Kenya to Scrap Digital Services Tax and Exempt Startups from Paying Tax on Employee-Allocated Shares

Effective from January 1, 2021, all digital marketplaces operating in Kenya were required to pay a 1.5% digital service tax. The 1.5% ‘Digital Service Tax’ was imposed on the gross transaction value of services and included cryptocurrencies.

Kenya will exempt startup companies from paying taxes on employee-allocated shares, President William Ruto announced at a recent Business Forum.

Ruto, who attended the American Chamber of Commerce Regional Business Summit in Nairobi, Kenya said the directive will take effect starting July 2023.

The event brought together 700 delegates and 300 companies with U.S. government and private sector delegations meeting their counterparts from Rwanda, Tanzania, Uganda, Ethiopia and Kenya.


“I am proud to say that the government will exempt startup companies from paying taxes on employee-allocated shares starting July 1, 2023. I have received complains that we impose employee benefits tax on allocated shares to employees of startup companies even before any value is realized on these shares.” – President of Kenya


The President said this action will offer startups a better environment to engage in business activities.

“It is not fair for anybody to be told to pay taxes from shares that you have been allocated before you sell the shares. I think you can only pay tax when you sell the shares,” he said.



Digital Services Tax

President Ruto also indicated that Kenya will scrap its 1.5 percent levy on digital services charged on multinationals operating locally, and instead, adopt a global framework on taxing multinationals by the Organization for Economic Cooperation and Development (OECD) which will be implemented in 2024.


“The growth of digital commerce has forced many countries to impose Digital Services Tax measures on income derived in their jurisdictions. Kenya has also done the same. Following discussions with players in this sector, we have committed to review this tax regime and align it with the two-pillar solution currently being developed by the OECD inclusive framework,” President Ruto told investors at the event.


According to local reports, the revenue from digital service providers including US tech giants Google, Netflix, Meta, Twitter and Microsoft, is expected to surpass $2.2 million in June 2023, when the 2022-2023 financial year closes.

As part of efforts to win investors into the country, once the OECD framework takes effect, foreign firms will be subject to a 15% minimum tax rate.


“We are committed to transforming the economy by creating a business-friendly environment. Under our Plan, we are building the blocks to create wealth; we are already creating jobs and attracting local and foreign investors,” Ruto said.




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