MasiboLaw

By Precious Simiyu

The Finance Act, 2025, enacted in June 2025, introduces sweeping changes that significantly affect Kenya’s digital economy. Startups, fintech companies, and virtual asset service providers will be impacted by new tax incentives, expanded excise duties, and stricter compliance timelines.

In this article, we break down the key provisions of the Act and highlight their practical implications for players in the fintech and startup ecosystem.

1. Corporate Tax Incentives for Startups under the NIFC Framework

Preferential Tax Rates for NIFC-Certified Companies

The Act amends the Income Tax Act (Third Schedule) to grant lower corporate tax rates for entities certified under the Nairobi International Financial Centre (NIFC):

• Startups:15% corporate tax for the first 3 years20% for the next 4 years
• Holding and finance companies (meeting local investment and management conditions):15% for 10 years, then 20% thereafter

⚖️ This is a new regime designed to position Nairobi as a competitive global hub for financial and tech innovation.

Fringe Benefit Tax Alignment

Fringe benefit tax is now aligned to the standard corporate tax rate, allowing startups within the NIFC to enjoy lower tax rates on employee benefits (15% or 20% instead of 30%). This reduces employment-related tax liabilities for high-growth firms.

2. New Excise Duties Affecting Fintechs and Digital Lenders

Excise Duty on Digital Lending

The Act introduces a 20% excise duty on all fees and interest charged by digital lenders. It expands the definition to include:

“Any person providing credit electronically, excluding licensed banks, SACCOs, and microfinance institutions.”

This provision now captures:

• Peer-to-peer lending platforms
• Unregulated fintech credit apps
• Non-bank digital lenders

Cross-Border Digital Marketplace Services

The definition of “digital marketplace” now includes non-resident service providers offering digital services in Kenya. These providers are now subject to 20% excise duty if their services are consumed locally. Examples:

• E-payment platforms
• Cloud-based fintech tools
• Foreign digital consulting services

3. Taxation of Virtual Assets and Blockchain Services

The Act repeals the 3% digital asset tax and introduces a 10% excise duty on service fees charged by Virtual Asset Service Providers (VASPs). This affects:

• Cryptocurrency exchanges
• Blockchain infrastructure companies
• Digital wallets and token issuers

✅ This shift from value-based tax to fee-based excise simplifies compliance and may benefit crypto startups with lower margins.

4. New Excise Duty on Gaming Wallets

The Act replaces the 15% tax on bets with a 5% excise duty on deposits into gaming wallets. This means taxation occurs before a bet is placed:

• For a KES 1,000 deposit, KES 50 is taxed immediately.

5. VAT Updates: Digital Invoicing and Refunds

Electronic Tax Invoicing

The Finance Act formally recognises e-tax invoices for VAT compliance, legitimising:

• Digital content billing
• Subscription platforms
• Cloud service invoices

VAT Exemptions and Zero-Rating

The following remain exempt or zero-rated:

• Internet services
• Broadcasting services (TV/radio)
• E-bikes, solar batteries, and locally assembled phones

Shortened VAT Refund Window

VAT refunds must now be claimed within 12 months (previously 18). This affects all VAT-registered fintechs and digital service providers.

6. Regulatory Update: Advance Pricing Agreements (APAs)

The Act empowers the Kenya Revenue Authority (KRA) to enter Advance Pricing Agreements (APAs) with multinational fintech groups. These agreements:

• Cover up to five years
• Help mitigate transfer pricing disputes
• Provide certainty in cross-border tax treatment

📘 Need help negotiating APAs or transfer pricing policy? Contact our tax advisory team.

7. Practical Impact on Startups and Fintechs in Kenya

Startups & NIFC-certified firms

✔ Gain from preferential tax rates (15% and 20%)

✔ Enjoy lower fringe benefit tax

✔ Benefit from APAs and formal e-invoicing recognition

Crypto & blockchain firms

✔ No more 3% turnover tax

✔ Now pay 10% excise on service fees — less burdensome

Cross-border service providers

✘ Now subject to excise on digital services consumed in Kenya

✘ Must reassess compliance under Kenya’s expanding tax net

9. Compliance and Legal Advisory for Fintech and Startups

The Finance Act 2025 represents a dual shift — one that incentivises investment under the NIFC and simultaneously tightens excise and VAT rules for the broader digital sector.

At MasiboLaw LLP, we help clients navigate:

• Corporate structuring for NIFC compliance
• Tax planning and APA negotiation
• VAT invoicing setup and excise duty review
• Licensing for fintech and crypto providers in Kenya

📩 Need legal support? Reach out to us today for a tax and compliance review tailored to your business.