Kenya Digital tax: Kenya’s digital tax landscape is undergoing a major transformation. With the rise of digital businesses operating across borders, the challenge of taxation has become a key concern. To address this, Kenya introduced the Digital Service Tax (DST) in 2021, but inefficiencies led to its replacement. In December 2024, Kenya transitioned from DST to the Significant Economic Presence (SEP) tax, marking a significant step in modernizing Kenya’s digital tax policies.
Understanding the Shift: DST to SEP
The Digital Service Tax (DST) imposed a 1.5% tax on the gross revenue of non-resident digital businesses. However, its enforcement posed challenges. The Tax Law (Amendment) Act of 2024 repealed DST and replaced it with SEP, a more structured tax policy. Now, qualifying non-resident digital businesses are taxed at 3% of their gross turnover. This transition aims to create a fairer and more effective digital tax system in Kenya.
Key Exemptions Under Kenya Digital Tax SEP
One of the most notable aspects of SEP is the introduction of specific exemptions. These include:
- Non-residents with a permanent establishment in Kenya.
- Non-residents providing services to Kenyan government-partnered airlines.
- Non-residents with an annual turnover below KSh 5 million.
- Entities engaged in cable, internet, and broadcasting services.
- Income already subject to withholding tax.
These exemptions aim to streamline Kenya’s digital tax administration while ensuring fairness in taxation.
Impact of Kenya Digital Tax on Businesses
For non-resident digital businesses, the tax rate has doubled from 1.5% (DST) to 3% (SEP). This means a higher tax burden for companies operating in Kenya’s digital economy. However, the new exemptions provide relief for certain businesses, making it crucial for companies to reassess their tax obligations under SEP.
Future Considerations for Non-Resident Digital Businesses
As Kenya refines its digital tax framework, businesses operating without a physical presence in the country must evaluate their tax compliance. SEP enforcement is expected to be stricter, requiring companies to adopt strategic tax planning to avoid penalties and ensure compliance with Kenya’s digital tax laws.
Ronalds LLP: Your Partner in Kenya Digital Tax Compliance
Navigating Kenya’s evolving tax policies can be complex, but Ronalds LLP is here to help. Our tax experts specialize in digital tax compliance and can guide your business through the new SEP requirements. Contact us today to ensure your business aligns with Kenya’s digital tax laws and remains compliant in this evolving landscape.
written by Mary Kivuva
