Kenya is preparing to impose taxes on foreign investors exiting local startups in a move that could reshape East Africa’s venture-capital landscape and increase scrutiny of offshore deal structures.

Under the proposed Finance Bill 2026, tabled in parliament on May 25, the government plans to introduce a 15% capital gains tax on indirect transfers involving Kenyan assets, effectively targeting offshore sales of shares in Kenyan companies.

The measure would mean that if a foreign venture capital or private equity investor sells shares in a Kenyan startup through an offshore holding company, Kenyan tax authorities would still seek to tax part of the gains, even if the transaction takes place outside the country.

“The proposal targets a loophole that has quietly shaped African startup exits for years. Most foreign investors structure their African investments through holding companies. When exits happen, the deals are often executed offshore, allowing investors to avoid local taxes entirely,” Techpoint Africa writes.

“Kenya’s Treasury now wants to change that by expanding the Income Tax Act so that any shares ‘deriving value from Kenya’ can be taxed locally. That means the Kenya Revenue Authority could claim tax rights over deals involving Kenyan startups regardless of where the paperwork is signed.”

The proposal marks one of the most significant tax policy shifts for Kenya’s technology and startup ecosystem in recent years and could affect foreign investment structures commonly used across African venture capital markets.

Kenya has emerged as one of Africa’s leading technology-investment hubs, attracting funding into fintech, logistics, e-commerce, climate technology and digital-finance startups.

Many investments into Kenyan startups are structured through offshore jurisdictions such as Mauritius, Delaware or the Cayman Islands, allowing investors to manage cross-border funding, shareholder protections and exit transactions outside Kenya’s domestic legal framework.

The proposed tax changes could therefore affect future exits, acquisitions and secondary-share sales involving Kenyan startups backed by international investors.

“The timing matters because Kenya is under growing pressure to raise revenue after years of debt strain and repeated public backlash against aggressive taxation. Since the 2024 Finance Bill protests, the government has been searching for ways to widen the tax base without triggering another political explosion over consumer taxes. The Finance Bill 2026 has already proposed new taxes targeting card networks, foreign software providers, crypto reporting, and digital platforms. Now venture capital exits are entering the tax net too,” Techpoint Africa writes.

“Kenya has spent the last decade marketing itself as a regional innovation hub, attracting global capital into fintech, logistics, healthtech, and e-commerce startups. But investors are already operating in a slower funding environment. Between 2023 and 2025, African startups increasingly relied on mergers and acquisitions rather than IPOs for exits, as investors prioritised safer, more predictable markets. A new offshore exit tax could make some investors rethink Kenya risk, especially if other African markets remain more flexible.”

 

 

Supporters of the measure argue that Kenya should capture more tax revenue from the rapid growth in startup valuations and foreign investment activity linked to the country’s digital economy.

However, venture capital investors and startup founders have warned that the move could reduce Kenya’s competitiveness relative to other African technology hubs if implemented aggressively or without clear guidance on enforcement.

The proposal also reflects a broader trend among African governments seeking to tighten taxation of multinational companies, cross-border transactions and digital-economy activities as fiscal pressures intensify.

Kenya’s technology sector has become increasingly important to the economy, with Nairobi often referred to as “Silicon Savannah” because of its concentration of startups, fintech firms and international technology investors.