A New Global Standard Arrives in Kenya

NAIROBI – As of Wednesday, 5 November 2025, Kenya has begun enforcing a landmark 15% minimum tax on multinational corporations, a strategic move aimed at boosting national revenues by curbing corporate tax avoidance. The new levy, known as the Qualified Domestic Minimum Top-Up Tax (QDMTT), officially took effect on 1 January 2025, following the enactment of the Tax Laws (Amendment) Act, 2024. This legislation positions Kenya within a global framework championed by the Organisation for Economic Co-operation and Development (OECD) to ensure large international firms pay a fair share of tax in the jurisdictions where they operate.

The tax targets multinational enterprises (MNEs) with a consolidated annual turnover of at least €750 million (approximately KSh 95 billion). If a qualifying company's effective tax rate on its Kenyan profits falls below the 15% threshold, the Kenya Revenue Authority (KRA) is now empowered to collect a 'top-up tax' to cover the difference. According to a public notice from the National Treasury in early November 2025, draft regulations titled the Income Tax (Minimum Top-Up Tax) Regulations, 2025, have been issued to operationalize the law, with stakeholders given until early December to submit their views.

The Finance Act, 2025, further clarified that the tax payment is due by the end of the fourth month following the close of a company's financial year, aligning it with other corporate tax deadlines. This measure is a core component of the government's Medium-Term Revenue Strategy (MTRS), which aims to elevate Kenya's tax-to-GDP ratio from around 14% towards the East African Community (EAC) target of 25%.

The Economic Calculus: Revenue vs. Investment

The National Treasury has not released specific revenue projections for the new minimum tax. However, the FY 2025/26 budget projects a total revenue collection of KSh 3.32 trillion, with ordinary revenues targeted at KSh 2.75 trillion, as part of its broader fiscal consolidation plan. The implementation of the QDMTT is a key pillar in the government's strategy to enhance domestic revenue mobilization and reduce the fiscal deficit.

While the tax is expected to capture revenue that was previously lost to profit-shifting strategies, concerns persist about its potential impact on Foreign Direct Investment (FDI). A key question is how the tax will affect the appeal of Kenya’s Special Economic Zones (SEZs) and Export Processing Zones (EPZs), which have historically used tax incentives—including corporate tax holidays and preferential rates—to attract investors. With the new 15% tax floor, the value of these incentives for large MNEs is effectively diminished.

Business associations have voiced caution. While organizations like the Kenya Private Sector Alliance (KEPSA) and the Kenya Association of Manufacturers (KAM) have not issued a definitive statement solely on the QDMTT, they have consistently advocated for a predictable and competitive tax environment to spur industrial growth. President William Ruto acknowledged in April 2023 that his government was finalizing a new tax policy with input from the American Chamber of Commerce (AmCham) to enhance transparency and stability, signaling an awareness of investor concerns.

Regional Disarray: The East African Context

Kenya's adoption of the 15% minimum tax places it ahead of its neighbours and highlights a significant policy divergence within the East African Community (EAC). The bloc has a stated goal of harmonizing domestic tax policies to deepen economic integration, but progress on a unified approach to the OECD's Pillar Two framework has been slow.

This creates a complex competitive landscape:

• Tanzania: While not a member of the OECD's Inclusive Framework, Tanzania is aware of the global minimum tax's implications, particularly for its own SEZs which offer 10-year corporate tax holidays. Analysis from PwC Tanzania suggests that rather than losing that tax revenue to an MNE's home country, Tanzania might be better off amending its own laws to collect a 15% tax. However, its 2025/26 budget does not currently include Pillar Two implementation, focusing instead on other measures to increase its tax-to-GDP ratio.
• Uganda: Officials and tax experts in Uganda have expressed reservations, citing challenges in monitoring effective tax rates and concerns about the potential impact on existing investment treaties. There has been no formal legislative movement to adopt the tax.
• Rwanda: Rwanda is not a member of the OECD's Inclusive Framework and has been pursuing its own tax reforms aimed at boosting domestic revenue, including offering specific tax incentives to attract investment. This strategy appears to prioritize national investment promotion over alignment with the global minimum tax standard for now.
• Burundi and South Sudan: There is no publicly available information indicating that Burundi or South Sudan have taken steps to implement the Pillar Two rules, as they grapple with more fundamental economic and political challenges.

This regional disparity means Kenya risks becoming a less attractive investment destination for certain MNEs compared to its EAC partners who may continue to offer lower effective tax rates. Conversely, by implementing the QDMTT, Kenya ensures that it collects the 15% minimum tax from in-scope companies operating within its borders, rather than ceding that taxing right to the multinational's home country under the Pillar Two framework's Income Inclusion Rule (IIR). The long-term economic impact will depend on whether other EAC nations follow suit or if Kenya's first-mover status creates a significant shift in regional investment patterns. FURTHER INVESTIGATION REQUIRED.