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.

Unfortunately, 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On December 27, 2024, Kenya repealed its 1.5% Digital Service Tax and introduced a new 3% Significant Economic Presence (SEP) tax. This tax targets non-resident businesses that earn income by selling digital services or products to Kenyan users.

Initially, the SEP tax only applied to businesses earning more than Ksh 5 million annually from Kenyan users.

However, as of July 1, 2025, that threshold was removed. Now, any amount of income, even just $1, from Kenyan users triggers the tax. If your digital business earns revenue from Kenya, you're required to pay 3% of your gross Kenyan earnings to the Kenya Revenue Authority (KRA).

💡 Important: SEP is paid directly from your revenue. It’s not passed on to customers like VAT. It is a direct income tax.

Digital products include but are not limited to:

• Streaming services (music, movies, podcasts)

• Online courses

• 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

• et al

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

There is 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.

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

• SEP Tax = 3% of 670,000 = KSh 20,100 (Paid by your business)

• 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 if your business serves Kenyan customers.

• Register for VAT and SEP regardless of how much you earn from Kenya.

• 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.

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 tax compliant in Kenya.

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