Inside Kenya’s Finance Act 2025

Before 2024, a non-resident company with an annual turnover of KES 5 million or more would pay a 1.5% tax on the gross transaction value of services provided in Kenya via a digital marketplace. Buying, selling, exchanging, or transferring cryptocurrency and other digital assets was subject to a 3% tax on the transaction amount, regardless of profit or loss.

For years, startups used tax losses to offset future profits indefinitely. Any loss incurred in a given year could be deducted when computing taxable income for that year, and subsequent years of income until it was fully utilized.

Then the Finance Act 2025 came into effect partially in late 2024 and fully in 2025. Some rules were abolished and new ones introduced, and businesses had to align or face fines and criminal charges.

Startup Incentives

When the new Act took effect, businesses in long recovery cycles, including startups, manufacturing, and capital-intensive sectors, lost the ability to utilize tax losses against future taxable income. Tax losses can now only be carried forward for five years.

However, investors certified by the Nairobi International Financial Centre Authority (NIFCA) will enjoy a preferential tax rate of 5%.

To qualify for an additional preferential corporate tax of 15% for the first ten years from the year of commencement, and 20% for the subsequent years, a company must meet the following conditions.

Invest at least KES 3 billion in Kenya in the first three years of operation
A holding company must ensure that 70% of its senior management are Kenyans
If the regional headquarters is in Kenya, 60% of senior management should be Kenyans

A startup certified by NIFCA enjoys a 15% corporate tax for the first 3 years, and 20% for the subsequent 4 years.

Balancing the Market for Local Businesses

While the Significant Economic Presence Tax (SEPT) was present in the previous regime, it has now been increased to 3% on gross turnover, and applies to all non-resident persons who derive income from Kenya through a business carried out over the internet, electronic network, or a digital marketplace, regardless of the turnover.

Aimed at creating a level playing field for local businesses, this tax targets

Streaming and content services providers like Netflix
Ride-hailing and delivery apps like Bolt and Uber
Online marketplaces and e-commerce sites like Amazon
Digital advertising and search engine like Google
Cloud computing and SaaS providers like AWS

Tougher Times for SMES

A medium-sized bakery or coffee shop in Nairobi CBD, generating daily sales of approximately KES 3300 to KES 80,000, is now subject to a 3% turnover tax, up from 1%.

Only MSMEs earning less than KES 1 million in a year are exempt from turnover tax, but are still required to declare and file their corporate tax returns.

The downside is that MSMEs now have smaller profit margins

A Win for Digital Asset Providers

The way crypto tax is applied in Kenya has been significantly altered by the scrapping of the digital asset tax and the introduction of 10% exercise duty on platform fees.

Instead of direct taxation, the new act taxes the transaction fees charged by platforms, including centralized exchanges, crypto wallets, and other virtual asset providers.

This brings crypto platforms under the same regulatory framework as financial institutions. Aside from reducing the cost of transactions by over 90%, it makes crypto-based remittances more structured, encouraging transparency in cross-border payments.

And Just Before We Conclude

Tech startups often generate and consume Intellectual Property (IP). As Several laws in Kenya focus on different aspects of IP, they are registered under different authorities.

When innovative startups generate income through their IPs, it is taxable in the same way income generated by any other business asset is taxed.

Tax rates are set depending on whether they are earning from IP rights, selling or assigning, or entering into a formal IP contract.

If startups fail to understand their IP tax position, they set themselves up for revenue loss or regulatory sanctions that could result in investor pullout.

Conclusion

The Finance Act 2025 offers a carrot and stick approach to businesses operating in Kenya. On the one hand, introducing limitations on tax loss carry-forward, and broadening the SEPT, while on the other, introducing incentives.

But compliance is not optional, and tax planning can no longer be reactive. Startups must develop a tax strategy that is not just focused on minimizing exposure, but also on aligning growth, compliance, and sustainable competitiveness.

Are you ready to align with Kenya’s evolving policy environment?

Velex Advisory has developed a Tax Compliance program to help startups understand their tax position, address critical compliance gaps, and gain the momentum they need to scale. Selected applicants will get a free tax review, then choose one of the following services.