Tax on Foreign Digital Businesses Selling Into Kenya

A foreign business selling digital services to users in Kenya, with no permanent establishment here, generally faces two taxes: significant economic presence tax at an effective 3 percent of gross turnover, and VAT at 16 percent. Neither has a minimum sales level. The old digital service tax no longer exists. This matters to the foreign seller, and also to Kenyan businesses buying from them.

Significant economic presence tax

This is an income tax on non-residents, under section 12E of the Income Tax Act.

• Who pays: a non-resident earning income from services provided in Kenya through a business carried out over the internet or an electronic network, including through a digital marketplace.
• The trigger: the user of the service is located in Kenya.
• The rate: taxable profit is deemed to be 10 percent of gross turnover, and the tax is 30 percent of that (Third Schedule). That comes to 3 percent of gross turnover.
• Filing: a return and payment by the 20th of the month after the month the service was offered.

It does not apply to:

• a non-resident providing the services through a permanent establishment in Kenya, which is a fixed business presence here
• income chargeable under section 9(2) or section 10, which covers items such as professional fees and royalties
• digital services to an airline in which the Government holds at least 45 percent

No minimum. The KES 5 million turnover exemption was removed by the Finance Act 2025. We found no change to section 12E in the Finance Act 2026.

What happened to digital service tax

The 1.5 percent digital service tax was replaced by the Tax Laws (Amendment) Act 2024, with effect from 27 December 2024, when section 12E was rewritten. Older guides and some KRA pages still mention it.

The 2026 regulations

The Income Tax (Significant Economic Presence Tax) Regulations, 2026 are Legal Notice 188 of 2026, dated 12 August 2026 and published on 18 September 2026. They:

• list covered services, including apps, streaming, software, AI services, cloud services, online education and travel or accommodation platforms
• exclude VAT from gross turnover
• treat a user as located in Kenya on tests such as device location, payment method, IP address, the +254 country code or a Kenyan address
• require registration under a simplified framework, or a Kenyan tax representative
• revoke the 2020 digital service tax regulations, with registered digital service tax payers moved across

The status needs care. It has been argued that the regulations were issued outside the time the Act allows, so whether they are fully in effect is not settled. The tax itself is in section 12E of the Act, so do not treat this as a reason to wait. Check the latest position with KRA or a local adviser.

VAT on digital supplies

VAT applies separately, at 16 percent, to supplies made over the internet, an electronic network or a digital marketplace (VAT Act, s. 5(7)). This is not new, and we found no new digital VAT rule in the Finance Act 2026, whatever some online guides say.

Under KRA’s guidance:

• No threshold. Section 34(1) requires suppliers of imported digital services to register, whatever their turnover.
• Two routes. Register through the simplified framework on iTax, or appoint a tax representative.
• Filing. Pay by the 20th of the following month.
• Invoices. A non-resident on the simplified framework is exempt from electronic invoicing but must issue an invoice or receipt showing the value and the tax.
• No input VAT. Foreign suppliers cannot deduct VAT paid to Kenyan suppliers. Overpayments can be carried forward, not refunded.

KRA’s FAQ says the supplier accounts for VAT on both business and consumer sales. Section 5(6) of the VAT Act makes the recipient liable on imported taxable services, and an older KRA brochure mentions a reverse charge for some business sales. If you are unsure who accounts for it on a business sale, ask KRA and record the answer.

If you are a Kenyan business buying from abroad

• Claiming input VAT. KRA’s VAT return guidance allows the claim only if the foreign supplier declared your PIN on a line item and filed its return. So give your PIN when you buy.
• Withholding tax. Section 35(1) requires you to deduct tax on many payments to non-residents without a permanent establishment. The rate is 20 percent on management, professional and consultancy fees and on royalties. A tax treaty may change this. The Finance Act 2026 also widened “royalty” to cover digital payment card networks and platforms. Our withholding tax guide explains your duty to deduct.

Records and next steps

Section 23 of the Tax Procedures Act requires records for five years, as explained in which records KRA expects. Currency rules differ for non-residents on digital marketplaces, under section 23(2A).

If you are a foreign seller:

1. Work out whether you have Kenyan users, on the location tests above.
2. Check whether a permanent establishment or a section 10 charge changes the answer.
3. Register for both taxes, directly or through a representative.
4. Set up monthly reporting of Kenyan sales, so both returns are ready by the 20th.
5. Take advice on any past sales you did not declare.

Our tax team can review how these rules apply to your business.