Foreign VC exits in Kenya face 15% tax under proposed law

Kenya plans to impose a 15% capital gains tax (CGT) on offshore sales of local companies, targeting a structure through which foreign venture capital and private equity investors have exited Kenyan businesses without paying local taxes.

The proposal in the Finance Bill 2026 tabled before parliament would allow the Kenya Revenue Authority (KRA) to tax gains made by non-resident investors selling shares abroad if those shares derive their value from Kenyan assets or operations.

Under the proposed amendment to the Income Tax Act, gains arising from “the alienation of shares by a non-resident person where the shares derive their value from Kenya” would become taxable in Kenya, even if the underlying transaction occurs outside the country.

The amendment could be Kenya’s latest attempt to earn revenues from foreign investor exits, particularly in sectors such as technology, energy, and infrastructure, where ownership structures are routed through offshore holding companies in jurisdictions such as London, Mauritius, Delaware, and the Cayman Islands.

The Treasury is also seeking powers to tax transactions that result in “a change of the group membership of a company resident in Kenya” or changes in ownership of Kenyan property. The proposed changes appear designed to close gaps that have made it difficult for the taxman to enforce capital gains tax on offshore transactions involving Kenyan assets.

For Kenya-focused venture capital investors, the changes could complicate exits from Kenyan startups, many of which are incorporated abroad despite operating largely within Kenya and other African markets. 

Foreign investors favour offshore structures because they simplify fundraising from international limited partners (LPs), provide stronger legal protections, and make mergers or acquisitions easier to execute.

The Institute of Certified Public Accountants of Kenya (ICPAK), in its submission to the country’s parliament, warned that the wording of the amendment could have consequences beyond traditional 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.

Tax disputes

The proposed law appears to be a response to a series of tax disputes involving the sale of Kenyan assets through offshore holding companies.

In 2025, Tullow Oil agreed to sell its Kenyan subsidiary, Tullow Kenya BV, to Gulf Energy in a transaction linked to the Lokichar oil project in Turkana. 

Although the deal involved Kenyan petroleum assets, it was structured offshore, prompting the KRA to issue a KES 21 billion ($161.7 million) tax demand because the transferred shares derived their value from Kenyan oil resources.

In 2017, the KRA pursued taxes linked to the offshore sale of Java House by Emerging Capital Partners to Dubai-based Abraaj Group. Kenya’s Tax Appeals Tribunal later allowed the tax authority to impose a KES 773.8 million ($5.9 million) assessment after rejecting arguments that the transaction fell outside Kenyan tax jurisdiction.

The proposed tax changes now place Kenya among a growing number of countries like Uganda seeking to tax offshore transactions where the economic value is generated locally, a shift that could shape how foreign capital flows into startups and other strategic investments like infrastructure and energy.