Significant Economic Presence Tax (SEPT).
Kenya implemented the Digital Service Tax via the Finance Act 2020, which took effect on January 1, 2021. The Digital Service Tax (DST) applied to income earned or accrued in Kenya from services rendered through a digital marketplace. Initially, it was applicable to both residents and non-residents, but a change made by the Finance Act 2021 excluded residents from the scope of the Digital Service Tax. Consequently, non-resident digital service providers were required to go through a simplified registration process and submit the necessary taxes by the 20th of the month following the month in which the digital service was provided. The tax rate was set at 1.5% of the gross transaction value.
Recognizing the importance of aligning with global tax trends, Kenya abolished the Digital Service Tax through the Tax Laws Amendment Act 2024 and replaced it with the Significant Economic Presence Tax (SEPT). This new provision came into effect as from 27th December 2024.
Understanding Significant Economic Presence Tax
Similar to Digital Service Tax , Significant Economic Presence is a tax that is applicable to non-resident persons whose income is derived or accrued from the provision of services through a digital marketplace. Unlike Digital Service Tax whose applicable tax rate was at 1.5% of the gross transaction value, Significant Economic Presence will be charged at the rate of 30% on the deemed taxable profit. The Act defines deemed taxable profit to mean 10% of the gross turnover of the non-resident digital service provider. This in essence brings the effective tax rate to 3%.
The Act further exempt the following from Significant Economic Presence:
- Non-resident person (s) offering the services through a permanent establishment;
- Non-resident person (s) transmitting messages by cable, radio, optical fibre, television broadcasting, Very Small Aperture Terminal (VSAT), internet, satellite or by any other similar method of communication;
- Non-resident person income subject to withholding tax;
- Non-resident person (s) providing digital services to an airline in which the government of Kenya has at least forty-five percent shareholding; and
- Non-resident person (s) with an annual turnover of less than five million shillings.
The due date for filing Significant Economic Presence return and paying the corresponding taxes will be on or
before the 20th day of the month following the month in which the service is offered.
Conclusion and Way Forward
As the country transition from Digital Service Tax to Significant Economic Presence there is a need for affected
companies to review the new regulation and ensure compliance so as to avoid penalties and interest.
Feel free to reach out to our dedicated Tax Service Team for guidance or clarification on
Effective
27th December 2024
Deadline
20th Of Every Month