The Finance Act, 2026 made two important changes under the Income Tax Act that businesses and investors should know about.
1. Interest Paid to Microfinance Institutions
The Finance Act, 2026 specifically included financial institutions licensed under the Microfinance Act in the Fourth Schedule to the Income Tax Act.
Where a qualifying licensed microfinance institution receives interest, that interest payment will be exempt from withholding tax (WHT).
For example, if a company borrows money from a qualifying microfinance institution and later pays the institution interest, the company will not deduct WHT from that qualifying interest payment.
Remember: This does not mean that the microfinance institution's entire income is tax-free. The change relates to WHT on qualifying interest payments made to the institution.
The amendment specifically refers to institutions licensed under the Microfinance Act. It does not mean every financial institution automatically becomes a microfinance institution.
2. Capital Gains Tax — Even Indirect Sales Can Matter
The Finance Act, 2026 also expanded Kenya's taxing rights over certain share disposals by non-residents.
Imagine a foreign company owns a Kenyan company. Instead of selling the Kenyan company directly, the foreign owner sells the foreign company that owns it.
Kenya may have a right to tax the gain where the shares being sold:
- Derive their value from Kenya
- Result in a transaction that changes the group membership of a Kenyan company
- Affect ownership, title, or interest in property located in Kenya
Why Does This Matter?
The wording on Kenyan value is quite broad. Imagine a foreign company is worth KSh 100 billion, but it has a Kenyan subsidiary that contributes only a small part of that value.
If the foreign company is sold, an important question becomes: How much of the gain should Kenya tax?
The Act does not provide a clear formula for allocating the gain to Kenya. This creates uncertainty and could also create a risk of double taxation if another country taxes the same gain.
The Simple Takeaway
🏦 Microfinance: Qualifying interest paid to licensed microfinance institutions is exempt from WHT.
🌍 Non-residents: Selling shares outside Kenya does not necessarily mean the transaction is outside Kenya's tax reach. Where the shares have the specified connection to Kenyan value, companies, or property, Kenyan CGT may come into play.
Before completing a transaction, understand where the value comes from and what the Kenyan tax implications may be.
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