Kenya moves to tax Visa, Microsoft and Pesalink fees as royalties in new Bill

Kenya is preparing a tax shift that could change how digital services are priced, after proposing that payments made for software, payment systems and technology platforms be treated as royalties under the Finance Bill, 2026.

The plan targets fees paid by businesses to use global and local digital infrastructure, a move likely to increase operating costs across the financial and tech sectors.

The proposal would capture major players in the digital space, including Visa, Microsoft, Mastercard, Kaspersky, Cellulant, Sage and Pesalink, all of which provide services that could now fall under the expanded royalty definition.

Under current tax rules, royalties refer to payments made for the use of intellectual property such as patents, copyrights, trademarks and industrial processes. These payments are treated as income and attract withholding tax, which is deducted at source and remitted to the tax authority.

The current rates are 5 per cent for residents and 20 per cent for non-residents on gross payments.

The Finance Bill, 2026 seeks to broaden that definition to include digital tools and platforms, especially software systems and payment infrastructure. It proposes that royalties will cover “a payment made as consideration for the use or the right to use any copyright of a literary, artistic or scientific work; any software, proprietary or off-the-shelf”.

The scope is further widened to include payments linked to software services such as licensing, development, maintenance, training and support. Subscription-based services and software-as-a-service arrangements used by businesses in Kenya are also captured under the proposed changes.

A key feature of the proposal is the inclusion of payment networks and switching systems within royalty taxation. This means charges linked to transaction processing could now be treated as royalties. The bill states that this applies whether payments are periodic or transaction-based and “whether or not the payment is described as a service fee, transaction fee, network fee, assessment fee, processing fee or similar charge”.

If approved, this would bring interchange fees, merchant service charges and network costs into the withholding tax system. Costs that were previously treated as business expenses would now fall under royalty payments, requiring banks, fintech firms and telecom companies to adjust how they account for them.

Card issuers, payment gateways and software providers would also be required to classify participation and usage fees as royalties. This change could raise compliance obligations and increase costs for firms operating in Kenya’s digital payment space.

Kenya’s fast-growing fintech sector, powered by mobile money, card systems and digital banking platforms, could face higher operational costs if the proposal becomes law. The country, a regional leader in digital finance, now faces potential changes in how technology services are taxed and priced.