| Status | Enacted Law |
| Law | Tax Laws (Amendment) Act, 2024 Draft Income Tax (Minimum Top Up Tax) Regulations, 2025 |
| Effective Date | Financial years beginning on or after January 1, 2025 |
| IIR | No |
| UTPR | No |
| QDMTT | Yes |
| Filing Deadlines | Standard for GIR, Non standard TuT Return |
| Safe Harbours | Transitional CbCR Safe Harbour and the Simplified calculations for Non-Material Constituent Entities Safe Harbour |
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 DMTT.
Section 7 of the 2025 Finance Bill (sent to Parliament on May 7, 2025), provides that the DMTT is payable by the end of the fourth month following the end of the fiscal year.
On 4 November 2024, the Tax Laws (Amendment) Bill 2024 was introduced to the lower house of Parliament. The Bill includes a proposal for a minimum top-up tax of 15%. This was published in the Official Gazette on December 13, 2024. The law is very high level and while based on the Model GloBE rules, based on the current law this would not be a QDMTT (eg no CFC pushdown restriction, no safe harbours and no provisions for additional tax).
On May 13, 2024 the Finance Bill, 2024 was sent to the Kenyan parliament. It includes provisions to introduce a 15% domestic minimum top-up tax from January 1, 2025.
GLOBE APPLICATION
General
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;
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 Act is therefore largely silent on most aspects of the GloBE rules.
None of the OECD Administrative Guidance or Safe Harbours are included in the Act.
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:
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):
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:
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:
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).
DOMESTIC MINIMUM TAX
General
The Act and Draft Regulations apply a domestic minimum tax from January 1, 2025.
The calculation of the DMT is relatively straightforward. In particular it applies the top-up tax calculated under the general GloBE rules and then subjects this to a number of adjustments.
QDMTT 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:
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.
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.
Penalties
Section 27 of the Draft Regulations provides that failure to comply with the Regulations will be subject to the standard penalties in the Tax Procedures Act.
None Issued
| Kenya | |||
|---|---|---|---|
| Effective Date: | |||
| Section/Article | |||
| First Set of OECD Administrative Guidance | |||
| 1.1 | Rebasing monetary thresholds in the GloBE Rules | ||
| 1.2 | Deemed consolidation test | ||
| 1.3 | Consolidated deferred tax amounts | ||
| 1.4 | Sovereign wealth funds and the definition of Ultimate Parent Entity | ||
| 1.5 | Clarifying the definition of ‘Excluded Entity’ | ||
| 1.6 | Meaning of ancillary for Non-Profit Organisations | ||
| 2.1 | Intra-group transactions accounted at cost | ||
| 2.2 | Excluded Equity Gains or Loss and hedges of investments in foreign operations | ||
| 2.3 | Excluded Dividends- Asymmetric treatment of dividends and distributions | ||
| 2.4 | Debt release Election | Draft Rules, 6 | |
| 2.5 | Accrued Pension Expenses | ||
| 2.6 | Covered Taxes on deemed distributions | ||
| 2.7 | Excess Negative Tax Carry-forward guidance | ||
| 2.8 | Substitute Loss carry forwards | Draft Rules, 9 | |
| 2.9 | Equity Gain or loss inclusion election | ||
| 2.9 | Qualified Ownership Interest/Flow through entity | ||
| 2.1 | Allocation of taxes arising under a Blended CFC Tax Regimes | ||
| 3.1 | Application of Taxable Distribution Method Election to Insurance Investment Entities | ||
| 3.2 | Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity | ||
| 3.3 | Restricted Tier 1 Capital | Draft Rules, 4 | |
| 3.4 | Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders | Draft Rules, 4 | |
| 3.5 | Simplification for Short-term Portfolio Shareholdings | ||
| 3.6 | Application of Tax transparency election to Mutual insurance companies | ||
| 4.1 | Deferred tax assets with respect to tax credits under Article 9.1.1 | ||
| 4.2 | Applicability of Article 9.1.3 to transactions similar to asset transfers | ||
| 4.3 | Asset carrying value and deferred taxes under 9.1.3 | ||
| Second Set of OECD Administrative Guidance | |||
| 1 | Currency conversion rules | ||
| 2 | MTTCs | ||
| 3 | SBIE Rules | ||
| – Foreign rules | Draft Rules, 13 | ||
| Stock-based compensation election | |||
| Leases | Draft Rules, 13 | ||
| – Impairment losses inc in tangible asset value | Draft Rules, 13 | ||
| 4.1 | QDMTT Safe Harbour | ||
| 4.2 | UTPR Safe Harbour | ||
| Third Set of OECD Administrative Guidance | |||
| 1 | Transitional CbCR – Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment) | ||
| 2.2.1 | Transitional CbCR – JVs | ||
| 2.3.1 | Transitional CbCR – Same Financial Statements/Local Financial Statements for Statutory Reporting | ||
| 2.3.2 | Transitional CbCR – Using different accounting standards | ||
| 2.3.3 | Transitional CbCR – Adjustments to Qualified Financial Statements/Dividend Mismatches | ||
| 2.3.4 | Transitional CbCR – MNEs not required to file CbC Reports | ||
| 2.3.5 | Transitional CbCR – Qualified Financial Statements for PEs | ||
| 2.4.2 | Transitional CbCR – Treatment of Taxes on income of PEs, CFCs, and Hybrid Entities | ||
| 2.6 | Transitional CbCR – Treatment of hybrid arbitrage arrangements | ||
| 3.1 | Identifying Consolidated Revenue | ||
| 3.2 | Mismatch between Fiscal Years of the UPE and another Constituent Entity | ||
| 3.3 | Mismatch between Fiscal Year and Tax Year of Constituent Entity | ||
| 4.2.1 | Blended CFCs -multiple GloBE Jurisdictional ETRs | ||
| 4.2.2 | Blended CFCs – not required to calculate an ETR | ||
| 4.2.3 | Blended CFCs – income of non-GloBE Entities | ||
| 5.3 | 30 June 2026 Filing deadline | ||
| 6 | NMCE Simplified Calcs | ||
| Fourth Set of OECD Administrative Guidance | |||
| 1.2.1 | Aggregate DTL Category basis | ||
| 1.2.1 | Exclusion of certain types of GL accounts and separate tracking | ||
| 1.2.1 | Exclusion of GL accounts that generate standalone DTAs | ||
| 1.2.1 | Exclusion of swinging accounts and separate tracking | ||
| 1.2.2 | FIFO/LIFO Basis | ||
| 1.2.3 | Aggregation of Short-term DTLs | ||
| 1.2.2 | Reversal of DTLs that accrued before the Transition Year | ||
| 1.2.2 | 5 year unclaimed accrual election | ||
| 2.1.2 | Recalculated deferred tax where GloBE carrying value differs from accounting carrying value | ||
| 2.1.2 | GloBE and accounting carrying values and the Transition Rules | ||
| 2.1.2 | Additional provisions for Intragroup transactions accounted for at cost | ||
| 2.1.2 | Exclusion of GloBE carrying value from SBIE | ||
| 3.1.3 | General rules for allocating cross-border, current taxes under a cross-crediting corporate tax system: 4 Steps | ||
| 3.1.3 | Specific rules for foreign PEs/CFCs, Hybrids/rev hybrids with domestic source income | ||
| 3.1.3 | Cross-crediting between Permanent Establishments and distributions from foreign subsidiaries | ||
| 4.1 | Extension of the Substitute Loss Carry-forward DTA to PEs, hybrids and rev hybrids | ||
| 4.2 | Allocation of deferred tax expenses and benefits from a Parent Entity to a CFC, PE Hybrid or Rev Hybrid: 5 step process | ||
| 4.2.2 | Five-Year Election to exclude the allocation of all deferred tax expenses and benefits to CFCs, PEs, Hybrids and Rev Hybrids | ||
| 4.2.3 | Exclusion of deferred tax assets or liabilities arising under a Blended CFC regime from transition rules | ||
| 5.2.2 | Determining GloBE status when a Flow-through Entity is held directly by another Flow-through Entity | ||
| 5.3.2 | Non-group owners: Partially owned Flow-through Entities | ||
| 5.3.5 | Non-group owners: Indirect minority ownership | ||
| 5.4.2 | Taxes allocated to a flow-through entity | ||
| 5.5.2 | Hybrid entities – Taxes pushed down include indirect owners | ||
| 5.5.4 | Hybrid entities – Entities located in jurisdictions without a Corporate Income Tax system | ||
| 5.6.2 | Extension of taxes pushed down to include Reverse Hybrids | ||
| 6.1.4 | Option to exclude a Securitization Entity from scope of QDMTT | ||
| 6.1.4 | Option to not impose top-up tax liabilities on SPVs used in securitization transactions | ||
| 6.1.4 | Amendments to the Switch-Off rule | ||
| 6.1.4 | New definition: Securitization Entity | ||
| 6.1.4 | New definition: Securitization Arrangement | ||
| January 2025 OECD Administrtive Guidance | |||
| 1 | Articles 8.1.4 and 8.1.5 | ||
| 1 | Amendments to CbCR Safe Harbour for 9.1 | ||
| 1 | Amendments to QDMTT Safe Harbour for 9.1 | ||
| 1 | Article 9.1 of the GloBE Rules | ||
| 1 | Central Record of Legislation with Transitional Qualified Status |
| Note | Kenya | |
|---|---|---|
| QDMTT?(Enacted/Draft) | Is there a QDMTT in the Legislation? | Yes |
| Effective Date: | January 1, 2025 | |
| Administrative Guidance/Safe Harbour Guidance? | Are the provisions of the OECD Administrative Guidance and Safe Harbour Guidance reflected in the current legislation? | No |
| Separate/Transposed QDMTT | Is the QDMTT a Separate QDMTT or a Transposition of the GloBE Rules (with Amendments) | Separate |
| Domestic Groups | A QDMTT can also apply to purely domestic groups. | No |
| Scope Definitions | The definitions of Ultimate Parent Entity, MNE Group, and Constituent Entity correspond with the definitions in the GloBE Rules. | Yes |
| Income and covered taxes of Constituent Entities | The QDMTT must compute the tax liability for the jurisdiction by taking into account the income and covered taxes of Constituent Entities under the GloBE Rules. | Yes |
| Separate ETRs | A QDMTT must determine a separate ETR and Top-up Tax amount for MOCEs, Joint Ventures and JV Subsidiaries. | Not for Ies |
| Charging | A QDMTT must impose a Top-up Tax on one or more domestic Constituent Entities on the Excess Profits of all domestic Constituent Entities, including the domestic Parent Entity. | Yes |
| Enforceability | The legal liability for the domestic top-up tax needs to be enforceable against at least one Constituent Entity in the jurisdiction. | Yes |
| Different Accounting Standard? – Optional | Is the use of a local accounting standard optional? | No |
| Different Accounting Standard? – Mandatory | Is the AG2 guidance followed? | No |
| Different Accounting Standard? – Default GloBE rules | Do the general GloBE rules apply for the QDMTT accounting standard? | Yes |
| Require 100% ownership? | The QDMTT )can require 100% ownership | No |
| Differences to GloBE Rules: tighter restriction is consistent with local tax rules | The QDMTT can be more restrictive than the GloBE Rules where the tighter restriction is consistent with local tax rules. | Yes |
| Differences to GloBE Rules: Not relevant to in the context of its domestic tax system | The QDMTT can exclude adjustments that are not relevant to in the context of its domestic tax system. | Yes |
| Income/Loss of a PE | The QDMTT must exclude the income or loss of a foreign Permanent Establishment from the income or loss of the Main Entity. | Yes |
| Tax Transparency | A QDMTT must include certain tax transparent provisions. | Yes |
| Adjusted Covered Taxes Consistency | The range of taxes included in Covered Taxes needs to be the same or narrower, as under the GloBE rules. | Yes |
| GloBE Loss Election? | Not Required in QDMTT | Yes |
| No Pushdown to CFC or PE | A QDMTT must exclude: (1) tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules and (2) tax paid or incurred by a Main Entity that is allocated to a PE in the jurisdiction. | Yes |
| Exclude tax allocated to Hybrids | Second AG Guidance | Yes |
| Exclude allocated net basis tax on dividends (except WHT) | Second AG Guidance | No |
| UPE that is a Flow-Through Entity | Second AG Guidance | Yes |
| UPE subject to Deductible Dividend Regime | Second AG Guidance | No |
| Eligible Distribution Tax Systems | Second AG Guidance | No |
| ETR Computation for Investment Entities | Second AG Guidance | Yes |
| Investment Entity Tax Transparency Election | Second AG Guidance | No |
| Taxable Distribution Method Election | Second AG Guidance | Yes |
| Multi-Parented MNE Groups | Second AG Guidance | Yes |
| Additional Top-Up Tax/Excess Negative Tax Expense | A QDMTT needs to have provisions for additional top-up tax where there is no Net GloBE Income and the Adjusted Covered are less than zero and less than the Expected Adjusted Covered Taxes. Amount. Excess Negative Tax Carry-forward rules also need to be in place. | Yes |
| Modified Top-Up Tax Formula | The QDMTT top-up tax formula needs to be modified as the GloBE Rules subtract tax paid under a QDMTT from the current GloBE Top-up Tax. | Yes |
| Same Approach As GloBE Rules | A QDMTT must require that top-up tax is taken into account by the relevant Constituent Entity at the same time and in the same manner as under the GloBE Rules (eg it can’t be carried forward). | Yes |
| SBIE Included? | Not Required in QDMTT | Yes |
| SBIE Rates same as GloBE? | Not Required in QDMTT | Yes |
| De Minimis Rule Included? | Not Required in QDMTT | No |
| Restructuring Rules? | A QDMTT needs to include restructuring rules as provided in the GloBE rules to the extent necessary to conform to the tax reorganization rules in the jurisdiction. | Yes |
| Safe Harbours? | A QDMTT needs to contain GloBE safe harbours. | Yes – CbCR and NMCE |
| Deferred Tax Transition Rule? | A QDMTT must include the deferred tax starting point under Article 9.1.1 of the Model Rules. | Yes |
| SBIE Transitional Rates? | Not Required in QDMTT | Yes |
| Initial Phase of International Activity Exemption | Not Required in QDMTT | No |
| Elections? | Where the GloBE Rules permit an election, a QDMTT must generally also provide for the election and require the MNE Group to make the same election under the QDMTT as is made under the GloBE Rules. | Yes |
| Deferred Tax transition: First time or refreshing rule? | Second AG | No |
| New transition year – amend tax attributes? | Second AG | No |
| Currency provisions? | Second AG | No |
| DTL Recapture rules – Aggregate DTL Categories | Fourth AG, 1.2.8 | No |
| DTL Recapture rules Unclaimed Accrual Five-Year Election | Fourth AG, 1.2.8 | No |
| Reverse Hybrid Pushdown | Fourth AG, 5.6.2 | No |
| Securitization Entities – A QDMTT may also exclude a Securitisation Entity from its scope | Fourth AG, 6.1.4 | No |
| Securitization Entities – A jurisdiction may allocate the QDMTT liability for any QDMTT top-up tax to another Constituent Entity (if any) that is located in the jurisdiction | Fourth AG, 6.1.4 | No |
| Note |
TO DO
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