Kenya VAT on non-resident digital services – update

Jan 2023 – draft VAT digital services regulations for new simplified VAT registration for non-resident providers and marketplaces

The Revenue Authority has issued comprehensive regulations for the compliance VAT rules for providers and marketplaces of digital services. There will now be a short public consultation period. The regulations cover:

• Digital or electronic services new definitions as in scope for VAT
• VAT determination – time and place of supply rules, corrective returns etc
• Registration procedures for new simplified path but with no right to deduct VAT
• VAT invoice obligations and exemptions

August 2022 – B2B reverse charge option withdrawn for foreign providers of digital services

The VAT Digital Marketplace Supply Regulations, which governs the rules for non-resident providers and marketplaces to charge Kenyan VAT,  have been updated with a number of changes, including:

• Withdrawal of the reverse charge for B2B transactions. This will mean foreign digital services providers may have to VAT register if they are over the VAT registration threshold. The Kenyan business customers will though be able to deduct the VAT input.
• Exempt digital education services from VAT
• Exempt non-residents from having to produce electronic invoices

July 2022 – Foreign providers of electronic services given VAT registration threshold

Kenya has introduced a VAT registration threshold for non-resident providers of digital services to Kenyan consumers. This is KES 5 million (approx €41,700) per annum of turnover.  This is the same level as for resident business.

VAT on electronic services in Kenya

Kenya obliges providers and marketplaces facilitating the sale of electronic or digital services to charge and collect Value Added Tax on their sales to local consumers. Sellers have faced this requirement since 2 September 2013. The (Digital Marketplace Supply) Regulations 2020 confirmed the liabilities on electronic platforms and marketplaces with effect from March 2021.

Note: Kenyan Digital Services Tax is also payable at 1.5% since the start of 2021.

Calculate or verify Kenyan calculations on individual or batch transactions with our Advisor and Auditor  services. These also cover any B2C or B2B transaction around the world.

What digital services are liable to Kenya VAT?

The VAT Act lists income the following e-services are being considered subject to VAT:

• Software and the updating of software
• Gaming including games of chance
• Images, text and information
• Access to databases
• Self-education packages
• Streaming or download music and films
• Websites, web hosting or remote maintenance of programs and equipment
• Political, cultural, artistic, sporting, scientific and other broadcasts and events, including broadcast television

Determining if Kenyan VAT is due

Under the destination principle, VAT is due if the customer is resident or consumes the service in Kenya. The providers or marketplaces may reply on the following examples of evidence to support this determination:

• Address of the customer
• IP address
• Banking details or credit card issuer address
• SIM card country code

VAT compliance

Kenya provides a simplified digital service registrations and filings process. There is no VAT registration threshold for non-residents. There is no requirement to appoint a Fiscal Representative as there is for the regular VAT registration. However, this includes no right to deduct any Kenyan VAT incurred. For B2C transactions, the Regulations require the supplier to issue an invoice or receipt showing the value of the supply and tax deducted.

VAT returns should be filed monthly, and any taxes due should be submitted by the 20^th of the month following the reporting period.

B2B digital services

Since July 2022, the reverse charge option on B2B supplies by digital non-resident providers has been withdrawn. If the non-resident provider is over the VAT registration threshold, they will have to VAT register and charge their local business client VAT.

You can follow VAT Calc’s global VAT and GST on digital services tracker to see which other countries have introduced indirect taxes on electronic services to consumers.

Africa & Middle East VAT on digital services