Kenya’s Draft SEP Tax Regulations: Registration, Bank Agency Notices, and What Isn’t Settled Yet

A non-resident digital business that now owes Kenya’s Significant Economic Presence Tax cannot simply wait to be assessed. The draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 set out how the Kenya Revenue Authority expects registration, deduction and record-keeping to actually work, and they give the Authority a direct route to collect the tax through Kenyan banks and other third parties even before a non-resident has registered. For Kenyan businesses that pay foreign software, cloud, marketplace or content platforms, understanding this mechanism matters as much as understanding the tax itself.

Two Ways to Register: Simplified Framework or Tax Representative

Under the draft regulations, a non-resident person without a permanent establishment in Kenya has two registration routes. Regulation 7(1) allows registration through a simplified tax registration framework, requiring the business’s name, contact details, addresses, incorporation certificate, and the websites or URLs through which it operates, among other particulars the Commissioner may require. Regulation 8 offers the alternative of appointing a tax representative in Kenya under section 15A of the Tax Procedures Act, 2015, a route more established multinational groups may prefer where they already have a local representative for other tax purposes. Either way, a successful registration generates a personal identification number that the non-resident then uses to file returns and remit the tax.

The Agency Notice Power Over Banks and Other Third Parties

The draft regulations do not rely solely on voluntary registration. Regulation 13(1) empowers the Commissioner to issue a written notice requiring “any person including financial institutions, customers, agents or related parties” to deduct the tax due and remit it on the non-resident taxpayer’s behalf. A person served with such a notice must credit the amount deducted against the non-resident’s liability, and faces personal liability for failing to comply. In practice, this gives the Authority a mechanism to reach a non-resident’s Kenyan revenue through the bank that processes its payments, or through a Kenyan customer making payments to it, without needing the non-resident to have registered first. A Kenyan business that regularly pays a non-resident digital platform should be aware that it could, in principle, be served with such a notice and required to deduct and remit tax from future payments.

Record-Keeping and Penalties

Regulation 12 requires a person obligated to deduct, account for and remit the Significant Economic Presence Tax to keep records in accordance with section 23 of the Tax Procedures Act, 2015, the Act’s general record-keeping provision. Regulation 14 provides that non-compliance with the regulations attracts the penalties and interest prescribed under the Tax Procedures Act, without setting out a separate penalty schedule specific to this tax. Because the draft regulations lean on the Tax Procedures Act’s general enforcement architecture rather than creating bespoke penalties, a business already familiar with standard KRA penalty and interest exposure under other tax heads is dealing with a similar framework here, not an unusual one.

What Kenyan Businesses Working With Non-Resident Digital Providers Should Watch

For Kenyan companies procuring software, cloud infrastructure, digital advertising, or online marketplace services from non-resident providers, three practical points follow from the draft regime. First, the direct legal liability for the Significant Economic Presence Tax sits with the non-resident provider, not the Kenyan customer, so a Kenyan business does not owe the tax itself merely by being a customer. Second, the agency notice mechanism means a Kenyan payer could still be drawn into collection if the Authority serves a notice, so payment processes for material foreign digital vendors should be able to accommodate a deduction requirement if one is imposed. Third, because the regulations remain in draft, vendor contracts negotiated now should anticipate that Kenyan tax treatment of the relationship may still shift once the regulations are finalised, and pricing or gross-up clauses should be reviewed with that uncertainty in mind rather than treated as settled.