Kenya levies a value-added tax (VAT) on the supply of most goods and services in Kenya, as well as imports. Effective 1 January 2021, the standard rate of 16% is reinstated, after having been temporarily reduced to 14% for the period 1 April 2020 until 31 December 2020 as a COVID-19 relief measure. Certain supplies are either zero-rated or exempt.

Zero-Rated Supplies Include:

Export of goods;
Export of taxable services (effective 1 July 2023);
Goods and services supplied to export promotion zones and special economic zones;
International air transport of passengers;
Medicines;
Milk;
Vitamins;
Seeds;
Fertilizer;
Agricultural machinery;
Supply of liquefied petroleum gas (effective 1 July 2023);
All tea and coffee locally purchased for the purpose of value addition before exportation(effective 1 July 2023);
Supply of locally assembled and manufactured mobile phones (effective 1 July 2023);
Supply of motorcycles (effective 1 July 2023);
Supply of electric bicycles (effective 1 July 2023);
Supply of solar and lithium-ion batteries (effective 1 July 2023);
Supply of electric buses (effective 1 July 2023);
Inputs or raw materials locally purchased or imported for the manufacture of animal feeds (effective 1 July 2023); and
Bioethanol vapour (BEV) stoves (cooking appliances and plate warmers for liquid fuel) (effective 1 July 2023).

Exempt Supplies Include:

Plant and machinery imported by manufacturers of pharmaceutical products or investors in the manufacture of pharmaceutical products upon the recommendation of the Cabinet Secretary responsible for matters relating to health (effective 1 July 2022);
Medical oxygen supplied to registered hospitals (effective 1 July 2022);
Inputs and raw materials used in the manufacture of passenger motor vehicles (effective 1 July 2022);
Locally manufactured passenger motor vehicles (effective 1 July 2022);
Taxable goods, inputs, and raw materials imported or locally purchased by a company that is (a) engaged in business under a special operating framework arrangement with the Government; and (b) incorporated for purposes of undertaking the manufacture of human vaccines; and whose capital investment is at least KES 10 billion (effective 1 July 2022);
Capital goods as determined by the Cabinet Secretary to promote investment in the manufacturing sector, provided that the value of such investment is not less than KES 2 billion (effective 1 July 2022);
Financial and insurance services;
Medical services;
Agricultural services;
Unprocessed agricultural products;
Transportation of passengers;
Specialized solar and wind energy equipment;
Animal feed and related equipment;
Fishing nets;
Aircrafts and parts (effective 1 July 2023);
Aviation fuel, gas oil, and natural gas;
Locally manufactured motherboards (effective 7 November 2019);
Inputs for the manufacture of motherboards for information communication technology (effective 7 November 2019);
Plants, machinery, and equipment used in the construction of a plastic recycling plant (effective 7 November 2019);
Vaccines (effective 25 April 2020);
Medicines containing penicillin or derivatives (effective 25 April 2020);
Personal protective equipment (effective 25 April 2020);
Supply of maize (corn) seeds (effective 30 June 2020); and
Ambulance services (effective 30 June 2020).

Registration Threshold

Taxpayers are required to register for VAT if the taxable turnover is KES 5 million or more in the previous 12 months or if the threshold is expected to be met within the next 12 months. Effective 1 July 2023, the registration threshold does not apply to persons supplying imported digital services over the internet or an electronic network or through a digital marketplace, thus all such persons are required to register regardless of turnover.

Returns and Payments

Taxpayers are required to file VAT returns and make payments on a monthly basis within 20 days after the end of the VAT period.

VAT Withholding

Effective 19 September 2014, the Kenyan government re-introduced the VAT withholding tax rules, which was previously repealed. Under this rule, government bodies, ministries, departments, and other VAT withholding agents are required to withhold 2% (6% until 6 November 2019) of the value of taxable supplies when making payments for such supplies and remit the funds to the Commissioner of VAT. Exempt or zero-rated supplies and official aid-funded projects are excluded from the withholding requirement. The registered manufacturers whose value of investment in the preceding 3 years from 1 July 2022 is at least KES 3 billion are exempted from withholding VAT. VAT withheld can be offset against the VAT payable. It is also allowed to be offset against other tax dues, such as corporation tax, PAYE, and withholding tax, or can be claimed as a refund in case of taxpayers with zero-rated supplies and/or excess VAT credit positions.

Claim arising 36 months prior to 23 July 2019 may be made within 12 months from 23 July 2019; and
Claim arising after 23 July 2019 may be made within 24 months from the date the tax becomes due and payable.

A VAT certificate indicating the VAT withheld is issued by the withholding agents. VAT withholding returns are required to be filed along with the relevant schedule twice a month as prescribed.

Electronic Invoicing

Effective 1 August 2021, electronic invoicing is mandatory in Kenya for all taxable persons. Tax invoices are required to be issued through a prescribed electronic tax register or upgraded electronic signature device.

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