Capital Gains Tax on Share Sales by Non-Residents in Kenya 2026: How the Finance Bill Reshapes Cross-Border Equity Deals

Among the many tax proposals in the Finance Bill 2026, one of the most technically significant is the widening of the scope of capital gains tax on share transfers by non-resident persons. The provision targets two specific scenarios. It taxes gains from the alienation of shares by a non-resident where the shares derive their value, directly or indirectly, from immovable or other property situated in Kenya. It also taxes gains where the alienation results in a change of group membership of a company resident in Kenya. For diaspora investors, offshore holding companies and the small but growing community of Kenyan-origin private equity professionals, the proposal materially changes how cross-border deals are structured and priced.

What CGT Looks Like Today

Capital gains tax in Kenya was reintroduced in 2015 after a decades-long suspension. The default rate, raised in 2023, stands at 15% of the gain on disposal of taxable property. The most common application is to gains on the sale of immovable property such as land and buildings, and to gains on the sale of unquoted shares in Kenyan companies. Where the disposing party is a non-resident and the disposal is a sale of unquoted Kenyan shares, the gain has historically been within the CGT net.

What has not been fully captured is the offshore share sale. Where a non-resident sells shares in a foreign-registered holding company that in turn owns the Kenyan operating company, the gain has historically fallen outside Kenya's tax net. The Finance Bill 2026 is designed to close that gap and align Kenya's rules with the OECD and UN model treaty approach, in which a country may tax the indirect alienation of immovable property held through an intermediate company. Background on the existing CGT regime is available on the Kenya Revenue Authority website.

The Indirect Transfer Provision

Under the proposed wording, a gain arising from the disposal of shares by a non-resident is taxable in Kenya if, immediately before the disposal, the shares derive more than 20% of their value from immovable property situated in Kenya, or if the disposal results in a change of group membership of a Kenyan-resident company. The 20% threshold is meaningful because it brings within the net any offshore structure in which a Kenyan property or operating asset is the main economic driver of the holding company's value.

The practical implication is that a non-resident selling shares in, for example, a Mauritius-registered holding company that owns Kenyan real estate would face a capital gains tax liability in Kenya on the gain attributable to the Kenyan property. The exact mechanics, including the valuation of the Kenyan-sourced component, the timing of the tax payment, the obligation of the buyer to withhold and the interaction with double tax treaties, are spelled out in the draft schedule to the Bill and are likely to be refined during the public participation phase.

The Change Of Group Membership Provision

The second strand of the rule, which captures gains where the alienation results in a change of group membership of a Kenyan-resident company, is a separate trigger. It is designed to capture transactions in which the underlying ownership of a Kenyan business changes hands at the offshore level, even if the Kenyan entity itself is not directly sold. For example, where a global private equity fund acquires a multinational that owns a Kenyan subsidiary, the change in ultimate ownership of the subsidiary would now be a taxable event in Kenya, calculated by reference to the gain attributable to the Kenyan business.

This kind of provision exists in a growing number of jurisdictions, including India, China, Tanzania and several Latin American countries. Its enforcement is challenging because it relies on the cooperation of foreign tax authorities and the willingness of buyers to factor the tax into purchase price negotiations. Most jurisdictions that have adopted similar provisions impose secondary obligations on the local entity to disclose the change of ownership, with penalties for non-disclosure.

Why The Treasury Is Proposing It

The Treasury's stated rationale rests on revenue and fairness. From a revenue perspective, a number of high-value deals in the past decade have transferred ownership of Kenyan businesses without any tax accruing to Kenya, because the deal was executed at the holding company level. From a fairness perspective, the argument is that a transaction that economically transfers a Kenyan asset should attract Kenyan tax, regardless of the legal form. The proposal also aligns with the OECD's Base Erosion and Profit Shifting framework, which encourages countries to take primary taxing rights over local property and local business assets.

Critics argue that the rule will deter foreign direct investment by adding complexity and uncertainty to deal structures. They point out that several of Kenya's bilateral tax treaties, particularly older ones with Mauritius and the United Arab Emirates, are silent on the taxation of indirect transfers and may need to be renegotiated. The interaction between domestic CGT and treaty protection will be one of the principal areas of dispute as the rule is implemented.

The Diaspora Investor Angle

Many diaspora Kenyans hold their Kenyan investments through offshore structures, sometimes for legitimate succession planning, currency risk management or treaty-based reasons. The new rule means that when those structures are unwound, sold or restructured, the Kenyan tax consequence needs to be evaluated. A diaspora investor who acquired a Kenyan property through a Mauritius company in 2018 and is planning to sell the company to another diaspora investor in 2026 will, under the proposed rule, owe CGT in Kenya on the gain attributable to the Kenyan property.

Practical steps for diaspora investors include a fresh valuation of any offshore holding company that holds Kenyan assets, a review of the original cost basis used for tax purposes, and a check of the bilateral treaty network that may apply to mitigate or eliminate the Kenyan tax. Where the structure was put in place years ago, the documentation needed to evidence cost basis and the legal nature of the offshore entity may need to be refreshed.

How The Buyer Becomes Involved

A key feature of indirect transfer rules in many jurisdictions is the obligation of the buyer to withhold the tax at source. In its current draft, the Finance Bill 2026 imposes a withholding obligation on the local Kenyan entity, requiring it to deduct and remit the applicable CGT to the Kenya Revenue Authority when notified of a change of ownership at the offshore level. The local entity is therefore caught in the middle of a transaction in which it is not a direct party but on which it now has compliance obligations. Companies operating in Kenya, particularly those held in multi-tier structures, will need to update their internal procedures and notify their offshore shareholders of the new rule.

Treaty Considerations

Kenya has tax treaties with more than fifteen countries, with the network expanding. Some of these treaties allocate primary taxing rights over capital gains on shares to the country of residence of the seller, which would override the new domestic provision. Others, especially those modelled on the OECD or UN approach, allow Kenya to tax gains on shares of land-rich companies. Where a treaty applies, the diaspora investor or offshore holding company can claim treaty relief, but the claim will need to be supported by a certificate of residence from the home tax authority and full documentation of the transaction.

The Treaty Network section of the National Treasury website lists the current treaties in force. Investors with offshore structures should review their position before completing any disposal and, where the value at stake justifies the cost, take formal tax advice in both jurisdictions.

Compliance Mechanics

The procedural rules around assessment, payment and dispute will be set out in the secondary legislation that accompanies the Bill. In general terms, the model that is likely to emerge requires the local Kenyan entity to file a notification of change of ownership, accompanied by a computation of the gain attributable to the Kenyan business. The KRA will issue an assessment, payment will be due within a specified period, and the usual rights of objection and appeal will apply.

For complex deals, advance pricing rulings and pre-transaction agreements with the KRA will become more important. The KRA's International Tax Office, which handles high-value cross-border cases, is likely to be the principal point of contact for diaspora investors and multinationals with significant Kenyan exposure.

What This Means For 2026 Deal-Making

For the rest of 2026, dealmakers should expect deals to take longer to close, with more diligence focused on the Kenyan tax position. Sellers will need to provide tax indemnities to buyers, with appropriate caps and escrow arrangements. Buyers will negotiate purchase price adjustments to reflect the new tax cost. Lawyers and tax advisers familiar with the Kenyan rule, the home country rule and the relevant treaty network will become essential members of the deal team.

For diaspora investors holding small to mid-sized stakes in Kenyan businesses through offshore structures, the cost-benefit calculus of those structures changes. The savings on Kenyan tax that motivated the structure may no longer be available, and the complexity of maintaining the offshore entity may outweigh the residual benefits. Several diaspora professionals have begun unwinding structures and reverting to direct ownership, and the trend is likely to accelerate as the new rule beds in.

The Bottom Line

The Finance Bill 2026's widening of capital gains tax on non-resident share sales is a significant change that brings Kenya into line with international practice on indirect transfers. For diaspora investors and offshore holding structures the immediate priority is documentation, valuation and treaty review. For local Kenyan entities the priority is internal compliance procedures for notifying and withholding on ownership changes. For the Treasury the proposal is a step toward a broader tax base; for the market it is a step toward greater complexity. Either way, the days of structuring around the Kenyan CGT net by holding assets in an intermediate offshore vehicle are coming to an end.