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Kenya’s digital tax story just got a plot twist. What began as a simple 1.5% charge on online transactions evolved into a sharper tool aimed at nonresident digital players. If your business touches Kenyan users, you need to know what changed, when it changed, and what you should do about it.
Bye bye DST, hello SEP
Kenya introduced the Digital Service Tax in 2021 as a quick way to tax revenue from online platforms. The DST charged 1.5% of the gross transaction value and grabbed headlines for its bluntness. Lawmakers argued DST leveled the playing field. Critics said it hit small creators and complicated compliance for global platforms.
Then Parliament rewrote the playbook. The Tax Laws (Amendment) Act, 2024 repealed DST and replaced it with a Significant Economic Presence (SEP) tax regime, effective 27 December 2024. That change shifts the focus from a flat levy on transactions to taxing nonresident firms that actually generate meaningful digital value from Kenya.
What Significant Economic Presence (SEP) actually targets
The Significant Economic Presence Tax (SEP) targets non-resident persons who deliver services through the internet or an electronic network to Kenyan users. A “user in Kenya” can be identified by criteria such as a Kenyan IP address, billing address, device location, or payment via a Kenyan financial institution. Once that nexus is met, the non-resident business is deemed to have a taxable presence for the SEP regime.
In terms of calculation, the SEP rules stipulate that 10 % of the non-resident’s gross turnover from Kenyan-based services is treated as “taxable profit,” and then that profit is taxed at the standard 30 % corporate rate. That means, effectively, the non-resident pays approximately 3 % of gross turnover under SEP.
Why the government made the switch
Kenya replaced the Digital Service Tax with the Significant Economic Presence tax to capture revenue from digital businesses that generate value locally without a physical presence. Under DST, some large foreign tech companies could serve Kenyan users and earn income without being taxed here. The SEP regime treats sustained digital interactions with Kenyan users as a form of economic presence, making it harder for remote businesses to avoid local taxation. This shift ensures that revenue from Kenya’s growing digital market contributes to the national treasury.
The move also aligns Kenya with international trends in digital taxation. The OECD’s Pillar One framework, adopted by many countries, emphasizes taxing profits where value is created rather than where the company is registered. By moving from a flat gross-revenue tax to a profit-based SEP approach, Kenya follows this global trend, focusing on attributing profits to user activity and economic presence. This makes the system fairer, more precise, and consistent with how other nations are approaching digital taxation in an interconnected global economy.
What this means for different players
If you run a local startup, a freelancer, or a Kenyan-based content creator, SEP does not change your day-to-day tax obligations in the same way DST did. SEP targets nonresidents. If your business partners with multinational platforms, watch those contracts. If you host a marketplace, think about how platform terms and fee structures feed into withholding, reporting, or marketplace operator obligations under the new rules.
If you work for a global tech firm, this change demands urgent attention. Large platforms must map revenue by user location, track engagement metrics that regulators may use as SEP thresholds, and estimate deemed profits attributable to Kenya. The Kenya Revenue Authority has published draft regulations to help operationalise SEP and to set out scope and compliance expectations. Expect KRA to require more reporting and clearer record keeping from nonresident digital services providers.
Practical steps to protect your business
1. Start by mapping where your users live and how much revenue you earn from Kenyan users. If you sit inside a multinational group, prepare transfer pricing and profit attribution analyses now.
2. Review platform contracts to see who legally collects payments and who ultimately bears tax liabilities.
3. Register or appoint local representation if the law or KRA rules require it.
4. Keep neat records; the taxman loves numbers and hates surprises.
5. Finally, update customer-facing terms and pricing to reflect any new withholding or indirect costs you're likely to encounter.
If that sounds like a lot, it is. SEP requires more nuance than DST ever did. Think of DST as a blunt pencil and SEP as a scalpel that tries to dissect where value truly flows.
Open questions and risk areas
Implementation details still matter. Draft regulations and KRA guidance will define the thresholds and documentation that trigger SEP. Enforcement depends on data sharing, international cooperation, and digital tracing. Expect disputes on how to attribute profit to Kenya, on the scope of what counts as a Kenyan “user,” and on how to treat platforms versus direct service providers. If you operate in sectors with complex cross-border flows, prepare for audits and, possibly, litigation.
The bottom line
Kenya moved from taxing digital transactions to taxing digital presence. That shift matters because it changes who pays, how tax gets calculated, and how businesses plan. For nonresident digital businesses, SEP can mean a much larger tax bite. For Kenyan enterprises and creators, the change signals a more targeted tax system and continued emphasis on fair competition between local and foreign players.
If your business has any digital link to Kenya, treat SEP like a legal and commercial risk you must manage, not a future headache.
Book a Consultation
Want help doing the mapping, analysing your contracts, or preparing a compliance plan? Book a consultation with our tax team. We will review your digital footprint, explain how SEP applies to your situation, and put a step-by-step compliance checklist on your desk. Send us a message today and let’s make sure the taxman does not catch you off guard.
About the Author
Valarie Waswa is a tech law expert, an Advocate of the High Court of Kenya and East Africa by extension, and the Founding Partner of Valarie Waswa & Co. Advocates
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