VAT 1

VAT: scope, registration and rates

1Scope and legal basis

The Value Added Tax Act 2013 (in force from 2 September 2013, replacing the 1989 Act) charges VAT under section 5 on a taxable supply made by a registered person in Kenya, on the importation of taxable goods, and on a supply of imported taxable services. VAT is a tax on consumption collected in stages: each registered trader charges output tax on its sales, deducts the input tax on its purchases, and pays the difference, so the tax borne by the final consumer equals the rate applied to the final price. The Act sets one standard rate of 16%, a zero rate for exports and the goods and services in the Second Schedule, and exemptions in the First Schedule; the Finance Acts move items between these lists every year (the Finance Act 2026 moved scrap metal and pharmaceutical inputs to exempt, aircraft parts and affordable housing inputs to 16%, and made digital payment and merchant acquiring fees standard-rated). Petroleum products were raised to 16% by the Finance Act 2023, with a temporary 8% relief measure in force through the second half of 2026. The Tax Procedures Act governs registration, returns, penalties and eTIMS; the VAT (Electronic Tax Invoice) Regulations 2020 and the VAT (Digital Marketplace Supply) Regulations 2023 sit under it.

2Key definitions

3Charge, computation and rates

The three categories compared

Registration

• Compulsory registration: a person who has made taxable supplies of KES 5 million or more in the past twelve months, or expects to in the next twelve months, applies within 30 days; the Commissioner may register a person compulsorily on the evidence of turnover (eTIMS, bank data). The threshold counts standard and zero-rated supplies but not exempt supplies, capital asset sales or the sale of a business.
• Voluntary registration: a person below the threshold making taxable supplies may apply, to recover input tax and issue tax invoices to registered customers; once registered the person is bound by all obligations until deregistered.
• No threshold: a non-resident supplying services or digital content over the internet, an electronic network or a digital marketplace to consumers in Kenya registers under the simplified regime (business-to-consumer since 2021, business-to-business since 2022, extended by the Finance Act 2025).
• Registration takes effect from the date the Commissioner specifies; pre-registration input tax on stock and assets on hand may be claimed within the rules. The registered person's PIN doubles as the VAT number and must appear on every tax invoice.
• Deregistration: a person whose taxable supplies fall below the threshold, ceases business or makes only exempt supplies applies to deregister; VAT is accounted for on stock and assets on hand at deregistration as a deemed supply. The Finance Act 2026 allows reinstatement of a deregistered PIN.

Place of supply and imports

• Goods are supplied in Kenya if delivered or made available in Kenya, or installed or assembled in Kenya; goods exported are zero-rated where the supplier holds the export documents (the time of supply for exports is when the export confirmation documents are held, since 2024).
• Services are supplied in Kenya if the supplier's place of business from which the services are supplied is in Kenya, or, for a non-resident supplier, if the recipient is in Kenya and the services are used, consumed or enjoyed in Kenya; exported services are zero-rated only where the services are consumed outside Kenya (a narrow test the courts have applied strictly, and the Finance Act 2023 removed the general zero-rating of exported services except for specified categories).
• Imports of goods: VAT at 16% on the customs value plus import duty plus excise duty, paid to customs at entry with the other import taxes; the importer, if registered, deducts it as input tax.
• Imported services: a registered person receiving a service from a non-resident that would be taxable if supplied in Kenya accounts for reverse-charge VAT (VAT 3); the Finance Act 2025 subjected to VAT the misuse of goods or services that were exempt or zero-rated for a purpose (a clawback where they are used inconsistently with that purpose).

4Compliance: returns, payment and penalties

• Apply for registration on iTax within 30 days of becoming liable; a person who fails to register is liable for the VAT it should have charged, plus penalties. The late registration penalty is KES 100,000 per month or part of a month, under the Tax Procedures Act.
• Charge VAT on every taxable supply, issue an electronic tax invoice through eTIMS showing the supplier's and buyer's names and PINs, serial number, date and time, description, quantity, discount, consideration, rate and tax, and display the VAT registration certificate at the business premises.
• File the monthly VAT return (VAT 3) and pay by the 20th of the following month, declaring output tax, deductible input tax (only against supplier invoices declared on eTIMS), and the net payable or credit. Late filing costs the higher of 5% of the tax due and KES 10,000; late payment 5% plus interest at 1% a month.
• Keep records (tax invoices, credit and debit notes, import entries, the VAT account) for five years; failure to issue a tax invoice or to keep records attracts penalties and, for false invoices, prosecution.
• Register for the simplified non-resident regime where applicable, appoint a tax representative if desired, and file monthly returns in the same way.

5Examinable focus