Kenya Value Added Tax

General Information:

• VAT was introduced in Kenya on 1st January 1990, replacing the Sales Tax.  
• The governing law is the VAT Act, 2013, along with its regulations.
• VAT is charged on:
  • Taxable supplies of goods or services made in Kenya by a registered person.  
  • Importation of taxable goods and services.  
• Kenya operates a source-based taxation system, generally taxing income accrued in or derived from Kenya.

VAT Rates:

• There are three main VAT rates applicable in Kenya:
  • Standard Rate: 16% - This applies to most taxable goods and services.  
  • Zero Rate: 0% - This applies to specific supplies, including exports of goods and services and certain supplies to privileged bodies.
  • Exempt Supplies: These are not subject to VAT, and input tax incurred on making these supplies is generally not deductible.    

VAT Registration:

• Mandatory Registration: A person is required to register for VAT if their taxable supplies have exceeded or are expected to exceed KES 5 million in any 12-month period.
• When determining the threshold, the sale of capital assets is excluded.
• Voluntary Registration: Businesses that do not meet the mandatory threshold can apply for voluntary registration under certain conditions, at the discretion of the Commissioner of the Kenya Revenue Authority (KRA).
• Non-Resident Persons: Non-resident persons with no fixed place of business in Kenya but who make taxable supplies to customers in Kenya are required to register for VAT. They may do so through a tax representative in Kenya or via a simplified online registration framework for digital supplies.
• Digital Marketplace Suppliers: Non-resident suppliers making taxable supplies through the internet, electronic platforms, or digital marketplaces are required to register for VAT from the first sale to a Kenyan customer.  

VAT Registration Procedure:

• VAT registration is done online through the KRA's iTax platform.  
• Upon successful application, a Tax Registration Certificate and a Taxpayer's PIN are issued.  
• Required documents for company registration typically include:
• Certificate of Incorporation or Certificate of Compliance (for branches).  
• PIN details of at least one director (or company secretary for non-resident directors).
• Memorandum and Articles of Association.
• Details of actual or expected taxable turnover.
• Business address and contact information.

VAT on Imports:

• Imported goods are subject to VAT at the prevailing rates (16% standard).  
• VAT on imported services is payable at the earliest of: when the service is performed, when an invoice is received, or when payment is made. This is sometimes referred to as reverse VAT.
• VAT paid on imported services used for making taxable supplies can be claimed as input tax.  

VAT Exemptions:

• Certain supplies are exempt from VAT.
  These include:
  • Unprocessed agricultural products.
  • Medical supplies.
  • Financial services.
  • Insurance services (with some exceptions).
  • Education services.
  • Supply of land and residential premises (with exceptions).
  • Burial and cremation services.
  • Community, social, and welfare services provided by the government.

VAT Returns and Payment:

• VAT returns are due monthly, on or before the 20th day of the following month.  
• Returns are filed and payments are made electronically via the iTax platform.  
• A VAT registered person is entitled to deduct input tax (VAT paid on purchases) against their output tax (VAT charged on sales), provided they have valid documentation and the purchases were for making taxable supplies.  

Tax Point (Time of Supply):

• The tax point is the earliest of the date when:
• Goods are delivered or services are performed.  
• An invoice is issued.  
• Payment is received.
• Customs clearance for imports is completed.

Special Considerations for Foreign Investors:

• Foreign investors should determine if their supplies in Kenya exceed the VAT registration threshold.
• Non-resident entities making digital supplies are subject to VAT registration from the first sale.  
• Understanding the VAT treatment of imported goods and services is crucial for managing costs.
• Appointing a tax representative may be necessary for non-resident entities without a fixed place of business in Kenya.
• It is important for foreign investors to seek professional tax advice to ensure compliance with the VAT regulations in Kenya based on their specific business activities.