules for preparation and filing of CbC notification, CbC reports, as well as Master and Local Files by members of multinational enterprise (MNE) groups operating in Kenya.  

The CbC rules are broadly aligned to the OECD’s BEPS Action 13, dealing with transfer pricing documentation, which recommend a three-tiered approach consisting of a CbC report, Master File, and Local File in preparation of transfer pricing documentation as a measure to promote tax transparency by MNE groups.  

The CbC filing requirements will apply to MNE groups with a gross turnover of more than KES 95 billion. The threshold is consistent with the threshold of EUR 750 million contained in the OECD’s BEPS Action 13 report as it is the KES near equivalent to EUR 750 million as at April 2022. However, it is noted that the KES has depreciated since April 2022. 

The rules for preparing and filing CbC reports became effective from 1 July 2022 and apply to MNE groups with years of income ending after 1 July 2022. For MNE groups with a December year-end, the first CbC report will apply for the 2022 year of income and will be due for filing by 31 December 2023.

In September 2022, Kenya signed on to the Multilateral Competent Authority Agreement on Exchange of County-by-Country Reports (commonly referred to as the CbCR MCAA). This is a framework to facilitate automatic exchange of CbC reports. For the CbCR MCAA to become effective, individual jurisdictions, such as Kenya, are required to trigger bilateral exchange relationships in order for members of the MNE group based in Kenya to be exempted from local filing of the CbC reports.

Currently, as part of the CbCR MCAA framework, there are 69 active bilateral exchange relationships between Kenya and other jurisdictions. This means that, where the CbC report is filed by the parent company or another designated entity in any of the jurisdictions that are part of the CbCR MCAA framework and have activated exchange relationships with Kenya, the member of the MNE group based in Kenya will not be required to file the CbC reports locally.

In addition, local entities within the CbC reporting threshold will be required to file, on an annual basis and within six months of the group’s reporting year-end, a Master File and Local File. These local entities will also be required to file a CbC notification on an annual basis, by the last day of the group’s year-end.

Interest deduction restriction (previously thin capitalisation)

See Interest expenses in the Deductions section.

Deemed interest

'Deemed interest' is applicable on interest-free borrowings received by foreign-controlled entities in Kenya. The ‘deemed interest’ is based on the Commissioner's prescribed rates.

WHT is due on the ‘deemed interest’.

Controlled foreign companies (CFCs)

Kenya has no specialised rules regarding CFCs. However, entities that are managed and controlled in Kenya are considered resident entities.

There are restrictions on the deductibility of interest and foreign exchange losses of companies.