Taxation of Digital Services in Kenya: Overview and Compliance Requirements

Kenya was one of the first countries in Africa to tax the digital economy directly. Streaming platforms, app stores, online marketplaces, ride-hailing apps and cloud service providers now earn significant income from Kenyan users, often without a single office in the country. Kenya's tax system has changed several times to make sure that this income is taxed. This guide explains how digital services are taxed in Kenya today, who must comply, and what businesses should do to avoid penalties from the Kenya Revenue Authority (KRA).

Key takeaways

Kenya's Digital Service Tax (DST), introduced in 2021, was replaced by a Significant Economic Presence Tax (SEPT) through the Tax Laws (Amendment) Act, 2024.
Non-resident digital businesses with a significant economic presence in Kenya are taxed on a deemed profit, giving an effective rate of about 3% of gross turnover from Kenya.
Separately, 16% VAT applies to digital services supplied to Kenyan consumers, and non-resident suppliers must register through KRA's simplified registration framework.
Resident businesses earning income through digital platforms are taxed under the ordinary income tax and VAT rules.
Late registration, filing or payment attracts penalties and interest, and KRA increasingly uses data from platforms and payment providers to find non-compliant businesses.

Why Kenya taxes digital services

Traditional tax rules were designed for businesses with a physical presence: an office, a factory or employees in the country. A foreign company could earn large amounts from Kenyan customers over the internet without creating a "permanent establishment", and therefore without paying Kenyan income tax. Kenya responded by creating specific rules for income earned through the digital marketplace, in line with a global debate led by the OECD on taxing the digital economy.

From Digital Service Tax to Significant Economic Presence Tax

The Digital Service Tax (2021–2024)

The Finance Act, 2019 introduced section 12E into the Income Tax Act, creating a Digital Service Tax that took effect on 1 January 2021. It was charged at 1.5% of the gross transaction value of services provided through a digital marketplace, and was later raised to 3% by the Finance Act, 2023. For resident businesses, DST was an advance tax that could be offset against income tax; for non-residents, it was a final tax.

The Significant Economic Presence Tax (from December 2024)

The Tax Laws (Amendment) Act, 2024 repealed DST and introduced the Significant Economic Presence Tax, effective 27 December 2024. Under SEPT:

A non-resident person has a significant economic presence in Kenya if its users are located in Kenya, and it provides services through a digital marketplace.
Its taxable profit is deemed to be 10% of the gross turnover from those services.
That deemed profit is taxed at the non-resident corporate rate of 30%, giving an effective tax of 3% of gross turnover.
The earlier turnover threshold for registration was removed, so even small non-resident digital suppliers can fall within the regime.
Non-residents with a permanent establishment in Kenya are taxed under the ordinary corporate tax rules instead.

What counts as a digital marketplace service?

The law covers a wide range of services delivered over the internet or an electronic network, including:

downloadable digital content such as apps, music, films, e-books and games;
subscription-based media, streaming and online news;
online marketplaces and platforms that connect buyers and sellers, including ride-hailing and food delivery apps;
software as a service, cloud storage and data warehousing;
online advertising and the monetisation of user data;
online search engines, social networks and website hosting;
online tutoring, courses and other e-learning services.

VAT on digital marketplace supplies

Income tax is only half of the picture. The VAT Act, as amended, and the Value Added Tax (Digital Marketplace Supply) Regulations, 2023 apply VAT at the standard rate of 16% to digital services supplied to Kenyan consumers.

Type of supply	Who accounts for VAT
Non-resident supplier to a Kenyan consumer (B2C)	The supplier must register for VAT through KRA's simplified registration, charge 16% VAT and file monthly returns
Non-resident supplier to a VAT-registered Kenyan business (B2B)	The Kenyan business accounts for VAT under the reverse charge mechanism
Resident supplier through a digital platform	Ordinary VAT rules apply if the supplier is registered or crosses the registration threshold

A platform operator that facilitates supplies by others may also be required to account for VAT on those supplies, depending on how the platform controls pricing, payment and delivery.

How resident businesses and individuals are taxed

Kenyan residents earning income from digital work, including content creators, freelancers, influencers, online sellers and app developers, pay income tax under the ordinary rules. Income earned through platforms such as YouTube, TikTok, Upwork or online stores is taxable in Kenya when the person is tax resident here. Key points to note:

Individuals pay income tax at graduated rates and must file an annual return by 30 June each year.
Companies pay corporation tax on their profits and may also be required to pay instalment tax.
Withholding tax applies to certain payments, including payments to digital content creators and to marketing and promotion services, where the payer is required to withhold.
Businesses whose annual turnover reaches KES 5 million must register for VAT.

Compliance requirements for non-resident digital businesses

1. Registration

Non-resident digital suppliers register on KRA's iTax system using the simplified registration process for non-residents, which does not require a local tax representative for SEPT and digital VAT obligations. A KRA Personal Identification Number (PIN) is issued on registration.

2. Filing and payment

SEPT: payable by the 20th day of the month following the month in which the service was provided.
VAT: monthly returns and payment by the 20th day of the following month.
Payments can be made in Kenya shillings or in an approved foreign currency through the channels KRA designates.

3. Record keeping

Businesses must keep records of transactions, customer location evidence (for example billing address, IP address, SIM card country code or bank details) and payment records for at least five years. Good records are the best defence in a KRA audit.

Penalties for non-compliance

The Tax Procedures Act, 2015 sets out penalties that apply to digital taxes in the same way as other taxes:

a late payment penalty of 5% of the unpaid tax, plus interest of 1% per month;
late filing penalties for each return not filed on time;
penalties for failure to register and for keeping inadequate records;
in serious cases, criminal liability for tax evasion and personal exposure for directors and officers.

KRA can also issue agency notices to banks and payment service providers to recover unpaid tax, and it increasingly uses data from mobile money, card schemes and platforms to identify unregistered businesses.

Practical compliance checklist

Map your Kenyan revenue streams and confirm whether each is a digital marketplace service.
Determine whether you have a permanent establishment in Kenya, which changes how you are taxed.
Register for SEPT and VAT on iTax before you start earning, or immediately if you are already trading.
Set up systems to identify the location of customers and to separate B2B from B2C supplies.
Diarise monthly filing and payment deadlines.
Review contracts with platforms and payment providers for tax clauses and withholding obligations.
Check the position under any double taxation agreement between Kenya and your home country.
Review your position after every Finance Act, as digital tax rules in Kenya change frequently.

Frequently asked questions

Does Kenya still have a Digital Service Tax?

No. DST was repealed with effect from 27 December 2024 and replaced by the Significant Economic Presence Tax for non-resident digital businesses. DST liabilities that arose before that date remain payable.

Do content creators in Kenya pay tax on platform income?

Yes. Income earned by Kenyan residents from online platforms is taxable income and must be declared in the annual income tax return. Withholding tax may also be deducted by Kenyan payers.

Can double taxation agreements reduce SEPT?

Possibly. Where a non-resident is protected by a double taxation agreement, it may argue that its business profits are only taxable in Kenya if it has a permanent establishment here. Each treaty must be reviewed on its own terms, and the position should be documented carefully.

How W.O.A. Advocates can help

Our tax and technology team advises local and international digital businesses on registration, structuring, tax disputes and objections to KRA assessments. If you provide digital services to customers in Kenya, speak to our advocates for advice on your obligations. You may also find our guides on Kenya's Data Protection Act and AI regulation in Kenya useful.