VAT in Kenya: Registration, Rates and Filing

Who has to register for VAT

Registration turns on turnover, not profit. You must register for VAT once the value of your taxable goods and services reaches or is expected to reach KES 5 million in any twelve-month period, according to the Kenya Revenue Authority's VAT guidance. The test is forward-looking as well as backward-looking: if you can reasonably see your sales crossing KES 5 million in the coming year, you are expected to register before you breach the threshold rather than after.

Businesses below KES 5 million can still apply for voluntary registration, which some do so they can reclaim the VAT they pay on stock and equipment. Voluntary registration is granted subject to KRA conditions, and it carries the same monthly filing duty as compulsory registration, so it is worth weighing the input tax you would recover against the ongoing compliance load.

If your turnover sits in the small-business range and VAT does not yet apply, your obligation may instead be Turnover Tax, which is a separate regime for smaller traders. The two do not overlap, so settle which one you fall under before you register for anything.

The rates: standard, zero-rated and exempt

Kenya runs three VAT categories, and the difference between them matters for what you can claim back.

The standard rate is 16%, and it applies to most taxable goods and services. This is the rate you add to your invoices and the rate buyers see at the till.

Zero-rated supplies are taxable but charged at 0%. These are listed in the Second Schedule to the VAT Act 2013 and include certain exports and a defined set of essential goods. Because zero-rated supplies are still taxable in law, a business making them can register and reclaim the input VAT it has paid, which is the practical reason the zero rate exists rather than a plain exemption.

Exempt supplies are different. They are listed in the First Schedule and are outside the VAT net entirely, which means you do not charge VAT on them but you also cannot deduct the input VAT on costs that relate to them. Getting the classification wrong is one of the more common ways businesses either overcharge customers or lose a refund they were entitled to, so confirm the schedule that covers your products before you set your prices.

How to file and pay VAT on iTax

VAT is a monthly tax. Both the return and the payment are due on or before the 20th day of the month following the tax period, and returns are filed online through iTax, as set out in the KRA VAT guidance. A return covering June, for example, is due by 20 July.

A registered business files every month even when there is nothing to declare. If you made no sales in a period you still submit a nil return rather than skipping the month, because the obligation attaches to your registration, not to whether you traded. This is the same NIL-return discipline that applies elsewhere in the KRA system, and missing it is treated as a failure to file rather than a harmless gap.

The return itself reconciles the VAT you charged on sales against the VAT you paid on purchases, and you remit the difference. That reconciliation now leans heavily on electronic invoicing: input VAT generally has to be supported by a valid electronic tax invoice for KRA to accept the deduction. If you are not yet set up for compliant invoicing, our explainer on how eTIMS works for Kenyan businesses covers what counts as a valid invoice and why an unvalidated purchase can be disallowed when you file your VAT.

What it costs to file or pay late

The penalties are deliberately steep enough to make timeliness cheaper than the alternative. For failing to file or remit VAT, KRA applies a penalty of the greater of 5% of the tax due or KES 10,000, and late payment then attracts interest of 1% per month on the unpaid amount until it is cleared. Because the interest compounds month on month, a balance left unpaid grows quietly in the background even after the one-off penalty has been charged.

The figures above are current at the time of writing, but VAT rates, thresholds and the exempt and zero-rated schedules are set by the Finance Act and can change each year. Always confirm the position for your own period against KRA before you rely on a number, especially around the June budget cycle when amendments take effect.

When to bring in an accountant

Plenty of businesses register for VAT and run their monthly returns themselves. The point where it usually pays to get help is when the classification gets messy: mixed supplies that are partly standard-rated and partly exempt, large input claims sitting in a refund position, or a backlog of unvalidated invoices threatening your deductions. Those are the situations where a single mistake repeats every month until someone catches it.

If you would rather have the registration decision, the monthly filing and the input-tax reconciliation handled properly from the start, tell us what your business needs and we will match you privately with up to three qualified accountants who handle VAT, free. You can also look through our VAT service listings to see the kind of support available before you decide.