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Kenya is moving to impose a 15 per cent capital gains tax (CGT) on offshore sales involving local companies, in a move that could significantly reshape how foreign venture capital and private equity investors exit Kenyan businesses.
The proposal, contained in the Finance Bill 2026 currently before parliament, seeks to empower the Kenya Revenue Authority (KRA) to tax gains earned by non-resident investors from share sales conducted abroad when those shares derive substantial value from Kenyan assets or operations.
If passed, the amendment to Kenya’s Income Tax Act would make gains from “the alienation of shares by a non-resident person where the shares derive their value from Kenya” taxable locally, regardless of whether the transaction takes place outside the country.
The proposal marks Kenya’s latest effort to capture tax revenues from foreign investor exits, particularly in high-growth sectors such as technology, infrastructure, and energy, where ownership structures are often routed through offshore entities in jurisdictions including Mauritius, Delaware, London, and the Cayman Islands.
Targeting Offshore Structures
The planned reform is aimed at closing long-standing tax gaps that have enabled foreign investors to sell stakes in Kenyan businesses without triggering local tax obligations.
Under the proposed framework, the Treasury would also gain powers to tax transactions involving changes in the ownership structure of Kenyan companies, including shifts in group membership or ownership of assets linked to businesses resident in Kenya.
The move reflects growing concern among policymakers that significant economic value generated locally has continued to escape taxation through offshore holding arrangements.
For venture capital firms backing Kenyan startups, the amendment could complicate exit strategies. Many African startups—despite operating primarily in Kenya and across the continent—are incorporated abroad to attract international investors, benefit from stronger legal protections, and simplify fundraising from limited partners.
These offshore structures have also made mergers, acquisitions, and secondary sales easier to execute without direct exposure to local tax systems.
Industry Raises Concerns
The proposed tax measure has already drawn concern from industry stakeholders, particularly over the broad language of the amendment.
The Institute of Certified Public Accountants of Kenya (ICPAK) warned lawmakers that the proposal could extend beyond conventional asset sales and unintentionally affect other forms of investment activity.
In its submission to parliament, the institute noted that the provision, as currently drafted, could expose offshore investor exits, capital raises, internal restructurings, and group reorganisations to Kenyan capital gains tax liabilities.
The concern is that routine corporate activities conducted at offshore holding company level could trigger tax obligations in Kenya, creating uncertainty for investors and increasing transaction complexity.
History of Offshore Tax Disputes
The proposal appears to be partly driven by previous disputes between Kenya’s tax authorities and foreign investors over offshore transactions involving Kenyan assets.
In 2025, the KRA issued a KES 21 billion ($161.7 million) tax demand following the offshore sale of Tullow Kenya BVto Gulf Energy, a deal tied to the Lokichar oil project in Turkana. Although the transaction occurred outside Kenya, authorities argued that the transferred shares derived their value from petroleum assets located within the country.
Earlier, in 2017, the KRA pursued taxes linked to the offshore sale of Java House by Emerging Capital Partners to Dubai-based Abraaj Group. Kenya’s Tax Appeals Tribunal later upheld the tax authority’s right to impose a KES 773.8 million ($5.9 million) assessment, rejecting arguments that the offshore structure placed the transaction outside Kenya’s tax jurisdiction.
These cases exposed enforcement challenges faced by the KRA and highlighted the limitations of existing tax laws in capturing value generated from local economic activities.
Implications for Investment Flows
Kenya’s proposed reforms place it among a growing group of emerging economies, including Uganda, that are seeking to tax offshore transactions linked to domestic assets.
While authorities argue the changes are necessary to strengthen revenue mobilisation and ensure fair taxation, investors may view the move as adding complexity to deal-making and exit planning.
For startups and infrastructure projects reliant on foreign capital, the development could influence how future investments are structured, potentially increasing the use of tax planning mechanisms or prompting investors to reassess jurisdictional risks.
Still, policymakers are betting that stronger tax enforcement will ensure that wealth created from local assets contributes more meaningfully to national revenues, even when ownership and transactions are routed through global financial centres.
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