Kenya has drawn a line in the sand for global internet companies. If a foreign digital platform overpays the new Significant Economic Presence (SEP) tax and later exits the market, it won’t see a refund unless the money is routed into a Kenyan bank account.

The draft regulations, unveiled by Treasury Cabinet Secretary John Mbadi, make the condition explicit: refunds will not be wired abroad. They will only pass through accounts held in banks licensed under Kenya’s Banking Act—or in some cases through related local subsidiaries, provided the Kenya Revenue Authority (KRA) is notified in writing and indemnified.

For companies used to seamless cross-border operations, this is not just a technicality. It signals a deliberate tightening of Kenya’s grip on how digital revenue is managed when foreign players pack up.

The SEP levy, introduced in December 2024, replaced the earlier Digital Services Tax (DST). Unlike the DST, which applied broadly to all online services at a flat 1.5 percent, the SEP is more targeted. It assumes a deemed 30 percent profit margin on digital turnover, then applies the corporate income tax rate of 30 percent—effectively producing a three percent tax on gross revenue.

In practice, that means every dollar of streaming subscriptions, cloud contracts, or marketplace commissions earned in Kenya by non-resident firms is automatically skimmed at three percent. Netflix, Amazon, Microsoft, Meta, and Alibaba are among the big names caught in the net.

Local subsidiaries with a permanent establishment in Kenya are exempt. They pay the standard DST, preserving the distinction between companies with a local footprint and those operating entirely from abroad.

Refund clauses in tax law may sound like an afterthought, but for multinational firms they’re a critical exit tool. A company scaling back its operations, or correcting an earlier tax filing, relies on refunds to recoup excess payments.

By locking those refunds to local accounts, Kenya is effectively saying: if you want your money back, you must at least touch the local banking system. Even if your headquarters are thousands of miles away, the refund will first sit in Nairobi.

This ensures more visibility for regulators and reduces the risk of funds vanishing in opaque transfers. It also nudges global firms toward forming relationships with local banks—even if they never set up an office.

Kenya’s step isn’t happening in isolation. The taxation of digital giants has become one of the thorniest global policy debates. At the OECD, negotiations have dragged on over how to split taxing rights between countries where tech companies are headquartered and those where their users live.

The proposed two-pillar framework seeks to move part of big tech’s profits into user markets, while imposing a minimum global corporate tax of 15 percent. Yet implementation has been slow, leaving countries like Kenya to act unilaterally.

The result has been friction. Washington, through AmCham Kenya, has criticized the SEP tax as biased against U.S. firms. In April 2025, the U.S. escalated the dispute with a 10 percent tariff on Kenyan exports, citing both digital taxes and vague data governance rules. That tariff remains a live sore point in bilateral trade relations.

For Nairobi, the SEP tax is as much about revenue as it is about sovereignty. Kenya is betting that taxing digital activity at the point of consumption will secure funds that would otherwise escape its grasp.

But there’s a balancing act. Overly aggressive tax rules could push companies to rethink their presence in the market or pass costs on to Kenyan consumers. The refund restriction adds another layer of uncertainty: what happens if a global firm decides it’s easier to cut losses than to navigate refund hurdles?

For the likes of Netflix or Amazon Web Services, Kenya is a promising but relatively small market. Streaming subscriptions are growing, cloud adoption is expanding, and e-commerce platforms are finding new customers. Yet the compliance load is rising.

The new regulations will force companies to rethink risk exposure. Do they establish formal banking relationships in Nairobi? Do they restructure operations under local subsidiaries to avoid the SEP altogether? Or do they simply absorb the cost as part of doing business in frontier markets?

None of these questions have clear answers yet, but the refund clause adds pressure to resolve them sooner rather than later.

A few gaps in the draft regulations stand out. What safeguards exist for firms worried about delays or disputes in refund processing? Will local banks be ready to handle high-value, cross-border corporate accounts opened primarily for tax compliance? And how might the rule interact with Kenya’s broader fintech and mobile money ecosystem, which already processes a significant share of digital transactions?

These are not trivial issues. Kenya wants to project itself as a hub for digital innovation and investment, yet policy uncertainty risks spooking the very companies it is courting.

Kenya’s decision illustrates a broader truth: the digital economy has outpaced traditional tax rules, and governments are scrambling to catch up. The SEP framework—and the banking lock-in for refunds—is one experiment in asserting control.

Whether it works smoothly or triggers new friction will depend on how the rules are enforced and whether Kenya can reconcile its revenue ambitions with the realities of global tech investment.

For now, the message is unambiguous. To play in Kenya’s digital market, even the biggest internet companies will have to bank local.