Significant Economic Presence Tax in Kenya 2026: How the 3% SEP Levy Replaced the Digital Service Tax and What It Means for Cross-Border Platforms

On 27 December 2024 the Tax Laws (Amendment) Act repealed the Digital Service Tax that had been on the statute books since 2020 and introduced in its place the Significant Economic Presence (SEP) Tax. The new levy, set at an effective rate of 3 per cent on the gross turnover earned in Kenya by a non-resident provider, was widened by the Finance Act, 2025 to cover not only services delivered through a digital marketplace but any service rendered to a Kenyan user over the internet or an electronic network. From 1 July 2025 the original Sh5 million annual threshold was removed; from that date even a single transaction with a Kenyan user, however small, triggers the tax. By 2026 the SEP regime has become Kenya's principal instrument for capturing tax revenue from foreign-owned platforms, applications and AI services that are widely used in Kenya but do not have a physical presence in the country.

How the Mechanics Work

The statutory rate is set in the Income Tax Act as 30 per cent of a deemed taxable profit, and the deemed taxable profit is 10 per cent of the gross turnover earned in Kenya. The product of those two figures gives an effective rate of 3 per cent on Kenyan gross revenue. Non-resident service providers compute the tax by reference to receipts attributable to Kenyan customers; receipts attributable to other African Union or East African Community customers fall outside the Kenyan tax base. Where a payment is made through an agent or a digital marketplace operator, that intermediary may be appointed by the Kenya Revenue Authority as a withholding agent.

The Widened Scope Under the Finance Act, 2025

The original SEP regime, like the Digital Service Tax before it, targeted online marketplaces, streaming services and downloadable digital content. The Finance Act, 2025 broadened the scope to include any service "rendered through the internet or any electronic network", which captures cloud computing, software-as-a-service, professional services delivered remotely, online education, search-advertising spend, and the rapidly growing class of artificial intelligence services that include text generation, image generation, voice cloning and AI agent platforms. The Act also expressly included data monetisation and digital asset platforms in the scope, closing the loophole that had allowed some foreign data brokers to argue they did not fall under the previous rules.

Importantly, the law clarified that subscription fees, transaction fees, advertising fees, sponsorship fees, fees for use of an API, and fees for the use of a digital asset such as an in-game item or a cryptocurrency token are all within the SEP base.

Removal of the Sh5 Million Threshold

One of the most consequential 2025 changes was the deletion of the Sh5 million threshold that previously exempted small non-resident providers. From 1 July 2025 every shilling earned from a Kenyan user is taxable. The policy rationale is to align with OECD guidance on minimal-threshold taxation of inbound digital services, and to prevent fragmentation of large platforms into many small entities for tax-planning purposes. In practice, the change has obliged smaller foreign Software-as-a-Service vendors to either appoint a Kenyan tax representative, register through the simplified online portal, or work with a Kenyan reseller who handles withholding.

Compliance: Two Routes for Non-Residents

Non-resident SEP taxpayers have a choice of compliance pathways. The first is a simplified registration on KRA's iTax portal under section 12F of the Income Tax Act, which gives the provider a non-resident Personal Identification Number and the ability to file SEP returns directly without a permanent establishment. The second is the appointment of a local tax representative under section 17A. Either way, monthly returns and payments are due by the 20th day of the month following the month in which the income was earned. Late filing attracts a penalty of Sh20,000 or 5 per cent of the tax due, whichever is higher, and interest accrues at 1 per cent a month on unpaid tax.

The supporting draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 published by the KRA set out the records that must be maintained, including monthly extracts from the platform's transaction database showing the number of Kenyan users, gross billings to those users, refunds, and the currency of receipt. The regulations require records to be retained for at least seven years, in line with section 23 of the Tax Procedures Act.

Interaction With Other Kenyan Taxes

SEP sits alongside other levies that may apply to the same transaction. Value Added Tax on imported digital services, at the standard rate of 16 per cent, applies to most business-to-consumer digital sales where the provider is registered for the simplified VAT regime. Excise duty on certain communication services, financial transactions and gambling services may also apply. The Finance Bill, 2026 has proposed a 16 per cent VAT on certain mobile money services within Kenya, which is a domestic levy and not a SEP charge, but service providers should be aware of how the regimes can stack on a single invoice.

Double taxation relief is available where a non-resident's home country has an in-force tax treaty with Kenya. Most of Kenya's bilateral tax treaties allocate taxing rights over business profits to the home country unless there is a permanent establishment in Kenya, which has prompted some treaty partners to argue that SEP is incompatible with their treaties. Kenya's position, set out in successive KRA public notices, is that SEP is a unilateral measure under domestic law that operates independently of the treaty business-profits article and that any treaty conflict will be resolved through mutual agreement procedures.

What Buyers and Resellers in Kenya Should Know

Kenyan businesses that buy services from non-resident providers are generally not the SEP taxpayer, but they can become drawn in. KRA may appoint a Kenyan payment service provider, a bank or a card issuer as an agent for collection. A Kenyan reseller of a non-resident SaaS product may need to verify whether the upstream provider has registered for SEP before claiming an input cost deduction. Marketplaces operated from Kenya that host non-resident sellers can be appointed as SEP withholding agents if they remit the seller's earnings.

Buyers should also confirm whether the invoice they receive from a non-resident shows SEP separately. The tax is borne by the provider but is typically incorporated into the headline price, especially for advertising platforms and AI services where the cost has risen by 3 per cent or more since 2025.

Impact on the Digital Ecosystem

For non-resident platforms, the practical effect of the SEP changes is to make Kenya a higher-effort jurisdiction. Compliance costs include a once-off registration, monthly returns, a tax representative or local director, and reconciliation with the platform's global tax footprint. Some smaller providers have geo-blocked Kenyan users or routed Kenyan sales through a regional reseller in Mauritius or South Africa to centralise compliance. Others have integrated SEP collection into their global tax engines and pass the cost to Kenyan consumers as a line item.

For Kenyan startups, the SEP regime creates an opportunity to compete on price with foreign providers whose effective cost to Kenyan customers has risen. It also raises the bar for Kenyan freelancers and consultancies that earn from non-resident platforms; their payments may be subject to platform-side SEP and may also generate Kenyan-source income taxable on a normal basis.

The View From the Diaspora

Diaspora Kenyans who run online businesses serving Kenyan customers fall squarely within the SEP regime if they are non-resident for Kenyan tax purposes. A Kenyan-American running an e-commerce site that ships into Kenya, a UK-based consultant invoicing Kenyan clients for remote services, or a Kenyan engineer in Germany selling subscriptions to a Kenyan SaaS product is required to consider SEP. Whether the simplified registration route or appointment of a tax representative is more cost-effective depends on annual Kenyan turnover and the home-country treaty position.

For authoritative updates, taxpayers can rely on the Kenya Revenue Authority public notices, the National Treasury for primary tax policy releases, and Kenya Law for the consolidated Income Tax Act and the SEP regulations once gazetted.

What to Watch in 2026

Three issues will dominate SEP policy debate in 2026. The first is the impending OECD Pillar One framework, which, if it enters into force, may displace some unilateral digital taxes. The second is the tax-treaty negotiations that Kenya is conducting with several partners to clarify the interaction between SEP and treaty business-profits articles. The third is the implementation of the SEP Regulations once finalised, which will set out forms, documentation standards and a possible refund mechanism for over-collected SEP. Until those are in place, the practical guidance is that any non-resident invoicing a Kenyan user from January 2026 onwards should plan for a 3 per cent SEP charge on Kenyan-source receipts and integrate it into pricing and compliance.