Overview
The VAT (Digital Marketplace Supplies) Regulations, 2020 (VAT DMS Regulations) came into effect in October 2020, subjecting non-residents supplying electronic services to Kenyan individuals – business to consumer (B2C) to VAT. These Regulations were effective from 1 April 2021.
With effect from 1 July 2022, the Finance Act, 2022 amended the VAT DMS Regulations by removing the distinction between business-to-business (B2B) and B2C. The change meant that recipients of B2B supplies from non-resident suppliers could no longer rely on the reverse charge mechanism for VAT compliance in Kenya. Furthermore, the Finance Act, 2022 also clarified that there is no VAT registration threshold for nonresident suppliers of taxable services.
The above changes mean that all non-resident suppliers of taxable services via a ‘digital marketplace’ must register for VAT in Kenya and charge VAT at the standard rate, currently 16%, on all relevant supplies. A digital marketplace is defined as an online platform that enables users to sell goods or provide services to other users.
The VAT DMS Regulations were later revoked and have now been replaced by the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 (VAT EIDMS Regulations) to take account of additional changes in relation to the taxation of supplies through a digital marketplace.
Release date: April 2024
Key provisions applicable under the VAT EIDMS Regulations to non-resident suppliers |
| Table 1 |
Services in scope |
Regulation 3 of the VAT EIDMS Regulations states that the following services constitute ‘taxable supplies’ when made electronically, through the internet or through a digital marketplace:
Electronic services under section 8 (3) of the VAT Act, as stated in the extract above, means any of the following services when provided or delivered through a telecommunications network:
|
Registration and compliance |
The non-resident supplier offering any of the above electronic services to customers/recipients in Kenya, irrespective of whether done under a B2B or B2C arrangement, is required to register for VAT under the simplified tax registration framework. The Kenyan VAT law also contains a provision for non-residents to register for VAT using a tax representative, but, in practice, this option is more complex than registering under the simplified tax registration framework. Once registered for VAT under the simplified tax framework in Kenya, the non resident company will be required to complete and submit monthly VAT returns. VAT returns must be submitted by the 20th day of the month following the end of the VAT return period (calendar month). Where there are no sales to reflect in a month, the non-resident must file a nil VAT return. All VAT payments to the Kenya Revenue Authority (KRA) must be made by the 20th of the month. |
Invoicing |
While the non-resident supplier providing the electronically-supplied service is exempt from issuing electronic tax invoices, it should issue invoices or receipts showing the value of the supplies made to its Kenyan customers and the VAT charged. For business customers in Kenya, the non-resident supplier is also required to reflect its customer’s tax identifier, i.e. personal identification number (PIN), on the face of the invoice/receipt. Otherwise, the recipient of the services will not be able to recover the VAT charged as input tax. In Kenya, the PIN is equivalent to a VAT ID number in other jurisdictions. In addition, while it is acceptable for the non-resident supplier to invoice in a foreign currency, such foreign currency amounts should be translated to Kenyan shillings on the face of the invoice using either the Central Bank of Kenya’s daily exchange rate or any other universally accepted foreign exchange rate. This is to ensure that there are no forex differentials between the VAT amount declared and paid by the non-resident supplier to KRA (output tax) and the amount of VAT claimed by the Kenyan business as input tax. |
VAT on costs |
| Non-resident suppliers registered under the simplified tax registration are precluded from recovering any VAT incurred on costs in Kenya as input tax, i.e. any Kenyan VAT incurred by the non-resident suppliers is an absolute cost. |
Other |
| Non-resident suppliers of ESS to Kenya also need to be aware of digital services tax (DST), an income tax chargeable at 1.5% of sales. |
Particulars |
Description |
Scope |
Non-residents supplying electronic services to Kenyan individuals (B2C) or businesses (B2B) |
Liability to remit VAT |
By the non-resident supplier |
VAT rate |
16% |
Taxable value |
Price payable by the recipient of the supply |
Effective date |
B2C sales from 1 April 2021 B2B sales from 1 July 2022 |
VAT registration threshold |
Not applicable |
Tax invoice |
No requirement to issue electronic tax invoices, but there is a requirement to issue a document showing the VAT paid by the Kenyan consumer. |
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