The National Treasury wants companies operating in Nairobi’s financial hub to pay a lower corporate income tax rate of 15 percent for the first 10 years and 20 percent for the next 10 years, provided they inject Sh3 billion into the Kenyan economy.
The standard corporate income tax rate in Kenya is 30 percent for both resident companies and branches of foreign companies.
When the financial hub was launched in July 2022, it attracted three companies - Britain’s Prudential Plc, an insurance company, ARC Ride Kenya and AirCarbon Exchange (ACX).
Companies operating in the Nairobi International Financial Centre (NIFC) should also be a holding company with at least 70 percent of its senior management being Kenyans, according to proposed amendments in the draft Finance Bill 2025.
An international financial centre is a location with facilities and support services for international activities in areas such as banking, asset management, insurance, and financial markets. It operates within a regulatory framework that meets international standards.
The latest amendments are part of the government’s plan to attract investments to the financial hub, which was launched three years ago to attract international financial institutions, investors, and multinational corporations.
The Finance Bill also proposes to exempt dividends paid by a company certified by the NIFC from withholding tax if the firm reinvests in the Kenyan economy a total of Sh250 million earned in that year.
Currently, only companies that own or operate a carbon exchange or emissions trading system within the NIFC can benefit from a reduced corporate income tax rate of 15 percent for the first 10 years of operation.
However, apart from the three companies reportedly registered at the start of the financial centre, there have been few reports of others.
“It is not entirely clear how a company would be expected to meet the different sets of thresholds on the employment of citizens of Kenya,” said Alex Mathini, a partner at law firm Bowmans Kenya.
“In addition, we have not seen the NIFC model work and therefore there is a need to rethink the entire approach in a bid to attract investors who would want to operate under NIFC regime,” added Mr Mathini.
Dr Lyla Latif, a lawyer and lecturer at the University of Nairobi, reckons that while the graduated preferential tax regime for NIFC-certified entities is aimed at ensuring benefits from the investors extend beyond tax concessions to skills development and leadership opportunities, the provisions in the Bill undermine fiscal goals and tax equity.
“In light of the decision to cut spending, these preferential tax rates offered to NIFC-certified entities then represent potential short-term revenue losses at a time when the government is actively seeking to improve its fiscal position. These risks undermining both fiscal goals and perceptions of tax equity,” explained Dr Latif.
Kenya launched its international financial centre eyeing large foreign firms and boosting capital flows into the country and the region.
The Finance Bill also proposes to levy corporate income tax on NIFC-certified start-ups at the rate of 15 percent for the first three years and 20 percent for the subsequent four years.
