Transfer pricing in Kenya: New regulations


published on 15 July 2021 | reading time approx. 4 minutes


The Finance Act, 2021 (Act) was assented by the President on 29 June 2021. The introduction of the Act 2021 has revised the Transfer Pricing (TP) landscape in Kenya through the changes to be implemented. The changes in the Act are in line with Organisation of Economic Co-operation and Development’s (OECD’s) base erosion and profit shifting (BEPS) project.



In this article, we cover the salient changes made to the definitions, disclosure and documentation requirements from a TP perspective in Kenya.


Control in body corporates

The Act expanded the definition of ‘control’ and instances that give rise to control. Control is defined as holding of at least 20 per cent of the shareholding or voting power in a company. Previously, control entailed ownership of at least 25 per cent of the shares or voting rights in the other company. Additionally, the Act has introduced the following scenarios as instances that will give rise to control:

  • Where loans advanced by the person to another person constitute at least 70 per cent of the book value of the total assets excluding loans from financial institutions not associated with the person advancing the loan;
  • Where guarantees by the person for any form of indebtedness of another person constitute at least 70 per cent of the total indebtedness of the other person excluding a guarantee from financial institutions not associated with the guarantor;
  • Where the person appoints more than half of the board of directors of another person or at least one director or executive member of the governing board of that person;
  • Where the manufacture or processing of goods or articles or business carried on by one person is dependent on the use of know-how, patent, copy right, trade mark, license, franchise or any other business or commercial right of a similar nature, which the other person has exclusive rights to;
  • Where a person or a person designated by that person supplies at least 90 per cent of his sales to another person and upon assessment, the Commissioner deems influences in the price or any other conditions of the supply;
  • Where a person purchases or designates a person to purchase at least 90 per cent of the sales of another person and upon assessment, the Commissioner deems an influence in the price or any other conditions of the purchase; and
  • Where the Commissioner is of the opinion that the relationship, dealing or practice with another person constitutes control.



This provision reduces the threshold for control from 25 per cent to 20 per cent and expands the definition of control, which previously included shareholding and voting power that influences the conduct of affairs of a body corporate. The change will require body corporates to evaluate their business relationships over and above shareholding to establish control. The change is effective from 1 July 2021.

Expanded definition of a Permanent Establishment

The Act has expanded the definition of a Permanent Establishment (PE) to cover the following additional scenarios that will result to creation of a PE in Kenya:

  • A warehouse in relation to a person whose business is providing storage facilities to others;
  • A farm or plantation for agricultural activities;
  • A building or construction site or project installation or any supervisory activity connected to the site or project that has existed for: (a) a period of 183 days or more; or (b) an aggregate of between 30 to 183 days when carried on in one or more periods of time; or (c) for more than 30 days if carried on by a related enterprise;
  • Provision of consultancy services within Kenya for a period exceeding an aggregate of 91 days in a year;
  • An installation or structure used in the exploration of natural resources where the exploration continues for a period of more than 91 days;
  • A dependent agent of a person who acts on their behalf in Kenya including the negotiation and conclusion of contracts except where the activities are preparatory or auxiliary in nature.


The risk of business activities or consultants providing specific short term services amounting to PE has increased through the expanded definition. The change will require businesses and individuals to constantly evaluate the time spent by their employees in Kenya and the activities carried out in Kenya in line with the PE definition. The change is effective from 1st July 2021.

Introduction of Country-by-Country reports

The Act has introduced definition of Multi National Enterprise group (MNE group) and Country-by-Country (“CbyC”) reporting requirements for ultimate parent entities of multinational enterprises (MNEs). Multinational Enterprise group means a group that includes two or more enterprises which are resident in different jurisdictions including an enterprise that carries on business through a PE or through any other entity in another jurisdiction.
The Ultimate Parent entity means entity that:

  • is tax resident in Kenya for tax purposes;
  • is not controlled by another entity; and
  • owns or controls a MNE group.

The ultimate parent entity of the MNE shall submit to the Commissioner a return describing the group’s financial activities in Kenya and in all other jurisdictions where the group has taxable presence. The return shall be submitted not later than 12 months after the last day of the reporting financial year of the group. The return shall also contain information on the group’s aggregate information on revenue, profit and loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the group operates.


The introduction of CbyC reporting will result in additional transfer pricing documentation and reporting requirements for MNEs. In addition, this will lead to increased compliance costs. The change is effective from 1 July 2021.


The above changes will have significant impact on TP arrangements. In order to prepare for the new regulations, multinationals should review their existing structures or planned arrangements with regard to the amendments. In addition, taxpayers might need to update their TP policies or gather and document arguments supporting their position and/or to comply with the changes.

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