Overview
The VAT (Digital Marketplace Supplies) Regulations, 2020 (the “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 supplies. As a result, the 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 the non-resident suppliers of taxable services.
The above changes meant 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 which enables users to sell goods or provide services to other users.
The VAT DMS Regulations have since been revoked and replaced by the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 (the “VAT EIDMS Regulations”) to take account of additional changes in relation to the taxation of supplies through a digital marketplace.
Key provisions applicable to VAT on ESS
| 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. |
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:
- Downloadable digital content including downloadable mobile applications, e-books and films.
- Subscription-based media including news, magazines and journals;
- Over-the-top services including streaming television shows, films, music, podcasts and any form of digital content.
- Software programmes including software, drivers, website filters and firewalls.
- Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services.
- Music and games
- Search engine and automated helpdesk services including customisable search engine services.
- Tickets for live events, theatres or restaurants
- Distance teaching through pre-recorded media or e-learning including online courses and training but excluding education services exempted under the First Schedule to the Act.
- Digital content for listening, viewing or playing on any audio, visual or digital media.
- Services that link the supplier to the recipient including transport hailing services or platforms.
- Electronic services under section 8(3) of the Value Added Tax Act, 2013 - VAT Act.
- Sales, licencing, or any other form of monetising data generated from users’ activities.
- Facilitation of online payment for, exchange or transfer of digital assets excluding services exempted under the Act.
- Any other service provided through an electronic, internet and digital marketplace that is not exempt under the Act.
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:
- Websites, web-hosting or remote maintenance of programs and equipment
- Software and the updating of software
- Images, text and information
- Access to databases
- Music, films and games, including games of chance
- Political, cultural, artistic, sporting, scientific and other broadcasts and events including broadcast television.
Registration and compliance
The non-resident supplier that provides any of the above electronic services to customers/recipients in Kenya, irrespective of whether done under 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. However, this option is more complex compared to 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. These 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 is required to file a nil VAT return. All VAT payments to the Kenya Revenue Authority (KRA) are required to be made by the 20th of the month.
Invoicing
Whilst 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, whilst 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 conversion rate. This helps 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 excluded 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 taxes for non-resident suppliers to consider
- Income tax – With effect from 27 December 2024, non-resident suppliers of ESS to Kenya will need to consider if their supplies are subject to Significant Economic Presence Tax (SEPT) which is chargeable at an effective rate of 3%. Prior to the introduction of SEPT, non-resident suppliers were required to account for Digital Services Tax (DST) from 1 January 2021 to 26 December 2024 at a rate of 1.5% on eligible sales.
- Excise duty – With effect from 27 December 2024, non-resident suppliers that provide advertisement on the internet, social media, television, print media, billboards and radio stations on alcoholic beverages, betting, gaming, lotteries and prize competitions shall be liable to charge and account for excise duty at a rate of 15%.
Cryptocurrency/digital assets – indirect tax
- VAT - Any fees earned by non-resident suppliers for facilitating payments, exchanges, or transfers of digital assets (including NFTs) in Kenya, are subject to VAT at the standard rate of 16%.
- Excise duty - In addition to VAT and with effect from 1 July 2025, Kenya introduced excise duty on virtual assets. Excise duty will be levied on fees charged on virtual assets transactions by virtual asset providers at 10% of the excisable value.
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