Kenya Issues Draft Regulations for Domestic Minimum Tax Implementation

On November 3, 2025, Kenya issued the Draft Income Tax (Minimum Top Up Tax) Regulations, 2025 to provide for the detailed application of the Pillar 2 DMT.

This follows the , the Tax Laws (Amendment) Act, 2024 (the Act) that was published in the Official Gazette on December 13, 2024. 

It includes provisions to introduce a 15% domestic minimum top-up tax (DMT) from January 1, 2025. The Income Inclusion Rule (IIR) and Under-Taxed Profits Rule (UTPR) are not included in the Act.

Whilst the Act was generally based on the GloBE rules, the legislation was very high-level, with the detail to be provided by Regulation. 

The Draft Regulations include further detail on the application of the DMT. It generally follows (and refers to), the OECD Model Rules aside from a number of exclusions that are not relevant in Kenya due to its domestic tax system. It also includes the transitional rules as provided in the OECD Model Rules.

GloBE Rules

Section 29 of the Draft Regulations provides that the GloBE Rules are to be used as a relevant source of interpretation of the Act and Regulations. 

It also provides that any elections provided in the GloBE Rules can be made, aside from the de minimis election.   

The ‘GloBE Rules’ are defined as the OECD Model Rules.

Currency Conversion

Section 20 of the Draft Regulations provides that in general, amounts are based on the reporting currency used in the consolidated financial statements (or that would have been converted in the reporting currency).

For determining any threshold in the Draft Regulations that is denominated in euros, amounts are converted to euros using the average of the daily rates of exchange, in respect of the 2 currencies for the month of December included in the year of income, one year immediately preceding the particular year of income, as determined by the Central Bank. 

Administrative Guidance

Very few aspects of the OECD Administrative Guidance are included in the Act or Draft Regulations. The only aspects included are:

-Debt Release Election (AG1 2.4)

-Substitute Loss carry forwards (AG1 2.8)

-Restricted Tier 1 Capital (AG1 3.3)

-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (AG1 3.4)

-SBIE Rules (Foreign rules, operating leases and impairment losses) (AG2 3)

Safe Harbour and Penalty Relief Guidance

Section 23 of the Draft Regulations provides for the application of the Transitional CbCR Safe Harbour and Simplified Calculations for Non-material Constituent Entities, as provided in the GloBE Rules.

ELECTIONS

Elections in the OECD Model Rules

The Draft Regulations do not provide many of the detailed provisions relating to the elections in the OECD Model Rules. The only elections specifically included are the GloBE Loss Election and the  Unclaimed Accrual Election.  However, Section 29 of the Draft Regulations provides that any elections provided in the GloBE Rules can be made, aside from the de minimis election.   As such the following should also be applicable (where relevant domestically):

-Excluded Entity Election;

-Election to use the Realization Method;

-Stock-Based Compensation Election;

-Election to Spread Capital Gains;

-Consolidation Election;

-Tax Transparency Election;

-Taxable distribution Election;

-Distribution Tax Regime Election;

-Substance-Based Income Exclusion Election;

-Prior Year Adjustment Election.

Elections in the Administrative Guidance

The only election from the OECD Administrative Guidance included in the Draft Regulations is the Debt Release Election (Section 6).  The following are not included:

-Equity Investment Inclusion Election;

-Excess Negative Tax Carry-Forward Election;

-Foreign Exchange Hedge Election;

-Portfolio Shareholding Election.

Whilst Section 29 of the Draft Regulations does provide for relevant elections in the GloBE Rules, the current wording of the definition of ‘GloBE Rules’ current includes just the OECD Model Rules.

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

There are a number of specific deviations in the Draft Regulations. For instance, “policy disallowed expenses” are defined as:  

(a) expenses accrued by the covered person for illegal payments, including bribes and kickbacks; and 

(b) expenses accrued by the covered person for fines and penalties. 

Whereas, in the OECD Model Rules expenses for fines and penalties are only relevant where they equal or exceed 50, 000 euros.

The de-minimis election is specifically not available for Kenyan DMT purposes, and there is no provision for the initial phase of international activity exemption.

In addition, a number of the provisions of the OECD Model Rules are not included. This includes:

-UPEs subject to a deductible dividend regime

-Eligible distribution tax systems

-ETR calculations for investment entities

Similarly aspects of the OECD Model Rules that relate to the IIR or UTPR are not included (eg Articles 6.4.1(b) and 6.4.1(c) which describes how the IIR and UTPR is applied to Joint Ventures (JVs) and JV Subsidiaries).

DMTT Design Features

General

As Kenya is only implementing a DMT (and not an IIR or UTPR), the entire Act and Draft Regulations relate to the calculation of the DMT. As noted above, this generally follows the OECD Model Rules, with a number of exceptions.

Pushdown Taxes

The GloBE Model Rules stipulate that the Adjusted Covered Taxes for each Domestic Constituent Entity are to be calculated by including any tax accrued by a Constituent Entity-owner located in another jurisdiction with respect to the GloBE Income of a Domestic Constituent Entity. The GloBE rules that allocate taxes of a Constituent Entity-owner are:

-Article 4.3.2(a) of the GloBE Model Rules which allocates taxes to a Permanent Establishment,

-Article 4.3.2(c) of the GloBE Model Rules which allocates taxes to a controlled foreign company; and

-Article 4.3.2(d) of the GloBE Model Rules which allocates taxes to hybrid entities.

The February 2023 OECD Guidance provides that these allocations must be disregarded for a domestic minimum tax to qualify as a QDMTT.

In addition, it provides that taxes on dividends or other distributions that would otherwise be allocated to a distributing Domestic Constituent Entity under Article 4.3.2(e) of the Model GloBE Rules must also be excluded from the DMTT calculation.

The Kenyan Draft Regulations do not apply any allocation rules for PEs,CFCs or Hybrid Entities. In addition, it does not apply specific allocation rules for distributions (including limiting any tax to domestic withholding tax).

Avoiding Circularity

In order to avoid circularity, the top-up tax calculation formula for the QDMTT must be amended so that the QDMTT itself is not deducted. Section 12 of the Draft Regulations provides for this.

Separate ETR Calculations

Sections 17 and 18 of the Draft Regulations provide for separate Domestic Minimum Top-up Tax calculations for Minority-Owned Constituent Entities, Domestic Joint Venture Groups and other Domestic Constituent Entities.

Accounting Standard

Section 4 of the Draft Regulations provides that the domestic minimum tax is calculated using recognised accounting standards in Kenya for the consolidated financial statements of the ultimate parent entity, and, if that is not practicable, on the basis of an accepted accounting standard or an approved accounting standard, if:

-the constituent entity’s financial statements are prepared in accordance with that standard,

-the information contained in the financial statements is reliable; and

-permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

Safe Harbours

As noted above, the Section 23 of the Draft Regulations provides for the Transitional CbCR Safe Harbour and the Simplified Calculations Safe Harbour for Non-Material Constituent Entities.

QDMTT Allocation

Section 12 of the Draft Regulations provides that where two or more entities are members of the same group in Kenya, the minimum top-up tax payable is determined on a group basis and allocated among the entities in proportion to the net income attributable to each entity person after taking into account the substance-based income exclusion.

Alternatively, an MNE group can elect the manner in which the minimum top-up tax liability is allocated amongst the entities for the year.

ADMINISTRATION

Registration

Section 21 of the Draft Regulations provides that an entity subject to the DMT is required to notify the tax authority:

(a) within sixty days from date of publication of the Regulations; or

(b) within six months from the first day of the year of income for any subsequent years.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included in Section 22 of the Draft Regulations.

Every Constituent Entity located in Kenya will have an obligation to file a GIR in Kenya. However, this obligation can be discharged if the GIR is filed by a Designated Local Entity.

A Domestic Constituent Entity need not submit the GIR if the tax authority is notified that the return has been submitted by:

– the UPE located in a jurisdiction that has a Qualifying Competent Authority Agreement in effect with Kenya for the reporting fiscal year; or

– a Designated Filing Entity located in a jurisdiction that has a Qualifying Competent Authority Agreement in effect with Kenya for the reporting fiscal year.

The GIR must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Section 22(1) of the Draft Regulations requires the submission of top up tax return by the last day of the sixth month following the end of the year.

Payment

Under Section 24 of the Draft Regulations, payment of top-up tax must be made by the end of the fourth month after the end of the year.