Kenya’s digital economy is evolving quickly. Global companies now earn significant income from Kenyan users without setting foot in the country. To modernize its tax system and ensure fairness, the government introduced the Significant Economic Presence (SEP) Tax, replacing the former Digital Service Tax (DST). If your business offers digital services to Kenyan users, this tax directly affects you.
At ELIACC, we help businesses navigate Kenya’s changing tax landscape. This article explains the Significant Economic Presence Tax Kenya (SEP Tax) clearly, highlighting what it means for digital businesses and how to stay compliant.
What Is the Significant Economic Presence (SEP) Tax?
The SEP Tax applies to foreign companies that earn income from Kenyan users through online or digital services. A company does not need a physical office or employees in Kenya. What matters is where the user is located. SEP Tax is a final tax and applies to income derived through the internet, electronic networks, and digital platforms.
Also Read: Kenya SME Compliance Guide: What Every Business Sector Must Know
Why Kenya Introduced SEP Tax
Kenya’s online market has grown rapidly. Streaming platforms, digital marketplaces, AI tools, e-learning sites, and software companies now access Kenyan customers remotely. Without a modern digital tax framework, the country risked losing significant revenue. The SEP Tax ensures fair taxation, aligns Kenya with global digital tax reforms, and replaces the outdated Digital Service Tax.
Digital Services Covered Under SEP Tax
The SEP Tax applies to several categories of digital services, including:
- Digital content and streaming such as movies, music, podcasts, games, and e-books
- Software and technology tools including antivirus programs, security tools, and software licenses
- Cloud and data services such as hosting, cloud storage, and data warehousing
- AI and automated systems including chatbots, search engines, and automated helpdesks
Online ticketing and booking platforms - eLearning tools and online education
- Marketplace and aggregator platforms such as ride-hailing, travel, and accommodation booking services
- Digital payment platforms and services involving digital assets
If a foreign business earns revenue from any of these services and the user sits in Kenya, SEP Tax applies.
How Kenya Determines a User’s Location
A user is considered to be in Kenya if they access the service from a Kenyan device, use a Kenyan bank or card for payment, use an IP address linked to Kenya, or list a Kenyan billing or residential address. If any of these criteria are met, the income is deemed taxable in Kenya.
How SEP Tax Is Calculated
The tax uses a simple presumptive formula. Gross turnover refers to the income earned from Kenyan users, excluding VAT. Ten percent of this amount becomes the deemed taxable profit. The tax rate of 30 percent is then applied to the deemed profit. This results in an effective tax rate of 3 percent of the gross turnover.
Compliance Options for Non-Resident Companies
Foreign businesses can comply in two ways. They may register under Kenya’s simplified tax regime and receive a PIN for filing monthly returns. Alternatively, they may appoint a Kenyan tax representative who handles compliance on their behalf. SEP Tax filing and payment is due on the twentieth day of the month following the month in which the service was provided.
Exemptions from SEP Tax
The SEP Tax does not apply to non-residents with a permanent establishment in Kenya, income already taxed under section 9(2) or 10 of the Income Tax Act, or digital services offered to airlines in which the Government of Kenya owns at least 45 percent.
What SEP Tax Means for Your Business
If your business offers digital services accessed by Kenyan users, SEP Tax applies. Ignoring it may lead to penalties, interest, backdated assessments, and compliance intervention by the Kenya Revenue Authority. Now is the time to evaluate your exposure and implement a compliance framework.
You can read more from KRA on SEP Tax
How Elitax/ELIACC Can Help
ELIACC provides expert support for SEP Tax compliance. Our services include advisory, registration assistance, tax representative support, monthly filing, and cross-border tax planning. We help international and local digital businesses operate confidently and remain fully compliant.
Contact ELIACC
Email: [email protected]
Phone: +254 768 031 542 or +254 723 768 286
Let us help you navigate Kenya’s new SEP Tax regime with clarity and efficiency.
