A business that makes a loss in a year does not have to lose the benefit of that loss: it can usually be set against profits in later years, which lowers the tax then. The Finance Act, 2025 put a time limit on that benefit, which affects every business with an old loss on its books.

What changed

  • Before: tax losses could be carried forward indefinitely, until there were enough profits to use them.
  • After the Finance Act, 2025: the carry-forward is limited to five years. A loss that is not used in that time is lost for tax purposes.
  • The Act also removed the provision that let a taxpayer deduct a capital loss against future capital gains.

Check the transitional rules for how the five years are counted for losses that arose before the change, because that detail determines whether an old loss is still available.

Why it matters

A start-up that loses money in its first years, or a cyclical business with bad years, relies on carrying losses forward. Under the new rule, a loss from year 1 is useful only until year 6. If profits arrive late, part of the loss may expire unused.

A worked example

A company loses KES 2,000,000 in year 1 and then makes profits of KES 300,000 a year. After five years of profits, KES 1,500,000 of the loss has been used. The remaining KES 500,000 can no longer be set against profits in year 7 and beyond. At 30% corporation tax, the lost relief is worth KES 150,000. Use the corporation tax calculator and the corporation tax computation workbook, which has a line for losses brought forward, to see the effect.

What to do

  1. List your losses by year, with the tax return that reported each one.
  2. Mark the year each loss expires.
  3. Plan profits. If you control the timing of income and expenses, you may be able to use older losses first.
  4. Review the structure. A group or a sole trader may use losses differently; see sole trader or limited company and ask your adviser.
  5. Keep the records that support each loss; see how to keep business records for KRA.

Interaction with instalments

If you use losses to reduce this year's tax, your instalments should reflect it; plan them with the tax provision and instalment forecast and the instalment tax calculator.

Capital losses

With the capital loss relief removed, a loss on selling an asset no longer shelters a future gain. This matters for investors and property owners; see capital gains tax increased to 15% and selling a property: the capital gains tax steps.

Keep up to date

Transitional rules are easy to misread. See how to follow tax changes in Kenya to find the text of the Act, and ask a registered tax adviser about your losses.

Questions to ask your adviser

Which of your losses arose before the change, and how are the five years counted for them? Could you bring forward profits, for example by timing a sale, so that older losses are used first? Does your group or ownership structure affect how losses can be used? Keep the answers with your tax file, along with the corporation tax computation for each year.

Rules are set by the Income Tax Act as amended. Confirm your position with KRA or a registered adviser.