This guide will equip you with the knowledge you need to navigate the world of VAT in Kenya.

What is VAT?

VAT is an indirect tax levied on the incremental value of goods and services at each stage of production and distribution. Essentially, it’s a tax on consumption, paid by the final consumer. Kenyan businesses registered for VAT collect VAT from their customers and remit it to the Kenya Revenue Authority (KRA). They deduct the VAT they paid on their own business purchases (input VAT) before remittance.

VAT Rates in Kenya

There are three main VAT rates applicable in Kenya:

• Standard Rate: 16% – This applies to most taxable goods and services, as well as imports.
• Zero Rate: 0% – This applies to exports, international passenger transport, and specific supplies designated by the Kenyan government (e.g., supplies to Export Processing Zones (EPZs)).
• Exempt Rate: Certain goods and services are exempt from VAT altogether.

Who Needs to Register for VAT?

Any person, individual, company, or partnership supplying taxable goods or services with a taxable turnover exceeding Ksh 5,000,000 within a 12-month period must register for VAT. There’s no formal VAT number issued; businesses are identified through their Personal Identification Number (PIN).

How Does VAT Work for Businesses?

Here’s a simplified breakdown of the VAT process for registered businesses:

1. Charge VAT: Businesses registered for VAT add the VAT rate (usually 16%) to the price of their taxable goods and services they sell to their customers. This collected VAT is called output VAT.
2. Claim Input VAT Deductions: When a VAT-registered business purchases taxable goods or services for their business operations, they can claim the VAT they paid as input VAT. This input VAT is deducted from the output VAT collected to determine the final VAT amount payable to the KRA. Input VAT deduction is allowed for a period not more than six months from the date of supply or importation occurred.
3. File VAT Returns: VAT-registered businesses are required to file VAT returns with the KRA on a monthly basis. These returns detail the output VAT collected and the input VAT claimed, ultimately determining the net VAT payable to the KRA.

Keeping Records 

VAT registered persons are required to maintain proper records to support all transactions. These records may be maintained electronically.

Time of supply (tax point)

Tax point is the time when tax becomes due and payable. This is determined by the EARLIEST of the following: 

• The date on which the goods are delivered or services performed.
• The date a certificate is issued for construction services.
• The date on which the invoice for the supply is issued.
• The date on which payment for the supply is received in whole or part.