The Kenyan government is preparing to introduce new rules that will change how digital firms are taxed, with the Kenya Revenue Authority (KRA) proposing the Income Tax Significant Economic Presence Tax Regulations 2025.
The plan is to replace the current Digital Service Tax with a broader regime that targets international technology companies whose services are used in Kenya, even if they do not have a physical office in the country.
The proposed rules would cover a wide range of digital services. These include streaming platforms, downloadable content, cloud computing, hosting and data storage, online education, AI tools, ride-hailing apps, accommodation booking platforms, payment services, trading of digital assets, and services that monetize user data.
By expanding the list, KRA aims to ensure that global firms like Netflix, Airbnb, OpenAI and Amazon, which benefit from Kenyan users, contribute to the country’s tax base.
To determine whether a company has a significant presence in Kenya, several factors would apply.
These include whether users access the service through a Kenyan IP address, whether payments are processed through Kenyan banks or mobile money providers, or whether the billing and residential address of the user is based in Kenya.
These criteria are designed to ensure that tax obligations follow actual market usage.
For tax purposes, the proposals introduce a simplified formula. 10% of a company’s gross turnover in Kenya would be treated as taxable profit, which would then be taxed at the corporate income rate of 30%.
Gross turnover is defined as total revenue generated from Kenyan users, excluding value-added tax (VAT). This approach removes the need for complex accounting structures that often make taxing digital firms difficult.
READ: KRA Updates iTax Platform to Reflect New Digital Service Tax
Non-resident companies providing digital services in Kenya would be required to register under a simplified system. If they do not register, they must appoint a local tax representative to handle compliance.
Penalties and interest would apply for firms that fail to meet their obligations, and the Commissioner would have powers to enforce payment through third parties if necessary.
If the proposals are implemented, companies like Netflix and other digital platforms may adjust their pricing to offset the new taxes. This could result in higher subscription fees and usage costs for Kenyan consumers.
