Kenya Enacts a Domestic Minimum Tax in its Tax Laws (Amendment) Act, 2024

On December 13, 2024, the Tax Laws (Amendment) Act, 2024 (the Act) was published in the Official Gazette. It comes into force on December 27, 2024.

It includes provisions to introduce a 15% domestic minimum top-up tax (DMT) from January 1, 2025. 

Whilst it is generally based on the GloBE rules, the legislation is very high-level. It is expected that further regulations will be issued to ensure that the domestic minimum tax operates in accordance with the GloBE rules and to determine whether it is a Qualified Domestic Minimum Top Up Tax (QDMTT).

The DMT applies to a resident person or a person with a PE in Kenya who is a member of a multinational group with a annual turnover of EUR 750 million in the consolidated accounts of the UPE in at least two of the previous four years.

The Act defines adjusted covered taxes as taxes recorded in the financial accounts of a constituent entity for the income, profits or share of the income or profits of a constituent entity where the constituent entity owns an interests, and includes taxes on distributed profits and deemed profit distributions subject to such adjustments as may be prescribed.

Net income or loss is the net income or loss for the year after deducting the sum of the losses of a covered person as determined under a recognised accounting standard in Kenya.

The DMT includes Excluded Entities as provided in the GloBE rules, and provides that the DMT will not apply to;

1. A public entity not engaged in business;
2. A person whose income is exempt from tax under paragraph 10 of the First Schedule of the Income Tax Act;
3. A pension fund and the assets of that pension fund;
4. A real estate investment vehicle that is an ultimate parent entity;
5. A non-operating investment holding company;
6. An investment fund that is an ultimate parent entity;
7. A sovereign wealth fund; or
8. An intergovernmental or supranational organization including a wholly owned agency or organ of the intergovernmental or supranational organization.

The Substance-based Income Exclusion is also included and applies at:

– 10% for the employee costs; and

– 8% for the net book value of tangible assets.

It also provides that the employee cost and book value of tangible assets may be adjusted as prescribed in regulations

The DMT is therefore largely silent on most aspects of the GloBE rules. The Substance-based Income Exclusion for instance does not include the transitional rates.

None of the OECD Administrative Guidance or Safe Harbours are included in the Act. As such, it is expected that further Regulations will be issued to provide further detail on the application of the rules. Whilst jurisdictions have more flexibility as to the design of QDMTTs rather than the other elements of the GloBE rules, the current DMT would require additional detailed provisions in order to qualify.  There are for instance no provisions on CFC/Hybrid taxes pushed down (as is required for the DMT to be a QDMTT under the OECD Administrative Guidance).

The Act is silent on the administrative aspects for filing and payment.