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Kenya’s Latest Finance Bill Suggests Tax Incentives for Startup Employee Stock Ownership Plans (ESOPs)


Kenya proposes a special tax system for Employee Share Ownership Plans (ESOPs) to encourage innovation in its startup environment.

The Finance Bill for 2023 proposes a “deferred tax” system, which means that taxes on shares given to workers should be put off until certain events happen. These occurrences include the passing of five years from the date of the share award, the employee’s sale of shares, or the employee’s exit from the company.

Under the suggested system, the taxable benefit will be based on the fair market value of the startup’s shares either at the end of the five years or when the stakes are sold.

When the fair market value isn’t easy to find, the tax commissioner will look at the startup’s financial records to figure it out. The new tax rules are expected to go into effect on July 1.

Currently, workers in Kenya have to pay taxes on gains from share options immediately, even before they use the option. The suggested changes will ease this burden by putting off tax payments until certain events happen.

This change is meant to help Kenyan startups in business for less than five years, make less than KES 100 million ($731,255) per year in sales, and was not created by splitting or reworking another business. It’s important to note that this scheme won’t work for startups in the management, professional, or training sectors.




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