The Kenya Revenue Authority (KRA) has released a draft of new tax proposals designed to transform how global tech companies like OpenAI, Netflix, Google, Amazon, and Uber are taxed for digital services used within the country. The changes come under the proposed Income Tax (Significant Economic Presence Tax) Regulations, 2025, which aim to replace the current Digital Service Tax (DST) framework.
Unlike the outgoing DST rules introduced in 2020, the Significant Economic Presence (SEP) Tax expands the tax net to cover nearly every digital transaction that generates income from Kenyan users. It ensures that non-resident companies without physical offices in Kenya are still accountable for taxes if they earn from Kenyan consumers.
What qualifies as “significant economic presence”?
Under the SEP Tax, a non-resident company will be considered to have a significant economic presence in Kenya if its digital services are accessed by users in the country. The location is determined through clear indicators:
Access to services through devices in Kenya.
Payments made with Kenyan-issued bank cards.
Use of a Kenyan IP address or phone country code.
A business, billing, or residential address in Kenya.
This means platforms like Netflix, ChatGPT, or Spotify will be taxed even if their headquarters remain abroad.
Wide range of taxable services
The new regulations broaden what counts as taxable digital services. They include:
Downloadable content such as apps, e-books, and films.
Streaming services for movies, TV shows, music, games, and podcasts.Cloud computing, data warehousing, and website hosting.
Search engines, automated helpdesk tools, and AI-powered services.
E-learning and online training platforms.
Online marketplaces for ride-hailing, accommodation, travel, and goods.
Ticketing services for events, theaters, and restaurants.
Online payments, digital wallets, and money transfers.
Digital assets like cryptocurrencies.
Essentially, if a service is delivered over the internet and accessed by Kenyan users, it is now taxable.
How the SEP Tax will be calculated
The regulations outline a structured formula for computing taxes:
Deemed Profit: Taxable profit is fixed at 10% of gross turnover.
Tax Rate: A 30% tax will be applied to that deemed profit.
Gross turnover refers to income earned in Kenya through digital activities. For direct services, it means the actual payment received. For marketplaces, it applies to commissions or service fees, not the total value of goods sold. Importantly, VAT is excluded from gross turnover calculations.
Tax returns must be filed, and payments made, by the 20th of the month following the transaction period.
Registration requirements
Non-resident companies with no permanent presence in Kenya must register under a simplified framework. Required details include business name, addresses, tax contact person, phone number, URLs, and incorporation certificates. Upon registration, a Personal Identification Number (PIN) is issued for filing and payment.
Those who fail to register on time risk being automatically registered by the Commissioner or forced to appoint a tax representative under Kenyan law. Non-compliance attracts penalties and interest, with the Commissioner holding broad powers to enforce tax collection, even from third parties.
Exemptions and transition measures
Some exemptions exist. Companies with a permanent establishment in Kenya are not subject to the SEP Tax, and specific exemptions apply to income already taxed under other provisions of the Income Tax Act. A notable carve-out applies to foreign airlines where the Kenyan government holds at least 45% ownership.
For a smooth transition, all companies registered under the outgoing DST regulations will automatically be deemed registered under the SEP Tax framework.
For Kenyan users, the SEP Tax could influence how much they pay for popular services like Netflix or Spotify if companies pass on the extra cost. For the government, however, it marks a major step in capturing revenue from the fast-growing digital economy and ensuring multinational corporations pay their share in markets where they profit.
As Kenya positions itself as a leader in Africa’s digital taxation, these proposals will likely spark debate from industry players, users, and global tech companies that now find themselves squarely in KRA’s crosshairs.
By Yockshard Enyendi