Draft Regulations: A summary of the Income Tax (Significant Economic Presence Tax) Regulations, 2025

A summary of the Income Tax (Significant Economic Presence Tax) Regulations, 2025

1. What is the Significant Economic Presence Tax?

This is a final tax on the income of non-resident persons who provide services through a business carried out over the internet or an electronic network to users in Kenya.

• Applicability and Scope
  • Target Group: Non-resident persons without a permanent establishment in Kenya who derive or accrue income from providing services over the internet or an electronic network, including digital marketplaces, to users in Kenya.
  • “Significant Economic Presence” Trigger: A non-resident is deemed to have a significant economic presence if the user of the service is in Kenya.
  • User Location Criteria: A user is considered to be in Kenya if any of the following apply:
• The user accesses the digital interface from a terminal in Kenya.
• The services are acquired using an Internet Protocol (IP) address registered in Kenya or a Kenyan international mobile phone country code.
• The user has a business, residential, or billing address in Kenya.
• Payment of such services is made using a credit or debit facility provided by any financial institution or Company in Kenya.
  • Taxable Services: The tax applies to a wide range of digital services, including:
• Downloadable digital content such as mobile applications, eBooks, films, among others
• Subscription-based media such as magazines, journals, etc.
• Streaming, listening, viewing or playing online digital content such as music, films, games, podcasts, webcasts and other similar content.
• Software programs, including software drivers, website filters, firewalls, etc.
• 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 (AI) services.
• Ticketing services for events, theatres, restaurants and similar services.
• Online education programmes such as distance learning, webinars, online courses and training, pre-recorded media, among others.
• Platforms that link suppliers to recipients, such as platforms for transport hailing, online travel, rental, and accommodation marketplaces, among others.
• Facilitation of any online payment, including money transfer services and exchange or transfer of digital assets.
• Any other service carried out on the internet or an electronic network, including through a digital marketplace, and that which is not exempt under the act.

• Compliance and Exemptions
  • Registration
    • Non-resident persons without a Permanent Establishment (PE) in Kenya must apply for registration under a simplified tax registration framework.
    • Alternatively, a non-resident who elects not to register must appoint a Tax Representative in Kenya. This can be the guardian or legal representative for an individual under a legal disability; the chief executive officer, managing director, company secretary, treasurer, trustee, or a resident director for a company; the person responsible for accounting for funds for an association of persons or a partner or manager for a partnership; a trustee for a trust; or the accounting officer for government entities. For a non-resident person, the representative is the individual controlling the non-resident’s affairs in Kenya, which includes a business manager. It could also include the agent or representative of the person as appointed by the Commissioner by notice in writing to the agent or representative.
    • The Commissioner may register a person who is eligible for registration where such person fails to register within 30 days of being liable for SEPT.
    • Once a registered person ceases to provide services in Kenya, they may apply for deregistration.

• Filing and Payment: The person liable or their appointed Tax Representative must submit a return and remit the tax by the 20^th day of the month following the month in which the service was offered.

• Exemptions: The SEPT does not apply to:
• A non-resident person offering services through a Permanent Establishment (PE) in Kenya.
• Income from the business offering services focused purely on telecommunication and broadcast transmission (the carriage of messages, data, or signals) and other sections of the Income Tax Act.
• A non-resident providing digital services to an airline in which the Government of Kenya has at least a 45% shareholding.

• Tax Computation and Rate
  • Tax Calculation: The tax is calculated based on a deemed taxable profit.
• Deemed Taxable Profit = 10% of the gross turnover.
• Tax Rate = 30%of the deemed taxable profit.
• Gross Turnover = income received as consideration for services and for a digital marketplace, it is the commission or fee paid to the platform provider, excluding VAT charged for the service.

• Failure to remit tax and Penalties

If a person owes unpaid tax:

• The Commissioner may require persons such as financial institutions, customers, agents or related parties to deduct all taxes due and remit the tax on behalf of the tax-payer.
  • Penalties for late payment/non-payment and the interest thereof shall be applicable and shall continue to accrue until payment of tax together with penalties and interest, in full.

• Note: Persons registered under the Income Tax (Digital Service Tax) Regulations of 2020 which are now revoked will be deemed registered under the SEPT Regulations and do not require fresh registration.