The Income Tax (Significant Economic Presence Tax) Regulations, 2025

The Cabinet Secretary, National Treasury and Economic Planning, has published draft Significant Economic Presence Tax (SEPT) Regulations, 2025, as mandated under section 12E (6) of the Income Tax Act (ITA). The regulations aim to provide clear guidelines on operationalization and implementation of the principal tax law provisions.

SEPT was introduced through the Tax Laws (Amendment) Act, 2024, replacing the Digital Service Tax (DST). The draft regulations outline services that would be subject to SEPT including streaming, Artificial Intelligence (AI), cloud computing, digital payments, software programs, firewalls, software drivers, website filters, data monetization among others. The scope of services has been expanded to cover all digital or online services provided via the internet or electronic networks, including digital assets, emerging technologies, and online facilitation platform, removing KES 5 million annual turnover threshold compared to previous scope outlined in the Income Tax (Digital Service Tax), regulations of 2020, which were limited to services offered through digital marketplaces and applied only to providers with annual turnover exceeding KES 5 million.

Additionally, the draft regulations have provided a transition clause by deeming person registered under the Income Tax (Digital Service Tax) Regulations, 2020 as registered for SEPT. A person is deemed to have a significant economic presence in Kenya where the user of the service is in Kenya. The proposed regulations clarify that for purposes of determining user’s location, only one parameter need to be satisfied, and this includes either the IP address, SIM code, billing address, or payment channel, thereby broadening Kenya’s tax reach.

Tax under SEPT regime is computed by deeming 10% of gross turnover as taxable profit, with a 30% tax rate applied—effectively a 3% tax on gross turnover. The due date for submission of the return and payment of the tax due is on or before the twentieth day of the month following the end of the month in which the service was offered. Late filing of returns attracts a penalty of KES 20,000 or 5% of the tax due, whichever is higher in addition to 1% interest per month on the unpaid principal tax. The draft regulations further provide that for a non-resident person without a permanent establishment (PE) providing services to users in Kenya and not previously registered under DST but are under the ambit of SEPT are required to register or appoint a tax representative, failure to which non-compliance attracts a penalty of higher of KES 100,000 or 5% of the tax due.

The drafted regulations underwent public participation, an exercise that ended on 7 October 2025 and are currently awaiting consideration of views received before gazettement.

Maxwel Ambiro is a tax consultant at Deloitte East Africa. The views presented are his own and not necessarily those of Deloitte. He can be reached at mambiro@deloitte.co.ke.