Understanding Kenya’s 3% SEP & 16% VAT

Kenya has one of the most tech-savvy populations in the world, and it’s no surprise the country has become the tech hub of Africa. This digital boom has drawn the attention of global service providers. Everyone—from streaming platforms and e-learning giants to cloud software companies—wants a piece of the Kenyan market.

But as more foreign companies cash in, the Kenyan government is moving to capitalize too—by taxing those online sales.

That’s why Kenya introduced two key digital taxes: a 3% Significant Economic Presence (SEP) Tax and a 16% Value Added Tax (VAT) on digital services. These taxes apply even if your company has no physical presence in Kenya.

The catch? Many non-resident companies are unaware of these taxes—until the Kenya Revenue Authority (KRA) issues a demand notice. By then, penalties and compliance issues are already on the table.

In this article, I’ll break down what SEP and VAT are, when they were introduced, who they affect, how to stay compliant—and how ClearTax can help you sort it all out before KRA comes knocking.

On December 27, 2024, Kenya scrapped its old 1.5% Digital Service Tax and replaced it with a 3% Significant Economic Presence (SEP) tax. This new tax is targeted at non-resident businesses that earn income from selling digital services and products to Kenyans.

If your digital business earns over KSh 5 million per year (about USD 40,000) from Kenyan users — or roughly KSh 416,000 per month (~USD 3,300) — you’re required to pay 3% of that gross revenue to the Kenya Revenue Authority (KRA).

💡 Important: SEP is paid directly from your revenue — it’s not passed on to customers like VAT.

Digital products include but are not limited to:

• Streaming services (music, movies, podcasts)

• Online learning platforms

• Digital marketplaces (e.g. app stores)

• Cloud storage and hosting services

• Software-as-a-Service (SaaS)

• Selling digital goods like e-books, games, or stock photos

VAT is an indirect tax of 16% on every digital sale to Kenyan consumers, introduced in the VAT Act (Amendment) 2023.

No threshold: VAT kicks in from the very first transaction—whether you sell a $5 ebook or a $5 000 software license.

Your responsibility: Register on KRA’s iTax portal, collect VAT at checkout, and remit it monthly.

Key takeaway: Unlike SEP, VAT is charged to the end user. Your role is to act as a tax collector on behalf of KRA.

Now that we’ve covered SEP and VAT individually, let’s compare them to clarify their differences.

Depending on your revenues, you might end up paying both SEP and VAT. But VAT applies to everyone by default. That’s because SEP taxes your business, while VAT taxes your customer - separately.

To illustrate how these taxes apply, let’s look at a practical example.

If your company made $5,000 (≈ KSh 670,000) in sales to Kenyan customers in May 2025:

• SEP Tax = 3% of 670,000 = KSh 20,100

• VAT = 16% of 670,000 = KSh 107,200 (collected from the customer)

• Total due to KRA: KSh 127,300

This amount should be paid to KRA by June 20th.

Failing to comply with Kenya’s SEP and VAT taxes can lead to severe consequences enforced by KRA:

Financial Penalties: A penalty of up to 20% of the unpaid tax, plus 1% monthly interest. For example, a KSh 100,000 tax liability could incur a KSh 20,000 penalty and KSh 1,000 monthly interest.

Market Restrictions: KRA can order the Communications Authority of Kenya to block access to your sites, preventing Kenyan users from reaching your platform.

Legal Action: KRA may pursue legal proceedings against your company, potentially damaging your reputation and operations.

International Enforcement: Under tax treaties, KRA can request assistance from your country’s revenue authority to recover unpaid taxes.

Customer Withholding: KRA can mandate major Kenyan customers to withhold taxes before paying you, disrupting cash flow.

• Check your revenue from Kenya. If it’s above KES 5M annually, you must register for SEP.

• Register for VAT regardless of how much you earn.

• File both SEP and VAT returns by the 20th of each month.

• Keep proper records and issue clear invoices showing VAT.

If you’re a non-Kenyan digital business with a growing Kenyan customer base, now is the time to review your compliance strategy. 

With SEP and VAT, Kenya is aligning with global digital tax trends. Non-compliance risks penalties, interest, and market restrictions, so act now to protect your business.

The good news? ClearTax has made it relatively easy to register and file.

Need our help?

ClearTax can help you in:

✅ iTax Registration – Hassle-free setup with KRA
✅ Tax Assessments – Accurate VAT, SEP, and Withholding Tax calculations
✅ Filing & Reporting – On-time returns that keep you penalty free.
✅ Audit Support – Expert defense if KRA comes knocking
✅ Tax Strategy – Structure your operations to reduce tax legally

Let’s keep your business compliant - and KRA off your back.

Book Your Free Consultation