Tax Alert Issue no. 4 of 2026

In 2013, the OECD and G20 countries developed action plans to address base erosion and profit shifting (“BEPS”), and ensure profits are taxed where economic activities take place and value is created. 

Part of the measures agreed upon included Pillar 2 solution to the tax challenges arising from the digitalisation of the economy, which was approved by the OECD/G20 Inclusive Framework in 2021.

Pillar 2 (Global Anti Base Erosion Model Rules) introduced a global minimum effective tax rate for multinational groups with consolidated annual revenue of EUR 750 million or more and imposed a top up tax where the effective tax rate is below the minimum rate.

Under the Global Anti-Base Erosion (“GloBE”) Model Rules, top-up tax is collected through the following three interlocking rules:

• Qualified Domestic Minimum Top-up Tax (“QDMTT”): allows the jurisdiction where the profits arise to collect top-up tax on low-taxed local profits first.
• Income Inclusion Rule (“IIR”): requires the parent entity to pay top-up tax on the low-taxed profits of its foreign subsidiaries and permanent establishments.
• Undertaxed Profits Rule (“UTPR”): a backstop that allocates any remaining top-up tax to other jurisdictions where the group operates.

Kenya has adopted the QDMTT.

The Tax Laws (Amendment) Act, 2024 introduced a domestic minimum top-up tax under Section 12G of the Income Tax Act, which requires in-scope multinational enterprises to pay an effective tax rate of at least 15% on their Kenyan profits for years of income starting on or after 1 January 2025.

The Finance Act, 2025 subsequently set the payment date for the top-up tax, which is due by the end of the fourth month after the end of the year of income. 

The draft Income Tax (Minimum Top-Up Tax) Regulations, 2025 were first published for public participation on 3 November 2025, with stakeholders invited to submit comments to the Kenya Revenue Authority (“KRA”) by 2 December 2025.

The Cabinet Secretary for the National Treasury issued the Income Tax (Minimum Top Up Tax) Regulations, 2026 (Legal Notice No. 189), which were published on 18 September, 2026 (the effective date), to operationalise Section 12G of the Income Tax Act. 

The Regulations closely mirror the OECD/G20 Pillar Two Global Anti-Base Erosion ("GloBE") Model Rules. The GloBE Model Rules and the OECD's Agreed Administrative Guidance may also be used to interpret them.

In this alert, we highlight the key provisions and compliance obligations:

The Regulations apply to Kenyan resident entities and permanent establishments in Kenya, that belong to a multinational group with consolidated annual turnover of EUR 750 million or more, in at least two of the four years of income before the tested year. 

Where a year of income is longer or shorter than 12 months, the threshold is pro-rated as EUR 750 million × A/365, where A is the number of days in the year of income.

*Where two or more covered persons are members of the same multinational group in Kenya, the group may appoint a single designated entity to submit the initial notification on behalf of all other entities in Kenya, rather than each covered person notifying separately. 

**A covered person does not need to file the GloBE Information Return (“GIR”) locally where the ultimate parent entity or designated filing entity files the GIR in a jurisdiction that has an agreement with Kenya. 

Top-up tax = (15% − ETR) × excess profit, plus any additional top-up tax.

• Net income is the covered person's financial accounting net income or loss, as used in preparing the group's consolidated financial statements before intra-group eliminations and subject to specific adjustments.
• Adjusted covered taxes are current and deferred taxes, with deferred tax recalculated at 15% and subject to specific adjustments.
• Excess profit is net income less the substance-based income exclusion.
• The substance-based income exclusion is 10% of eligible employee costs plus 8% of the net book value of tangible assets in Kenya. Transitional rates apply, starting at 9.6% and 7.6% respectively for years beginning in 2025 and reducing to 5% for both from 2033.

In light of the Regulations, we recommend that MNE groups with operations in Kenya take the following steps:

• Confirm if it is a covered entity - Check the group’s consolidated turnover for the four years before each tested year against the EUR 750 million threshold (pro-rated for short or long years). Then map out which Kenyan companies and branches are covered persons, and whether any fall within the excluded categories.
  
  
• Notify the Commissioner by 17 November 2026 - Covered persons already in scope have 60 days from publication of the Regulations to notify.
  
  
• Apply the Transitional Safe Harbour Test - Apply the simplified ETR and routine profits tests for each year from 2025, using the Qualified CbC Report and Qualified Financial Statements. As a separate exercise, check whether the Non-Material Constituent Entity simplified calculations are available for any Kenyan entity.
  
  
• Prepare the full computation where needed. Carry out full computations in line with the Regulations where neither test is met under the safe harbour.
  
  
• Payment of top up tax. Remit any top up tax due to KRA by the end of the fourth month after year end.
  
  
• Filing obligations. File the minimum top-up tax return by the end of the sixth month, and the GIR within 18 months after the end of the first year. Confirm whether the local entity will be exempted from filing the GIR where the parent company in a jurisdiction that has an agreement with Kenya, has filed the same.
  
  
• Keep a clear record. Document how scope was determined, the safe harbour or full computation workings, the data relied on, elections made, and all filings.