| Indirect tax snapshot | |
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What are the current rate(s) of indirect tax? |
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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. |
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What is the principal indirect tax?
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Value Added Tax is the principal indirect tax applied in supply of most goods and services in Kenya.
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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.
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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
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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. |
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How often do returns have to be submitted?
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Returns are submitted monthly. |
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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. |
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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. |
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Are penalties imposed in other circumstances?
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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. |
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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. |
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Deducton of VAT
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Goods and services for personal use and not related to the business like meals, personal effects, drinking water, non-commercial motor vehicle expenses. |
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Filling of tax return
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The filing of tax return and payment of indirect taxes must be done on the online platform iTax.
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Value Added Tax (VAT) is the main type of indirect taxation in Kenya. Value added tax (VAT) shall apply to:
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:
The VAT Act also exempts a number of goods from VAT (list of items is provided in The Act).
Exempt Services include:
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.
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.
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.
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.
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
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.
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:
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:
For the suppliers who provide electronically generated receipts, this must contain:
We list below what a tax invoice for supplies of imported services must contain:
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:
A debit note shall contain:
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:
Export of services shall not include:
A supplier must provide the following documents as proof of exportation of goods or service:
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.
For further information on indirect tax in Kenya please contact:
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Samuel Mwaura |
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