Kenya withdraws 1.5% Digital Services Tax 2025

Kenya to fall into line with $250 billion OECD global tax reforms – unlocks US free trade deal

Kenya has brought forward in the draft Tax Laws (Amendment) Bill 2024 plans to replace its existing 2021 1.5% Digital Services Tax (DST) as it withdraws its objections to the Pillar 2 OECD reforms on a global 15% minimum tax. There are currently 178 digital service providers registered with the Kenyan Revenue Authority, remitting over Sh240 million per annum.

Instead, it will introduce a SEP Tax (Significant Economic Presence Tax) which would be charged at 30% on 20% of deemed gross profits from sales on a digital marketplace

This is a condition of signing-up to the OECD reforms – Kenya was one of the few companies to object to the proposals agreed to by almost 140 countries. Kenya has also been blocked from singing a free trade deal with the US paritually because of its DST.

The Organisation for Cooperation and Development, which has coordinated a global settlement on such taxes, has suggested that the tax should be withdrawn.The OECD is forecasting its new tax pact raising $250 billion for all countries signed-up.

In 2022, under the previous regime, the plans were to double the DST to 3%.

DST on digital services limited to non-residents

The last Kenyan Finance Act has limited the application of the 1.5% Digital Services Tax (DST) to non-resident digital marketplaces. DST came into effect on 1 January 2021. This is in addition to Kenyan VAT on digital services which was implemented for non-residents from 2020. Follow global Digital Service Tax implementations via our tracker.

Kenya questions OECD agreement

Kenya is one of the countries refusing to accept the OECD-backed global tax deal on reforms, signed by 136 countries, which would effectively replace DST’s. Kenya believed its DST would bring in revenues from many more companies – an estimated 89 compared to just 11 under the OECD deal according to the Kenya Revenue Authority’s commissioner, Terra Saidimu.

Nigeria, Sri Lanka and Pakistan are also holding out.  Kenya and Nigeria have also questioned the OECD’s dispute resolution requirements.

What services are liable to Kenyan DST?

Income from the following services will be liable to DST:

• Download and streaming media, TV, films, music, podcasts etc
• Sale of user data
• Marketplace services
• Subscriptions to online news and journals
• Search engine services
• E-learning
• Any other services via a digital marketplace

How to calculate Kenyan DST

DST is levied at 1.5% of the gross invoice amount for the digital service. This shall be the payment received as consideration for services in the case of provision of digital services or the commission or fee paid to the digital marketplace provider for the use of the platform in the case of a digital marketplace.

This is exclusive of VAT.

Determining if Kenyan DST is due

Non-residents must monitor the following to determine if DST is due:

• The services is consumed by computer, mobile or tablet etc with Kenyan IP address
• Mobile phone country code
• Credit or debit card with Kenyan address
• Bill address of the customer

DST registration and compliance on iTax platform

Since there is no DST registration threshold, non-residents must register before supplying their first transaction. Non-residents may opt instead to appoint a Fiscal Representative and have them register and report the taxes. Otherwise, it is not required to appoint a local agent unless the Kenyan Commissioner requests so.

Whilst DST is due at the time of the transaction, practically it is reported and remitted via monthly returns. DST registration will be done online on the iTax platform.  This is due by the 20th of the month following the month of the supply.

The fine for non-compliance is 5% of DST due for a missed filing or missed payment. Interest on late payments is also due at 1% per month.

Africa & Middle East Digital Services Taxes (DST)