Kenya has officially approved the tax law known as the Global Minimum Tax (GMT), or Pillar Two, to keep pace with international standards and prevent tax evasion.
This represents a significant shift in the country’s fiscal policy, aiming to ensure that large Multinational Enterprises (MNEs) operating in Kenya pay their fair share of tax, regardless of where they record their profits.
This mechanism was implemented based on the agreement by OECD/G20 Inclusive Framework member countries to address the tax challenges arising from the digitalization of the economy.
The new Domestic Minimum Top-up Tax (DMTT) focuses on very large organizations. According to the guidelines, the law applies to “Covered Persons” who are residents or have a permanent business location in Kenya and are members of an international group with a consolidated annual turnover of EUR 750 million or more.
This income level must have been recorded in at least two of the four years preceding the tested tax year.
Although Kenya’s standard corporate income tax is 30%, some organizations may have a net effective tax rate below 15% due to being in Special Economic Zones (SEZ) or receiving other investment incentives.
This new “top-up tax” applies to such organizations to ensure their taxes reach the minimum 15% threshold. The tax was introduced through the Tax Laws Amendment Act of 2024 and applies to years of income commencing on or after January 1, 2025.
Key dates that organizations must know include the payment deadline; the first minimum top-up tax must be paid by April 30, 2026. Generally, payment must be completed within four months following the close of the year of income.
Regarding reporting requirements, organizations must notify the Commissioner within 60 days of the publication of the regulations, or within six months of the start of the year of income for subsequent years.
Additionally, the top-up tax return must be submitted within six months after the end of the income year. Kenya’s adoption of this rule prevents other countries from collecting taxes on profits generated in Kenya, ensuring that tax revenue remains in the national treasury.
This law does not apply to all large organizations equally, as certain entities are exempt from these provisions. These excluded entities include government institutions, non-profit organizations, pension funds, certain investment institutions, and sovereign wealth funds.
Furthermore, there is a Substance-Based Income Exclusion (SBIE) designed to protect genuine domestic business operations that have employees and tangible assets. This ensures the law focuses primarily on “excess profits” that can easily be shifted from one country to another.
