The Kenya Revenue Authority is moving from a registration‑based test to a substance‑based test, assessing where a company’s key commercial decisions are actually taken.

The concept at the centre of this shift is the Place of Effective Management (POEM), defined as the location where the key management and commercial decisions that determine the direction of a business are substantively made.

Foreign‑incorporated companies whose directors or executives are based in Kenya may be classified as Kenyan tax residents, exposing them to corporate tax, transfer‑pricing reviews and penalties.

Business arrangements likely to attract KRA scrutiny

KRA is targeting offshore companies whose Kenyan directors exercise real decision‑making authority, family holding entities registered abroad but controlled by Kenyan residents, digital businesses incorporated outside Kenya but directed from within, and regional group structures with executive control centred in Kenya.

Tax consultant Fred Gitonga of Stalwart Taxation Services notes that the shift aligns Kenya with the OECD’s BEPS initiative, which encourages authorities to look through legal structures that do not reflect genuine economic activity.

Steps businesses should take now

Business leaders are advised to align board‑meeting locations, decision‑making processes and supporting documentation with the tax residency position they claim, and to involve tax experts for a proactive review of existing structures.

Proactive alignment is considered less costly than responding to a KRA assessment after the fact.