The United States Trade Representative’s office has faulted Kenya’s significant economic presence (SEP) tax and data localisation terming them barriers to digital services trade, which is one of America’s top exports.
Kenya introduced the three percent SEP tax last December through the Tax Laws (Amendment) Act, 2024 and is charged on the turnover generated from digital products sold in the country by foreign companies.
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.
“A three percent effective tax rate on gross revenues is imposed on non-residents whose revenue from the provision of services is derived from or accrues in Kenya through a digital marketplace,” the USTR said as it flagged the SEP as a trade barrier.
“Those excepted from the application of the tax include non-residents who offer services through a permanent establishment in Kenya or have an annual turnover of less than 5 million Kenya shillings (approximately $38,800),” it said.
The American Chamber of Commerce (AmCham)—a lobby for US firms doing business in Kenya—had opposed the SEP tax, requesting lawmakers to at least keep it at 1.5 percent.
“This proposed amendment will significantly raise the tax burden for non-residents providing services to Kenyan persons via digital marketplaces, potentially impacting service provision costs,” AmCham said in a letter to the National Assembly.
The data localisation requirement, on the other hand, was introduced by the Data Protection Act of 2019 and forces all companies that handle or process Kenyans’ personal data to store it within the country or provide adequate justification that it will be soundly secure outside.
USTR said in the Foreign Trade Barriers report which informed President Donald Trump’s new tariffs on Kenya that the data localisation laws are vague and make it harder for tech firms to do business in the country.
“The DPA requires that either data subjects provide consent for transfers outside Kenya or controllers provide proof that personal data will be secure as a condition for transferring the data outside Kenya, but does not describe what would constitute acceptable proof,” said the USTR.
Several US tech companies currently operate in Kenya and have been affected by both the SEP tax and the data localisation requirements. They include Netflix, Google, Facebook, Microsoft, Amazon, and IBM, among others.
The American government wants Kenya and other countries slapped with new tariffs to eliminate the trade barriers for US companies before the levies can be lifted. US President Trump temporarily suspended the tariffs for 90 days but is set to take effect if no action is taken.
Other than Kenya, other jurisdictions faulted for data localisation requirements include Bangladesh, China, Côte d’Ivoire, El Salvador, the European Union, India, Israel, Korea, Nigeria, Norway, Pakistan, Panama, Russia, Switzerland, and Vietnam.
However, although not necessarily on a national scale, the US also has a semblance of digital service tax and data localisation requirements.
For instance, just recently, American lawmakers passed a law banning TikTok in the country unless it was sold to a local company in what was meant to protect the personal data of US citizens using the platform.
Companies working in specific sectors such as finance, and healthcare, and those working with federal agencies are required to store American data within US borders or seek approval to store it outside the country.
Maryland, a State in the US, introduced a tax on tech companies’ digital advertisements, which was challenged in court by companies and the case is ongoing, but other States like New York, Connecticut, and Indiana are reportedly considering a similar tax.
