Kenya: Public consultation on application of significant economic presence (SEP) tax

The Kenyan Revenue Authority on September 22, 2025, issued the Draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 for public consultation. These draft regulations provide further guidance on the application of Kenya’s new significant economic presence (SEP) tax. Comments on the draft regulations are open through October 7, 2025.

Background

Kenya in December 2024 introduced the SEP tax on nonresident persons whose income from the provision of services is derived from, or accrues in, Kenya through a business carried out over a digital marketplace. The SEP tax repeals the previous 1.5% digital services tax. Under Kenya’s Finance Act 2025, effective July 1, 2025, the scope of the SEP tax has been expanded to include services provided through the internet or any electronic network, not just those provided via a digital marketplace. The Finance Act also removes the previous KES 5 million threshold, making the tax applicable from the first qualifying sale.

Summary

Application of the SEP tax

The SEP tax applies to the income of a nonresident person derived from or accrued in Kenya through the provision of services via a business carried out over the internet or an electronic network, including through a digital marketplace. A person is deemed to have significant economic presence in Kenya when the user of the service is located in Kenya.

Registration

A nonresident person without a permanent establishment in Kenya who provides services to users in Kenya is required to register under the simplified tax registration framework by submitting an application with relevant business and contact details, as well as any additional information requested by the KRA. Upon successful registration, the KRA will issue a personal identification number (PIN) for tax filing and payment purposes. Alternatively, if the nonresident does not register, they must appoint a tax representative in Kenya in accordance with the Tax Procedures Act.

Scope

The SEP tax applies to a broad range of services, including:

• Downloadable digital content, such as mobile applications, eBooks, and films
• Subscription-based media, including news magazines and journals
•  Streaming, listening, viewing, or playing online digital content on any audiovisual or electronic media, including television shows, films, music, games, podcasts, webcasts, and similar content
• Software programs, including software, drivers, website filters, and firewalls
• Electronic data management, including cloud computing services, website hosting, online data warehousing, file sharing, and similar services
• Search engines and automated helpdesk services
• Artificial intelligence services
• Ticketing services for events, theatres, restaurants, and similar venues
• Online education programs, including distance teaching through pre-recorded media, eLearning, educational webcasts, webinars, online courses, and training services tailored to the learner’s program
• Services that link the supplier to the recipient, including platforms for transport hailing, online travel, rental and accommodation marketplaces, and any other platforms that facilitate the provision of services, goods, or property
• Transmission of data collected about users, which has been generated from such users’ activities on a digital marketplace, however monetized
• Facilitation of any online payment, including money transfer services and the exchange or transfer of digital assets
• Any other service carried out over the internet or an electronic network, including through a digital marketplace, that is not exempt

User location

A user of a service would be deemed to be located in Kenya if any of the following parameters are present:

• The user accesses the digital interface through telecommunication or electronic devices from a terminal located in Kenya
•  Payment for the services is made using a credit or debit facility provided by any financial institution or company in Kenya
•  Services are acquired using an internet protocol address registered in Kenya or an international mobile phone country code assigned to Kenya
• The user has a business, residential, or billing address in Kenya

Tax base calculation

For SEP tax purposes, taxable profit is set at 10% of gross turnover, and the tax rate is 30% of that taxable profit.

Gross turnover would be the income of a nonresident person derived from or accrued in Kenya through a business carried out over the internet or an electronic network, including through a digital marketplace, and: (1) in the case of the provision of services, the payment received as consideration for the services; and (2) in the case of a digital marketplace, the commission or fee paid to the digital marketplace provider for the use of the platform.

The gross turnover would not include the VAT charged for the service.

Compliance

A person liable to pay significant economic presence tax, or their appointed tax representative, would need to submit a return in the prescribed form and remit the tax due on or before the 20^th day of the month following the end of the month in which the service was offered.

Enforcement

The tax authority could require certain parties, including financial institutions, customers, agents, or related parties, to deduct and remit taxes on behalf of a taxpayer. Any amounts paid by these appointed parties would be credited against the taxpayer’s tax liability. If an appointed party fails to comply without reasonable cause, they would become personally liable for the specified tax amount.

KPMG observation

Recent amendments introduced through Kenya’s Finance Act 2025, along with the accompanying draft regulations, have significantly broadened the scope of the SEP regime. These changes are likely to affect a wider range of businesses than previously anticipated. Nonresident entities offering digital services to Kenyan customers, whether directly or through intermediaries, may need to reassess their operations in light of the updated SEP framework.

The expansion of SEP now captures direct-to-consumer digital sellers, as the Finance Act 2025 brings such transactions within scope. Additionally, the repeal of the KES 5 million registration threshold means that even businesses with relatively low sales volumes into Kenya may now face SEP obligations. Sellers operating via digital marketplaces should also take note: the draft regulations assign SEP liability to the seller rather than the marketplace, which may necessitate a reevaluation of compliance responsibilities.

For businesses previously subject to Kenya’s digital services tax, the transition to the SEP regime should already have been facilitated by the tax authorities. These entities are not expected to undergo a separate registration process, and the impact of the new SEP rules may be limited for them.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com

Clive Akora | cakora@kpmg.co.ke

Lydiah Mose | lmose@kpmg.co.ke