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President William Ruto on Thursday signed into law the Finance Bill 2025 at State House, Nairobi.
The new law outlines a series of significant tax changes aimed at boosting investment and streamlining corporate taxation in Kenya.
Let's look at how the Finance Act 2025 affects Kenya's money and business world.
President William Ruto assents to Finance Bill 2025 at State House, Nairobi
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Relief for Startups and Large Investors
While some sections promise relief for startups and large investors, others have sparked debate due to their potential impact on long-term business planning.
Lower Corporate Tax for Startups
Under the Finance Act 2025, startups will benefit from a reduced corporate tax rate of 15% for the first three years, followed by 20% for the next four.
Currently, they are taxed at 30%. This move, aligned with Nairobi International Financial Centre (NIFC) incentives, is expected to ease the burden on early-stage businesses and attract more entrepreneurial activity.
Incentives for Big Investors
Investors who inject over Sh3 billion into Kenya’s economy, especially those establishing headquarters locally or hiring Kenyan management, stand to benefit from a 15% corporate tax rate for ten years.
Thereafter, a 20% rate applies for the next decade. This is a major shift from the 30% they currently face and could position Kenya as a more competitive investment destination in Africa.
Dividend Exemptions Tied to Local Reinvestment
Certified companies reinvesting at least Sh250 million within Kenya may be exempt from the 15% withholding tax on dividends.
This proposal targets reinvestment and long-term capital retention in the local economy.
However, the exemption only applies under strict conditions and will likely require monitoring and certification by the relevant authorities.
President William Ruto assents to Finance Bill 2025 at State House, Nairobi
Policy Adjustments for Businesses
Stamp Duty Relief for Restructuring
The new law also introduces stamp duty exemptions on property transfers during internal restructuring, as long as the transaction reflects shareholder proportions.
This could make business reorganisations smoother and more cost-effective.
Carry-Forward of Losses Now Limited
The carry-forward of tax losses refers to the practice where a business can apply its losses from one year against profits in future years, reducing its tax burden.
Essentially, if a company incurs losses in a particular year, it doesn't have to pay taxes on its future profits until the losses are "used up." This allows businesses to recover from bad years by lowering their future tax liabilities.
For example, if a business incurs a loss of Sh10 million in one year, it can apply that loss against its profits in the next year(s).
If the business makes a profit of Sh5 million in the following year, it can offset that Sh5 million profit with part of its previous year's Sh10 million loss. The remaining Sh5 million loss would then be carried forward to offset future profits.
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Under the current tax system in Kenya, businesses can carry forward their tax losses indefinitely.
However, the Finance Act 2025 now limits this carry-forward period to five years. This means that companies will only be allowed to offset their losses against future profits for a maximum of five years. After that, any remaining losses will not be deductible.
This change could have significant implications for businesses that require more time to recover from financial losses, such as startups or companies with longer investment perioids.
For instance, businesses in industries with slow returns, like infrastructure or certain types of manufacturing, could find it more challenging to benefit from this provision.
A company will, however, be allowed to seek an extension and will be considered on a case-by-case basis.
President William Ruto assents to Finance Bill 2025 at State House, Nairobi
Digital Asset Tax Uncertainty
The bill suggests shifting the taxation of digital assets from income tax (1.5% of the transaction amount) to the excise duty regime at 10% of the asset’s value.
While the intention is to simplify and standardise taxation in this fast-growing space, the specifics of implementation remain unclear. During the public participation, stakeholders called for further guidance to avoid confusion.
The Finance Act 2025 marks an attempt to modernise Kenya’s tax landscape and promote investment.
While several proposals could ease the path for startups and high-value investors, others, like the cap on loss carry-forward, could introduce new challenges.