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Analysis of Kenya’s evolving approach to foreign currency financing and tax deductibility
Foreign exchange losses can significantly impact businesses operations, particularly those engaged in cross-border transactions or financing. The question of whether such losses are deductible for tax purposes has been a subject of legal and accounting scrutiny. The June 2026 Court of Appeal judgement in Commissioner of Domestic Taxes vs Del Monte Kenya Limited, has provided much-needed clarity on how these losses should be treated under Kenyan tax law.
Del Monte Kenya Limited, a subsidiary of Del Monte International Inc. based in Panama, had over several years since 2001 received substantial unsecured and interest-free loans denominated in US dollars and British pounds from its parent company. Unlike typical loans intended for capital investment or expansion, these funds were allocated to support the company’s day-to-day operations including payment of suppliers, procurement, and salary obligations. This operational use of foreign currency loans placed Del Monte in a unique position regarding the subsequent accounting and tax treatment of exchange gains and losses.
Del Monte managed its accounts in Kenyan shillings, so foreign currency loans were regularly converted to local terms. Annual fluctuations in exchange rates, ment that the value of the loans would shift, causing unrealised gains or losses, which stayed notional until the loans were settled or a financial event occurred.
