Kenya’s High Court has ruled that private equity firm Emerging Capital Partners (ECP) must pay 2.5 billion shillings (19.3 million US dollars ) in taxes on profits from its 2017 sale of a stake in local restaurant chain Java House, even though the transaction was executed through a Mauritius-based holding company, Bloomberg reported.

The court concluded that Java House was managed from Kenya and that its value was created locally, making it subject to Kenyan capital gains tax. Judge Charles Kariuki dismissed ECP’s appeal, affirming the legality of the tax claim.

The ruling has raised concerns among investors about the treatment of offshore structures commonly used in private equity. Funds using tax-neutral jurisdictions like Mauritius or Luxembourg often channel capital from global investors through such vehicles. Industry experts warn that unclear rules could deter foreign investment, slow deal activity, and affect job creation.

Kenya has long been East Africa’s private equity hub, accounting for the majority of regional deals in 2024 and nearly three-quarters of US dollars 5.1 billion US dollars invested over the past decade. Private equity has played a critical role in sectors such as financial services, telecommunications, and consumer goods.

Observers note the ruling comes as the government seeks to stabilise public finances following anti-tax protests that forced the withdrawal of proposed measures. Analysts say clearer guidance on capital gains taxation and transitional arrangements for existing funds will be crucial to maintain investor confidence in Kenya.