Executive summary

The Kenya Revenue Authority (KRA) published the draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 (the draft Regulations) on 22 September 2025. The guidelines are expected to operationalize the Significant Economic Presence Tax (SEPT) which was introduced by the Tax Laws (Amendment) Act, 2024, effective 27 December 2024.

The draft Regulations introduce crucial details on the tax mechanism, notably establishing a definitive 3% effective tax rate on gross turnover through a deemed-profit computation. They also expand the scope of services (including artificial intelligence (AI), data monetization and digital assets).

Nonresident service providers are now required to either follow a simplified registration or appoint a local tax representative, with monthly filing and payment due by the 20th day of the subsequent month. Affected taxpayers should immediately review their systems to ensure compliance with the new geographic and turnover tracking requirements.

Detailed discussion

The draft Regulations made under the authority of the Cabinet Secretary for the National Treasury provide the essential administrative framework for the SEPT regime. The tax will be a final tax on the nonresident provider in Kenya.

Scope of taxable services and definition

The Regulations broadly define "service" as a digital service or any service delivered or subscribed over the internet or an electronic network, including through a digital marketplace. The list of services subject to SEPT is extensive, covering traditional digital offerings as well as modern business models such as the following:

• Content and media: Downloadable digital content (eBooks, films, mobile applications), subscription-based media, and streaming or playing online digital content (music, games, podcasts)
• Software and data: Software programs, electronic data management services such as cloud computing, website hosting and file sharing
• New technologies: Explicitly includes AI services
• Platform facilitation: Ticketing services for events, online education programs, and services that link the supplier to the recipient, such as platforms for transport hailing, online travel, rental and accommodation marketplaces
• Data and finance: The transmission of data collected about users that has been generated from user activities, however monetized, and the facilitation of any online payment, including money transfer services and the exchange or transfer of digital assets

Defining significant economic presence

A nonresident person is deemed to have a significant economic presence if the user of the service is in Kenya. The regulations establish clear, multi-faceted criteria for determining user location. Specifically, a user shall be deemed to be in Kenya if any of these four conditions is met:

1. The user accesses the digital interface via an electronic device or terminal in Kenya.
2. The payment is made using a debit/credit card provided by a financial institution/company in Kenya.
3. The services are provided through an internet protocol (IP) address registered in Kenya.
4. The user has a business address or a permanent and/or billing address in Kenya.

Computation of the tax (3% effective rate)

The Regulations clarify the method of computing the tax, which establishes a definitive effective tax rate on gross turnover. The tax is calculated as a percentage on the assumed/deemed profit derived from Kenya.

The taxable profit is deemed to be 10% of the gross turnover, and the tax rate is 30% of the deemed taxable profit. This mechanism results in an effective tax rate of 3% of the gross turnover excluding value-added tax (VAT) on the service.

Registration and payment requirements

A nonresident person without a permanent establishment in Kenya who provides a service to a user in Kenya must apply for registration under the simplified tax registration framework. Alternatively, a nonresident person who elects not to register must appoint a tax representative. Persons previously registered under the former DST regime are automatically deemed registered under the SEPT Regulations.

A person liable to pay the SEPT, or its appointed tax representative, must submit a return and remit the tax due on or before the 20th day of the month following the end of the month in which the service was offered by the nonresident person.

Penalties and interest

A person who fails to comply with the provisions of these Regulations will be liable for the penalties and interest prescribed under the Tax Procedures Act.

KRA enforcement and refunds

The KRA is granted broad powers to issue a notice in writing requiring any person, including financial institutions, customers, agents or related parties, to deduct and remit the tax on behalf of the nonresident taxpayer.

Overpayments will be retained as credit against the subsequent tax period. If a nonresident person ceases business in Kenya, a refund may be made into a bank account in a Kenyan bank. Transfers to a related party's account in Kenya are allowed, but only upon written notification and the indemnification of the KRA against any loss.

Implications for taxpayers

The draft Regulations clear uncertainty surrounding the SEPT mechanism and provide definitive compliance requirements. Nonresident digital service providers should implement systems to track and segment their turnover based on the specific user-location criteria (IP address, payment method, etc.).

The monthly compliance timelines and the KRA's third-party enforcement powers necessitate that affected nonresidents finalize their compliance strategy and register through a simplified registration or the appointment of a tax representative.