Kenya’s National Treasury has published the Income Tax (Significant Economic Presence Tax) Regulations, 2026, as Legal Notice No. 188 of 2026. Signed by the Cabinet Secretary on August 12, 2026, and published on September 18, 2026, the Regulations are made under section 12E(6) of the Income Tax Act and formally revoke the Income Tax (Digital Service Tax) Regulations, 2020.

The instrument closes a gap that has been open since December 2024, when Kenya replaced its 1.5% digital service tax (DST) with a significant economic presence (SEP) tax charged at an effective rate of 3% of gross turnover. For almost two years, non-resident digital suppliers have paid the new tax under a statute whose administrative detail still sat in regulations written for the old one. The final text builds on draft regulations that the Kenya Revenue Authority (KRA) released for public comment in September 2025, and the final text changes several of the draft’s provisions.

From Digital Service Tax to SEP Tax

Kenya introduced DST in January 2021 at 1.5% of the gross transaction value of services supplied over a digital marketplace. It applied to both residents, for whom it was an advance tax, and non-residents, for whom it was a final tax.

When the SEP tax was enacted, VATabout covered its key features and the global trend toward taxing non-resident digital businesses in Kenya’s SEP Tax: Key Details, Impact, and Global Digital Tax Trends. At that point, the regulations had not been issued and a KES 5 million turnover threshold applied; both have since changed.

The Tax Laws (Amendment) Act, 2024, which took effect on December 27, 2024, repealed DST and replaced it with the SEP tax under section 12E of the Income Tax Act. The SEP tax applies only to non-residents. It deems taxable profit to be 10% of gross turnover and taxes that deemed profit at the 30% corporate rate, which produces an effective charge of 3% of turnover. The Finance Act, 2025 then removed the KES 5 million annual turnover threshold, so every non-resident supplying qualifying services to Kenyan users is now within scope regardless of size.

Who Is in Scope

Regulation 3 applies the SEP tax to the income of a non-resident person derived from or accrued in Kenya from the provision of services. A “service” is defined as a digital service or other service delivered or subscribed to over the internet or an electronic network, including a digital marketplace. A non-resident is deemed to have a significant economic presence in Kenya where the user of its service is in Kenya. The tax is final, so no further Kenyan income tax is due on the same income.

Three categories of income are carved out:

  • Income of a non-resident that offers services through a permanent establishment in Kenya, which is taxed under the ordinary corporate income tax rules instead.
  • Income chargeable under section 9(2) or section 10 of the Income Tax Act, which covers payments such as management and professional fees, royalties and similar amounts already subject to withholding tax.
  • Income of a non-resident providing services to an airline in which the Government holds at least 45% of the shares.

The section 9(2) and section 10 carve-out will require careful classification. Software licensing, cloud services and technical support can each fall on either side of the line between SEP tax and withholding tax, depending on how the payment is characterized.

A Broader List of Taxable Services

Regulation 4 lists fourteen categories of taxable services. Many carry over from the DST regime, including downloadable content, subscription media, streaming, software, cloud computing and hosting, search engines, ticketing, online education and platforms that connect suppliers with customers, such as ride-hailing, travel and accommodation marketplaces.

The list goes further than the 2020 DST Regulations in three areas, none of which the DST list named:

  • Artificial intelligence services, listed as a standalone category.
  • Facilitation of online payments, including money transfer services. The DST Regulations had expressly excluded financial services provided by regulated entities; the SEP Regulations contain no equivalent carve-out.
  • Facilitation of the exchange or transfer of digital assets. The draft combined this with payments; the final text lists it separately.

Two other items are refined rather than new. The DST Regulations already covered the sale, licensing or other monetization of data about Kenyan users. The 2025 draft narrowed this to the transmission of user data, but the final text returns to monetization “in any manner whatsoever,” which catches advertising-funded business models directly. The catch-all has also widened: under DST it covered other services provided through a digital marketplace, while the new text reaches any service offered over the internet, an electronic network or a digital marketplace that is not exempt under the Act.

The payment and digital asset categories sit alongside other Kenyan levies on the same activity, including the digital asset tax and excise duty on fees charged by financial and virtual asset service providers. Suppliers in those sectors should map each revenue stream against every applicable charge before filing.

Determination of user location

Regulation 5 deems a user to be located in Kenya if any one of the following applies:

  • The user accesses the service through a device from a terminal located in Kenya.
  • Payment is made through a debit, credit or electronic payment facility in Kenya, including a transfer from or withdrawal from a wallet provided in Kenya.
  • The service is acquired using an internet protocol (IP) address registered in Kenya.
  • The service is acquired through a network transmission or other electronic communication originating from Kenya.
  • The service is acquired through Kenya’s international telephone country code.
  • The user has a business, residential or billing address in Kenya.

Two tests are new compared with the draft: the explicit reference to wallet payments and the network transmission test. Because the tests are alternatives and the Regulations set no hierarchy between them, a single Kenyan indicator is enough to bring a transaction into scope, even where other evidence points elsewhere. A Kenyan traveler paying with a Kenyan-issued card while abroad, for example, would still be treated as a Kenyan user. The proxies broadly mirror those used for VAT on digital marketplace supplies, which should allow suppliers to reuse existing location logic.

Registration, Computation and Payment

A non-resident without a permanent establishment must register with the Commissioner under the simplified tax registration framework. The application must include the business and trading names, a Kenyan contact person for tax matters, postal and registered addresses, the websites or URLs used to conduct business, and the certificate of incorporation. The Commissioner then issues a personal identification number (PIN) for filing and payment. The Commissioner may register a person who fails to register within the periods in section 8 of the Tax Procedures Act, and a person who stops supplying services in Kenya must apply for deregistration under section 10 of that Act.

As an alternative, a non-resident may elect not to register and instead appoint a tax representative under section 15A of the Tax Procedures Act.

Gross turnover is the consideration received for services. For a digital marketplace, it is the commission or fee paid to the marketplace provider, not the full value of the underlying transaction. VAT is excluded. A supplier with gross Kenyan turnover of KES 1,000,000 in a month would therefore have deemed taxable profit of KES 100,000 and SEP tax of KES 30,000.

Returns and payments are due by the 20th day of the month following the month in which the income was derived or accrued. The draft tied the tax point to the month in which the service was offered, while the final wording follows the “derived or accrued” language of regulation 3.

Other administrative rules follow the Tax Procedures Act:

  • Returns may be amended under section 31. Any resulting overpayment is carried forward as a credit against the next period’s SEP tax.
  • Where a taxpayer is ceasing business in Kenya, refunds follow section 47. The draft had made refunds conditional on holding an account with a Kenyan bank; that condition has been dropped.
  • Records must be kept under section 23, which generally requires retention for five years.
  • The Commissioner may collect unpaid tax, or tax at risk of non-payment, from persons who owe money to the taxpayer under section 42. The draft set out this agency mechanism in detail, naming financial institutions, customers and related entities; the final text cross-refers to section 42.

Transition and Commencement

Persons registered under the revoked DST Regulations are deemed registered under the new Regulations, so existing registrants do not need to apply again. They should, however, review whether their current reporting reflects the wider service list and the revised user-location tests.

Legal Notice No. 188 contains no commencement provision. Absent one, subsidiary legislation ordinarily takes effect on publication, which here is September 18, 2026. The Regulations are also subject to parliamentary scrutiny under the Statutory Instruments Act, and suppliers should watch for any KRA public notice on implementation.

Open Questions

There is still no turnover or user threshold, so a supplier with a single Kenyan customer is technically within scope. The Regulations do not distinguish between business-to-business and business-to-consumer supplies, which leaves Kenyan businesses that buy foreign software and cloud services exposed to price increases as suppliers pass the cost on.

Treaty interaction is another open point. The SEP tax is an income tax, and most of Kenya’s tax treaties allow the taxation of business profits only where there is a permanent establishment. Suppliers resident in treaty countries may argue that treaty relief applies, while KRA is likely to treat the SEP tax as a domestic charge outside treaty protection.

The text also contains a few drafting slips. Regulation 2 opens with “In this Act” rather than “In these Regulations”; regulation 6(4) refers to persons eligible under subregulation (2)(a), which appears intended to refer to subregulation (1); and regulation 11 describes persons “required to deduct” the tax, even though the SEP tax is self-assessed. None of these changes the substance, but they may prompt a corrigendum.

Conclusion

The 2026 Regulations complete the move from DST to SEP tax. They align Kenya’s digital income tax administration with the statute enacted in 2024, widen the list of taxable services to include AI, data monetization, payments and digital assets, and tighten the user-location rules. For non-resident suppliers, the practical agenda is to confirm registration status, test revenue streams against the expanded service list and the section 9(2) and section 10 carve-out, check that location logic captures all six proxies, and make sure monthly filings are made by the 20th. With no threshold and a broad catch-all, few foreign digital businesses serving Kenyan users will fall outside the regime.