On 1st July 2025, the Kenya Finance Act 2025 came into effect, introducing significant amendments to various tax laws. The new measures are designed to broaden the tax base, enhance compliance, and align Kenya’s tax framework with emerging trends in the digital and global economy. At Fhc, we believe it is vital for businesses and professionals to understand these changes and prepare accordingly.

Below, we outline some of the key tax measures and their practical implications.

1️ Cap on Carry-Forward of Tax Losses

Previously, businesses could carry forward tax losses indefinitely. Under the Finance Act 2025, tax losses can now only be carried forward for a maximum of five years.
Implication: This change may significantly impact capital-intensive businesses and start-ups that rely on longer recovery periods to achieve profitability. Companies are advised to review their tax planning strategies to maximise allowable deductions within the new timeframe.

2️ Expansion of Digital Taxation

The Finance Act repeals the earlier Digital Assets Tax (DAT) and introduces a 10% excise duty on fees charged for transferring digital assets. Additionally, the scope of the Significant Economic Presence Tax (SEPT) has been broadened, bringing more non-resident digital businesses into the Kenyan tax net.
Implication: Any non-resident entity generating revenue through digital platforms, online marketplaces, or content provision should assess its obligations under the expanded SEPT. Local businesses engaging such platforms should ensure proper withholding and compliance.

3️ Introduction of Advance Pricing Agreements (APAs)

Effective 1st January 2026, taxpayers will be able to enter into Advance Pricing Agreements with the Kenya Revenue Authority (KRA) for a term of up to five years. This aims to provide certainty in transfer pricing matters for multinational and related-party transactions.
Implication: Companies with complex intercompany transactions should consider utilising APAs to mitigate the risk of future disputes and penalties.

4️ Changes in Excise Duty and Betting Taxes

A new 5% excise duty on betting, gaming, and lottery deposits has been introduced, replacing the previous tax on winnings. Virtual asset service providers will also be subject to a 10% excise duty on fees charged.
Implication: Operators in the betting, gaming, and digital asset space must re-evaluate their cost structures and update their compliance processes to align with these new requirements.

5️ Revisions to VAT and Refund Timelines

The Act shortens the timeframe for claiming VAT refunds on bad debts from three years to two years, and sets clear timelines for processing refunds within 120–180 days.
Implication: Businesses are encouraged to monitor their receivables and initiate refund claims promptly to avoid losing eligible input tax credits.

6️ Changes to Deductions and Exemptions

Notable reliefs include making the cost of constructing public sports facilities and mortgage interest on residential buildings tax deductible. Additionally, gratuity payments and pensions from registered funds are now exempt from tax.
Implication: These measures aim to incentivise investment in community infrastructure and promote home ownership.

7️ Expansion of Withholding Tax (WHT)

The scope of WHT has been expanded to include payments for goods supplied to public entities and income earned by non-resident ship owners and charterers. Payments for scrap metal sales are also subject to WHT.
Implication: Businesses must ensure accurate WHT deductions and timely remittance to avoid penalties.

How Fhc Can Support You
At Fhc, we understand that navigating changing tax laws can be complex. Our dedicated team of tax and advisory professionals is ready to help you: analyse how the Finance Act 2025 impacts your business, optimise your tax planning, ensure timely compliance, and guide you through any audits or KRA engagements.

Get in touch with us today to schedule a consultation and keep your business compliant, resilient, and well-prepared for growth.

Fhc – Your Trusted Accounting, Tax and Advisory Partner.