Kenya is proposing a special tax regime on startups’ Employee Share Ownership Plans (ESOPs), as it aligns to its plan to spur innovation.
The finance bill 2023 proposes the deferment of taxes on employee-allocated shares, recommending for them to apply after the expiry of five years from the time of share-award, or when an employee sells them, or leaves the company.
The taxable benefit will be based on the fair market value of the startup’s shares at the end of the five years or at the time of the disposal, and where unavailable, the tax commissioner will make the determination based on the startup’s financial statements. If the changes are adopted, the special tax regime will come into effect on July 1.
Currently employees pay taxes, immediately, on the gains accrued between the dates they became eligible and when they exercised the share option.
“The way our (Kenyan) Income Tax Act works is that anything that an employee derives as a consequence of the employment…
