Under the Finance Bill 2026 before parliament, the government wants to introduce a 15% capital gains tax on gains made by non-resident investors selling shares abroad when those shares derive value from Kenyan assets or operations.

If passed, the amendment to Kenya’s Income Tax Act would allow the Kenya Revenue Authority (KRA) to tax transactions completed outside the country, even when the companies involved are registered in foreign jurisdictions such as Mauritius, Delaware, London or the Cayman Islands.

The proposal targets a long-standing structure used by venture capital and private equity firms investing in African startups. Many Kenyan startups operate locally but are incorporated abroad because foreign investors prefer offshore holding companies that simplify fundraising, offer stronger legal protection and make acquisitions easier.

Kenya now wants a share of the profits when those investors exit.

The bill states that gains arising from “the alienation of shares by a non-resident person where the shares derive their value from Kenya” would become taxable locally, regardless of where the transaction happens.

Treasury officials are also seeking powers to tax deals involving “a change of the group membership of a company resident in Kenya” as well as changes in ownership tied to Kenyan property.

The proposed law could impact investor exits in sectors including technology, energy and infrastructure, where offshore ownership structures are common.

For founders and investors in Kenya’s startup ecosystem, the changes may create fresh tax exposure during acquisitions, secondary sales and restructuring exercises carried out at the holding-company level.

The Institute of Certified Public Accountants of Kenya (ICPAK) warned lawmakers that the amendment may go beyond standard asset sales.

“As drafted, the provision may create Kenyan CGT exposure for offshore investor exits, capital raising transactions, group restructurings and internal reorganisations undertaken at holding company level,” the body said.

Kenya’s move follows a string of high-profile disputes over offshore transactions linked to local assets.

Last year, Tullow Oil agreed to sell its Kenyan subsidiary, Tullow Kenya BV, to Gulf Energy in a deal connected to the Lokichar oil project in Turkana. Although the transaction was structured offshore, the KRA issued a KES 21 billion ($161.7 million) tax demand, arguing that the transferred shares drew their value from Kenyan oil resources.

The tax authority took a similar position in the 2017 sale of Java House by Emerging Capital Partners to Dubai-based Abraaj Group. Kenya’s Tax Appeals Tribunal later upheld a KES 773.8 million ($5.9 million) tax assessment after rejecting arguments that the transaction fell outside Kenya’s jurisdiction.

The Finance Bill 2026 also includes other tax measures. Kenya plans to raise rental income tax from 7.5% to 10%, introduce a 20% tax on gambling winnings and impose a 1.5% withholding tax on scrap metal sales.

Most provisions in the bill are expected to take effect from July 1, 2026, if parliament approves them.

Kenya is not alone in strengthening tax rules around offshore deals. Uganda already taxes some offshore transactions linked to local assets, while governments across emerging markets are increasing pressure on multinational investors to pay taxes where economic value is created.

For foreign investors already dealing with a slow funding market across Africa, the proposed tax could complicate and increase the cost of Kenyan startup exits.

The rate, slated to take effect from January 2026, is viewed by market players as overly burdensome.

In an open letter dated October 2, 2025, the capital market operators warned that the new CGT could exert intense pressure on the Nigerian Exchange (NGX) before year’s end, as both domestic and foreign institutional investors might seek to realize their gains under the current, more favorable tax regime.

They noted that returns on the stock market had already soared: the NGX’s average investors’ return reached ₦27.82 trillion over nine months, largely driven by improved confidence following federal foreign-exchange reforms.

The market capitalization began 2025 at ₦62.763 trillion and rose by 44.3 percent, closing September at ₦90.581 trillion.

In their letter, signed by Mr. Kato Mukuru, CEO of Emerging & Frontier Capital (EFC), the operators argue that the proposed tax fails to satisfy the FPTR’s seventh guiding principle, which demands equitable treatment for all stakeholders, including both local and foreign investors, as well as all levels of government.

While the proposal exempts retail investors with gains under ₦150 million annually (which, they claim, covers 99.9 percent of domestic retail investors), and leaves some exemptions for pension funds and large domestic capital sources, no similar relief is provided for institutional investors.

They suggested that the capital gains tax rate be reduced to 25 percent for cases in which proceeds from share sales are reinvested into fixed-income or other non-equity assets. But they questioned the fairness of this carve-out, especially for funds confined to equity investments.

The letter also raised concerns about the use of the acquisition cost as the reference base for calculating gains, especially for long-held shares, recommending instead that any tax changes begin from the implementation date (January 2026) to avoid penalizing past investments.

Furthermore, the operators contend that the lack of clarity for foreign investors, who must now factor the CGT into their valuations in addition to foreign-exchange risk, will hurt Nigeria’s competitiveness. A higher cost of equity, they argue, means Nigeria must deliver stronger returns to attract international capital.

If the 30 percent capital gains tax is imposed, they warn, it would likely drive institutional capital out of equities prematurely, undermining growth, job creation, and long-term investment in listed firms.

Meanwhile, the NGX All-Share Index closed the first nine months of 2025 at 142,710.48 basis points, a 38.65 percent gain over the 2024 close of 102,926.40.

Analysts attributed the robust performance to a stabilizing foreign-exchange environment, corporate earnings recovery, improved liquidity, reduced interest rates, and policy reforms in the banking and insurance sectors.

Among other positive indicators, the Central Bank’s Monetary Policy Committee trimmed the Monetary Policy Rate (MPR) to 27 percent, the inflation rate stood at 20.12 percent (as of August), and yields on Nigerian Treasury Bills fell to 15 percent (down from 18 percent).

As the market environment becomes less favorable for fixed income, many investors are turning toward equities. And if corporations continue to deliver strong earnings and declare dividends, demand for stocks may also stay strong.

[Source: ThisDayLive]