Executive summary

Kenya issued the Income Tax (Minimum Top Up Tax) Regulations, 2026 (the Regulations) on 18 September 2026, establishing the detailed framework for computing and complying with the Minimum Top-Up Tax (MTT) provisions introduced under Section 12G of the Income Tax Act (ITA).

The Regulations contain detailed provisions for the computation of net income or loss, adjusted covered taxes, effective tax rate calculations, substance-based income exclusions. The Regulations also provide the special considerations that need to be made for restructuring transactions, joint ventures, minority-owned entities and multi-parent groups. Further, they prescribe the compliance requirements, which include the notification, minimum to top-up tax and Global Anti-Base Erosion (GloBE) information Return (GIR). The Regulations also provide details on the applicable safe harbors and rules relating to transition periods.

Detailed discussion

Background

Kenya introduced MTT through Section 12G of the ITA, drawing on elements of the OECD Pillar Two framework. The regime is intended to ensure that covered persons are subject to a combined effective tax rate (ETR) of at least 15% in Kenya.

The final Regulations provide operational guidance on the administration and computation of the tax and establish supporting compliance mechanisms necessary for implementation of the regime. The draft Regulations had been issued in November 2025. (For details, see EY Global Tax Alert, Kenya Revenue Authority publishes draft regulations on Minimum Top-Up Tax, dated 17 December 2025.)

Scope and application

The Regulations apply to multinational groups meeting the €750m consolidated-revenue threshold in two of the four years preceding the tested year of income. If one of the years is shorter or longer than 12 months, the computation of the €750m annual turnover can be prorated accordingly. "Tested year of income" has been defined to mean any year of income that occurred on or after the 1 January 2025, and the subsequent years of income for which a covered person determines they are subject to the MTT provisions.

Covered persons are required compute and pay MTT if their ETR falls below 15% for a particular year of income.

Computation of MTT

The Regulations prescribe the following formula for computing MTT:

MTT = (15% - combined ETR) × excess profit + additional top-up tax

The combined ETR is calculated as sum of all adjusted covered taxes divided by sum of net income or loss, multiplied by 100.

The starting point for computing the net income or loss of a covered person is the financial accounting net income or loss, making adjustments for items such as net tax expenses, excluded dividends, policy disallowed expenses and accrued pension expenses.

Adjusted covered taxes include current and deferred taxes. The Regulations specify the adjustments to be made to the covered taxes, such as amounts relating to uncertain tax positions, current tax expenses not payable within three years and current tax expenses relating to prior years.

Additional top-up tax would arise in exceptional circumstances, such as when net income is nil or a negative and the adjusted covered taxes are negative, subject to other defined conditions being met or an adjustment to prior year covered taxes.

"Excess profit" means the net income or loss of the covered person for the year of income, reduced by the substance-based income exclusion (SBIE). The SBIE is calculated as the sum of a percentage of employee costs and the net book value of tangible assets. The Regulations set out transitional rates for the SBIE, applicable to both employee costs and the net book value of tangible assets. The rates start at 9.6% for employee costs and 7.6% for tangible assets for the year of income beginning in 2025 and decline progressively each year until both rates converge at a steady 5% for 2033 and subsequent periods.

Notification requirements

The Regulations introduce a formal notification obligation for persons that fall within the scope of MTT.

Covered persons at the commencement of the Regulations must notify the Commissioner in writing within 60 days from the date of publication of the Regulations. A person who becomes covered subsequently must notify the Commissioner before the end of that person's year of income. If two or more covered persons belong to the same multinational group in Kenya, a single designated entity may be appointed to make the initial notification on their behalf.

A person who ceases to be covered must notify the Commissioner within six months from the first day of the relevant year of income. Changes to previously notified information must also be communicated to the Commissioner within 30 days.

MTT return and GIR filing requirements

The Regulations require each covered person to submit an MTT return not later than the last day of the sixth month following the end of the year of income. This aligns with the corporate income tax return filing date.

In addition, a covered person must file a GIR containing information relating to group structure, tax residence, effective tax rate calculations and top-up tax liabilities.

The GIR filing deadlines are:

• 18 months after the end of the first year in which the covered person becomes subject to Section 12G
• 15 months after the end of each subsequent year

A covered person is relieved from filing a GIR locally if a GIR has been filed by its ultimate parent entity or designated filing entity and that entity is located in a jurisdiction that has entered into an information exchange agreement with Kenya, e.g. Multilateral Competent Authority Agreement for the exchange of GloBE Information (GIR MCAA).

Transitional provisions

The Regulations establish detailed transitional rules that govern:

• Deferred tax assets and deferred tax liabilities
• Transfers of assets occurring after 30 November 2021
• Application of the MTT regime to entities within scope from 1 January 2025

The Regulations contain a specific transitional payment provision for a person who was a covered person on 27 December 2024 and whose year of income commenced on 1 January 2025. The Regulations expressly provide that such a person is required to pay any MTT that was due for payment on 30 April 2026.

Taxpayers affected by this Regulation should review their positions and monitor any administrative guidance from the Kenya Revenue Authority on the implementation of this requirement.

Payment and recordkeeping requirements

MTT is payable in Kenya shillings (KES), converted from the presentation currency of the consolidated financial statements using the average foreign-exchange rate for the year of income. The due date for payment of the tax is the end of the fourth month following a taxpayer's financial year-end. The Regulations also require covered persons to maintain the records necessary to determine and ascertain their MTT liability.

Safe harbor elections

The Regulations permit covered persons to elect the Transitional Country-by-Country Reporting Safe Harbour (TCSH) as set out in the GloBE Rules. The TCSH may be elected for eligible years of income commencing before 1 July 2029.

The TSCH comprises three independent tests and, upon meeting any of the tests, top-up tax is deemed to be nil for the specific year of income. The three tests are the de minimis test, the routine profit test and the simplified ETR test.

Reference to GloBE Rules and Administrative guidance as an interpretive source

The Regulations expressly provide that the GloBE Model Rules and Agreed Administrative Guidance may be applied in interpreting the Regulations. Covered persons may also apply relevant GloBE elections not otherwise provided under Kenyan legislation, provided the relevant conditions and consequential adjustments are observed and the elections are not inconsistent with elections made for purposes of Qualified Income Inclusion Rule or Qualified Undertaxed Profits Rule, where applicable.

The Regulations however expressly prohibit application of the De Minimis Exclusion election under Article 5.5 of the GloBE Model Rules. The De Minimis Exclusion provides that top-up tax shall be deemed to be nil for a fiscal year if, for the fiscal year, both:

• The Average GloBE Revenue for the jurisdiction is less than €10m million.
• The Average GloBE Income or Loss for the jurisdiction is a loss or is less than €1.

Conclusion

The issuance of the final MTT Regulations, 2026 marks a significant milestone in the operationalization of Kenya's Minimum Top-Up Tax regime. The Regulations are largely based on the GloBE Model Rules and reference the GloBE Rules and corresponding Administrative Guidelines as an interpretative source.

However, practical implementation gaps remain, particularly regarding the prescribed formats and modes of filing the notification, MTT return and the GIR. The KRA will likely soon release the relevant forms and administrative guidance to provide taxpayers with greater certainty and facilitate timely compliance.

Finally, as at the date of this Alert, Kenya has not yet activated any agreements under the GIR MCAA. Nonetheless, entities within scope should consult with knowledgeable tax advisors to help evaluate their notification, payment, reporting and computational obligations and establish the systems and processes required to comply with the finalized framework.