Foreign technology firms operating in Kenya will now face stricter rules for reclaiming overpaid digital service taxes when exiting the market.
The Treasury has proposed that refunds under the Significant Economic Presence (SEP) tax will only be issued into accounts held with banks licensed in Kenya.
According to the draft Income Tax (Significant Economic Presence Tax) Regulations, 2025, companies can only access refunds if they maintain a Kenyan bank account. “Where an amendment in paragraph (1) results in an overpayment and the non-resident person is ceasing business in Kenya, a refund will only be available if the non-resident person has a bank account with an institution registered and licensed under the Banking Act in Kenya," the regulations state.
"The transfer of the refund may be made into a holding company, a subsidiary or fellow subsidiary’s banking account or account with a similar institution in Kenya, upon written notification to the Commissioner and indemnification of the Commissioner against any loss as a result of such instruction.”
The SEP tax, introduced in December 2024 through the Tax Laws (Amendment) Act, charges foreign firms three percent of their gross turnover from digital services in Kenya.
This replaced the Digital Services Tax (DST), which had been set at 1.5 percent regardless of whether the company had a physical presence in the country. Non-resident tech giants like Amazon, Microsoft, Netflix, Facebook, and Alibaba operate digitally without local offices and have thus been outside the reach of traditional income tax rules.
The draft rules clarify that companies offering services through a permanent establishment in Kenya will continue to pay DST, not SEP. The refund requirement is designed for firms that amend their tax returns, discover overpayments, and are in the process of leaving the Kenyan market.
Refunds can flow through a related Kenyan entity, but only after the Kenya Revenue Authority (KRA) has been notified in writing and indemnified.
The regulations also set out routine administrative duties for non-resident providers, including registration with the KRA and provision of physical addresses and other details necessary for tax administration.
The SEP tax has drawn criticism from AmCham Kenya, which argues it unfairly targets US-based firms.
The debate over digital taxation has also contributed to trade tensions, with the United States imposing a 10 percent tariff on Kenyan products earlier this year.
Globally, countries are working through the Organisation for Economic Co-operation and Development to ensure multinational internet companies pay taxes in markets where their users are, alongside implementing a minimum 15 percent corporate tax rate.
