Kenya

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The VAT DMS Regulations were later revoked and have now been replaced by the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023 (VAT EIDMS Regulations) to take account of additional changes in relation to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.

Navigation

Key provisions applicable under the VAT EIDMS Regulations to non-resident suppliers
Services in scope
Registration and compliance
Invoicing
VAT on costs
Other

Download VAT ESS

Select another country

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:

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 programs, 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, licensing, 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, or 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 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.

Download publication (pdf - 4.20mb) VAT in Africa Digital Services

This report is a special edition of our annual VAT Guide in Africa, focusing on new rules and measures that have been introduced to tax the digital economy unilaterally by countries in Africa.

Or view more previous documents