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Tax refunds to tech giants locked to local bank accounts
National Treasury and Economic Planning Cabinet Secretary John Mbadi when he appeared before the National Assembly Public debt and Privatization Committee at the Continental House in Nairobi on November 28, 2024.
Giant global internet companies operating in Kenya will be required to hold accounts with local banks to qualify for refunds on overpaid digital service taxes when shutting down operations in the country.
National Treasury Cabinet Secretary John Mbadi said they will only issue refunds of the Significant Economic Presence (SEP) tax to foreign tech and ICT firms into accounts held with Kenyan-licensed banks.
“Where an amendment in paragraph (1) results in an overpayment and the non-resident person is ceasing business in Kenya, a refund will only be available if the non-resident person has a bank account with an institution registered and licensed under the Banking Act in Kenya," the draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 said.
"The transfer of the refund may be made into a holding company, a subsidiary or fellow subsidiary’s banking account or account with a similar institution in Kenya, upon written notification to the Commissioner and indemnification of the Commissioner against any loss as a result of such instruction,” the regulations added.
Kenya introduced the three percent SEP tax last December through the Tax Laws (Amendment) Act, 2024, and is charged at 30 percent of a deemed profit equal to 10 percent of gross turnover generated from digital products sold in the country by non-resident companies.
This effectively means that companies will pay three percent of their gross turnover earned from digital services in Kenya. It replaced the Digital Services Tax (DST) that was levied at 1.5 percent on all digital products and services regardless of the seller’s physical presence in the country.
Global tech giants such as Amazon, Microsoft, Netflix, Facebook, and Alibaba are doing business in Kenya through the internet but do not have a physical presence here, which means they do not pay income tax under the traditional permanent-establishment rules.
Under the proposed framework, the new tax will not apply to a foreign person who offers the services through a permanent establishment. Such a person will instead pay DST.
The refund clause is designed to address situations where a company amends a return, finds it has overpaid, and is in the process of exiting the Kenyan market. In those cases, any cash refund would flow only through a bank account with a Kenyan institution, including an account of a related Kenyan entity, once the Kenya Revenue Authority (KRA) is notified in writing and indemnified.
The draft also points to routine administrative requirements for non-resident providers, including registration and providing basic contact details to the KRA.
Under the regulations, these tech companies are expected to share certain particulars, including their physical address and other registration details sufficient for tax administration.
The rules land amid a broader debate on how to tax the digital economy. AmCham Kenya, the business chamber for American and Kenyan businesses, has called for the scrapping of the tax, saying it is biased against United States firms. The SEP has raised concerns about fairness and formed part of the reasons that saw America slap Kenya with a 10 percent tariff in April this year.
Globally, countries under the auspices of the Organisation for Economic Co-operation and Development have been trying to find a way to tax internet companies that earn in countries where they do not have a presence.
This has led to a two-part framework that includes shifting some profits of the biggest multinationals to the countries where their users are, and making sure every large group pays at least 15 percent tax in each country.
