When Kenya introduced the Digital Services Tax (DST) in 2021, there was a lot of debate and concerns over the new tax regime. The fuss emanated from fears of double taxation, disagreements over taxing international companies, and a negative effect on the local digital economy.
While some of these concerns remain, DST was revised and updated to align with the ever-evolving global digital service standards. In December 2024, the government replaced DST with the Significant Economic Presence (SEP) tax. In light of this, we will talk about the SEP tax in this guide. Keep reading to learn everything you need to know about the significant economic presence tax, including what it entails, tax rates, penalties and interests, registration, and filing returns.
What is the Significant Economic Presence (SEP) Tax (Formerly Digital Services Tax) in Kenya?
All businesses are expected to pay taxes to the government of the country in which they operate. These include resident and non-resident businesses. Even multinationals pay taxes across borders. With the emergence of internet-based businesses, a new gap arose in the tax sector. A company like Google can be based in America, but it generates revenue from Kenyan consumers through digital products and services.
The same goes for online services like Netflix, Spotify, and YouTube. How does the Kenyan government get its fair share of tax from this revenue collected by digital services and companies? This is where the Digital Services Tax (DST) came in. DST was enacted in 2021 through the Finance Act 2020. It imposed a 1.5% tax on the gross income earned from offering digital services in Kenya.
By 2022, this new tax regime had raised a lot of concerns among both taxpayers and the government. In fact, the government suggested a rate increase to 3%. Countries like Uganda were already taxing these digital businesses 5% of the gross revenue. However, the rate increase never materialized. Fast forward to December 2024, DST transitioned into the Significant Economic Presence (SEP) tax, with a tax rate of 3% of the gross income.
SEP tax is a final tax imposed on any non-resident individual or business deriving income from services offered to Kenyan users. According to KRA, the deemed taxable profit should be 10% of the gross turnover. SEP should be calculated as 30% of this deemed profit. Effectively, the overall tax rate is 3% of the gross turnover.
Note: SEP is only applicable when the annual turnover is Ksh. 5 million and above.
Let’s do a quick comparison of DST and SEP taxes below.
| Tax Regime | DST | SEP |
| Enactment | Effective Jan 1, 2021, through the Finance Act 2020 | Effective Dec 27, 2024, through the Tax Laws Amendment Act 2024 |
| Target | Non-residents who supply digital services to Kenyan consumers | Non-residents with a significant economic presence in Kenya |
| Tax Rate | 1.5% of the gross transactional value | 3% of the gross turnover |
| Due Date | On or before the 20th of the following month | On or before the 20th of the following month |
| Taxable limit/Threshold | Non existent | Ksh. 5 million annual turnover |
Who is the Target of the SEP Tax
You are obligated to register for SEP tax and file returns if you fall under the following categories:
- You are a non-resident company/business offering services to Kenyans through the internet or electronic means.
- You are a digital service whose users are located in Kenya as per their IP address, billing address, payment channels, and device location.
- You earn an income from the Kenyan market, either through streaming services, software, apps, cloud hosting, online shopping and marketplaces, AI tools, online advertising, etc.
- You don’t have a permanent establishment in Kenya.
Note: Non-resident businesses with permanent establishment (PE) in Kenya are exempted from SEPT. They pay taxes under a different tax regime, the regular corporate tax.
SEPT Penalties and Interests
What happens when you don’t fulfill your SEPT tax obligations in Kenya? Failure to comply with SEPT tax laws attracts penalties and interest. Below are the various penalties and interests related to the significant economic presence tax regime:
Penalties
- Late Tax Payment and Return Filing: 5% of the tax due or Ksh 20,000, whichever is higher.
- Failure to register for SEPT: Ksh 100,000 or 5% of the tax due.
Interests
- Late Tax Payment: 1% per month of the unpaid principal tax until the tax is paid in full.
How to Register for SEP Tax (SEPT)
Are you a new taxpayer who wants to declare and register for the Significant Economic Presence tax? Follow these steps:
- Go to itax
- Navigate to Do You Want to Apply for a PIN? And click the provided link.
- Select the taxpayer type and mode of registration. E.g., Non-Individual and Online Form.
- Click Next.
- On the next page, select Significant Economic Presence Tax.
- Enter the Basic Information, Obligation Details, and Agent Details.
- Once you’ve filled out the online form as required, click Submit.
- Wait for KRA’s approval and subsequently, the Acknowledgement Receipt.
- Once approved, KRA will send your new PIN and login details to your registered email.
How to Pay Significant Economic Presence Tax (SEPT) and File Returns
SEPT returns should be filed on or before the 20th of the following month. For instance, you should file January 2025 SEPT returns on or before 20th February, 2025. While returns and payments are made separately for other tax regimes, generating the payment slip for SEPT counts as filing the return. Follow these steps to pay SEPT:
- Log in to your iTax account and navigate to Payments.
- Select Payment Registration.
- Choose Income Tax under Tax Head and Significant Economic Tax under Tax Subhead.
- Select Significant Economic Presence Tax (SEP).
- Input the Monthly Turnover Value. The iTax system will auto-compute the Deemed Tax Profit Value and the Total Tax to be paid.
- Once you’ve captured everything in the Payment Information window, click Submit.
- Clicking Submit generates your SEPT payment slip. Use the slip to make the payment.
- Once the payment is processed, you’ll see your SEPT ledger on iTax.
Let’s Simplify Your Significant Economic Presence Tax
The Tax Procedures Act Section 15 allows a non-resident person or business to appoint a local tax representative. This representative handles all tax matters on their behalf, including registration, filing returns, and paying taxes.
Gichuri & Partners is an authorized tax agent in Nairobi, Kenya. We can simplify your SEPT taxes for you so that you can have time to grow and expand your digital services and online business in Kenya. Our SEPT tax solutions include:
- SEPT registration and deregistration
- Representation in all matters, including payments and tax disputes
- Tax and compliance advisory to determine if your business falls under the SEP regime
- Filing returns and paying taxes on your behalf
- Bookkeeping and accounting for accurate record-keeping
- KRA audits and assessments
Are you ready to simplify your SEP taxes? Book a free consultation with us today.
