Indirect tax

Indirect tax - Kenya

01 Jan 202512 min read

This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Kenya.

Indirect tax snapshot
What are the current rate(s) of indirect tax?	Standard rate of 16% for most goods and services including importation of taxable goods and services. Zero-rated supplies include the exportation of goods and services and local supply of services to public bodies, privileged persons and institutions. Exempt services include banking, insurance and reinsurance, education, medical, veterinary, dental, nursing, agriculture and supply of residential premises.
Are there any confirmed or anticipated changes to these rates?	There has been a rapt of changes on the tax legislations relating to classification of goods and services for tax purposes and therefore likely changes on the rates.
What is the principal indirect tax?	Value Added Tax is the principal indirect tax applied in supply of most goods and services in Kenya.
Is there a registration limit for the tax?	Yes. There is a minimum annual turnover amount that when an entity attains, then it becomes mandatory to register for VAT. Voluntary registration is also allowed for businesses that do not meet the set turnover threshold.
Does the same registration limit apply to non-established businesses?	Yes. The minimum annual turnover amount applies to non-established businesses. However, no limit is applicable to non-established businesses supplying imported digital services over the internet, an electronic network or through a digital marketplace
Does a non-established person need to appoint a fiscal representative in order to register?	Yes, non-established entities can appoint, in writing, a tax representative to register for VAT on their behalf.
How often do returns have to be submitted?	Returns are submitted monthly.
Are penalties imposed for the late submission of returns/payment of tax?	Yes. There is a fixed penalty for late submission of VAT returns. Late payment of tax attracts interest which is compounded monthly.
Are any other declarations required?	Yes, you declare the total taxable sales made, total exempt sales and total zero rated sales. For purchases, you declare total taxable, exempt and zero rated purchases.
Are penalties imposed in other circumstances?	Yes. Any fraudulent acts for example omission or contravention of the VAT Act is liable to a fine or imprisonment as per the tax procedures Act 2015.
Can the tax incurred by overseas businesses be claimed if they are not registered in your country?	No. To claim refunds in Kenya, one has to be registered for VAT in Kenya.
Deducton of VAT	Goods and services for personal use and not related to the business like meals, personal effects, drinking water, non-commercial motor vehicle expenses.
Filling of tax return	The filing of tax return and payment of indirect taxes must be done on the online platform iTax.

Please click on each section to expand further:

What is the principal indirect tax?

Value Added Tax (VAT) is the main type of indirect taxation in Kenya. Value added tax (VAT) shall apply to:

the taxable supplies of goods and services provided by a registered person in Kenya;
the importation of taxable goods; and
a supply of imported taxable services.

A vatable transaction is to be considered at the time and place of supply for goods or service.

VAT in Kenya is taxed at a standard rate of 16%. The Act provides for zero rating of:

exportation of taxable goods and services
supply of taxable good under services to an export processing zone (EPZ)
shipstores supplied to international sea or air carrier on international voyage
supply of coffee and tea for export to auction centers
transportation of passengers by air carriers on international flight
transfer of natural water by National or County Government
supply of taxable goods and services to public bodies, privileged persons and institutions.

The VAT Act also exempts a number of goods from VAT (list of items is provided in The Act).

Exempt Services include:

financial services (operation of accounts, issuing card, ATM transactions...)
insurance and reinsurance services excluding actuarial services, services of assessors and loss adjusters and management of insurance consultancy services
educational services
medical, veterinary, dental and nursing services
agriculture, animal husbandry and horticultural services;
burial and cremation services
transportation of passengers excluding international air transport and hired or chattered services
sale, lease, hire or letting of land or residential premises.
transfer of business as a going concern to a registered person.

Place of supply

A supply of service is made in Kenya if the place of business of the supplier is in Kenya.

A supply is also considered to be made in Kenya if the recipient of the supply is registered or unregistered person but the services are physically performed in Kenya or the supply relates to immovable property in Kenya or when the supply is the transfer of: right to use, a copyright, patent or trademark or broadcasting services received to an address in Kenya/electronic services to a person in Kenya at the time of supply.

Time of supply

The time of supply for the purpose of VAT is the earlier of the date on which the supply is made, the date upon which a certificate is issued by a consultant, the date an invoice is issued or when payment for the supply either in part or whole is received.

Treatment of imported services (Reverse Charge VAT)

This is no longer applicable when a registered person receives services from a non-resident supplier.

A non-registered person should account for VAT on the imported services. Simplified VAT registration framework has been rolled out.

Is there a registration limit for the tax?

Yes, the VAT regime in Kenya provides that any person making or expecting to make annual taxable supplies of KShs 5,000,000 or more is required to register for VAT.

Penalties and interest on VAT may be incurred in the event that a person making the minimum taxable sales fails to register for VAT.

Does the same registration limit apply to non-established businesses?

No registration limit is applicable for non-established businesses. The non-resident person making taxable sales in Kenya can appoint, in writing, an agent who will register and account for VAT on their behalf.

When a non-established person making taxable supplies in Kenya fails to appoint a tax representative upon notification from the Commissioner, then the commissioner will appoint a tax representative on their behalf.

How often do returns have to be submitted?

All taxpayers are required to file a VAT return electronically every month. The due date for VAT return filing is 20th of the following month.

Are penalties imposed for the late submission of returns/ payment of tax?

Yes, a penalty of KShs 10,000 or 5% of the tax payable under the return whichever is higher is applicable on each instance of late filing of the VAT return.

Late payment of VAT attracts 1% interest computed as simple interest

Are any other declarations required?

Yes, upon submitting a VAT return, a person is required to include details of all the supplies made, standard VAT rate supplies, exempt supplies and zero rated supplies during that VAT period.

The person also includes details of the standard rate, exempt and zero rated purchases made during the same period.A split of deductible input VAT is required for mixed supplies.

Are penalties imposed in other circumstances?

Yes, a fine not exceeding KShs 1,000,000 or imprisonment for a term not exceeding 3 years or both is applicable when one is convicted of the offences below:

falsification of VAT documents
failure to do the requirements under the Act
interfering with other persons or processes so as to contravene the VAT Act
breach of one’s duties as specified in the VAT Act
failure to prevent or report offences committed under the VAT Act to the relevant authorities.

Can the VAT incurred by overseas businesses be claimed if they are not registered in Kenya?

No. An overseas business can only claim VAT in Kenya if they have a tax representative who registered and accounts for VAT on their behalf.

Refund of taxes

The legislation has given more emphasis on refund of VAT. A registered person will only be entitled to a refund arising from zero rated supplies for persons making both taxable at the general rate and zero rate.

Refund of taxes paid erroneously to the KRA will be applied in accordance with the Tax Procedures Act where the commissioner shall apply the overpayment of any other taxes under the tax law in payment of a tax owing to any other tax law. Any remainder shall then be refunded to the tax payer.

On the matter of refund of output tax paid on bad debts, the legislation has given emphasis that, such refunds shall be allowed, however if the the supplier had issued a credit note to the recipient of the supply, such refunds shall not be allowed.

The legislation also states that, any persons who had been refunded output tax paid on bad debts and recovers the amounts, he/she shall issue a debit note to the recipient of the taxable supply with a debit note specifying the amount of tax refunded to the Commissioner.

We list below what the tax invoice furnished by the supplier to a purchaser must contain:

the words ‘TAX INVOICE’ in a prominent place
the name, address, and PIN of the supplier
the name, address, and PIN, if any, of the recipient
the individualized serial number of the tax invoice
the date on which the tax invoice is issued and the date on which the supply was made, if different from the date of issue of the tax invoice
the description of the goods supplied including quantity or volume or services provided
the description of the goods supplied including quantity or volume or services provided
the details of any discount allowed at the time of supply
the consideration for the supply and the amount of tax
charged.

For the suppliers who provide electronically generated receipts, this must contain:

the name, address, and PIN of the supplier
the serial number of the receipt
the date and time of issue of the receipt
a brief description of the goods supplied (including quantity or volume)
the tax payable
the total amount payable for the supply inclusive of tax.

We list below what a tax invoice for supplies of imported services must contain:

the name, address, and PIN of the recipient
the name and address of the supplier
the individualised serial number of the tax invoice and the date on which the tax invoice is prepared
a description of the services supplied and the date of the supply
the extent to which the supply has been applied other than to make taxable supplies
the consideration for the supply and the amount of tax charged.
unique register identifier
digital signature (QR code).

The VAT Act provides for issuance of credit notes and debit notes to reduce value of credit notes and increase value of supply. We discuss below details that should be contained in a credit note raised to a purchaser:

A credit note shall contain:

the words ‘CREDIT NOTE’ in a prominent place
the name, address, and PIN of the supplier
the name, address, and PIN of the recipient
the individualised serial number of the credit note and the date on which the credit note is issued of tax that relates to the difference
a brief description of the circumstances giving rise to the issuing of the credit note, including the invoice details to which the credit note relates
the consideration shown on the tax invoice for the supply
the correct amount of the consideration, the difference
between those two amounts, and the amount.
unique register identifier
digital signature (QR code).

A debit note shall contain:

the words ‘DEBIT NOTE’ in a prominent place
the name, address, and PIN of the supplier
the name, address, and PIN of the recipient
the individualised serial number of the debit note and the date on which the debit note is issued
a brief description of the circumstances giving rise to the issuing of the debit note, including the invoice details to which the debit note relates
the consideration shown on the tax invoice for the supply
the correct amount of the consideration, the difference between those two amounts, and the amount of tax that relates to the difference.
unique register identifier
digital signature (QR code).

Exportation of goods or services

The KRA has in the past raised assessments on taxpayers for failure of charging VAT for services taxpayers feel were exports however, this services according to the KRA were consumed in Kenya and therefore subject to VAT.

The VAT Act 2013 defines export of services to mean services provided for use or consumption outside Kenya.

The regulations have been put in place to remove any doubts as to the definition of exportation of goods or services.

According the VAT Regulation 2017 the exportation of goods or services has been defined to mean:

in the case of goods, when the taxable supply involves the goods being entered for export under the East African Community Customs Management Act and delivered to a recipient outside Kenya at an address outside Kenya
in the case of services, when the taxable supply involves the services being provided to a recipient outside Kenya for use consumption, or enjoyment outside Kenya.

Export of services shall not include:

taxable services consumed on exportation of goods unless the services are in relation to transportation of goods which terminates outside Kenya
taxable services provided in Kenya but paid for by a person who is not a resident in Kenya.

A supplier must provide the following documents as proof of exportation of goods or service:

a copy of the invoice showing the recipient of the supply to be a person outside Kenya
proof of payment for the supply of services
the bill of lading, road manifest, or airway bill, as the case may be
the export or transfer entry certified by a proper officer of Customs at the port of exit
for excisable goods, the documents shall be in accordance with the provisions of the Excise Duty Act 2015
documents as the Commissioner may require as proof that the services had been used or consumed outside Kenya.

If, however, the commissioner is not satisfied that a service was not consumed outside Kenya. The Commissioner may by notice in writing require the registered person to produce, a certificate signed and stamped by a competent authority outside Kenya stating that the goods were duly landed and entered for home consumption at a place outside Kenya.