B2B reverse charge option withdrawn for foreign providers of digital services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.
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
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 20th 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
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Cameroon||19.5%||Jan 2020||XAF 50 million|
|Egypt||14%||Sep 2016||EGP 500,000|
|Ghana||12.5%||Apr 2022||GHS 200,000|
|Israel||17%||2022||–||Proposal in 2021/22 budget|
|Kenya||16%||Sep 2013||KES 5million|
|Oman||5%||Apr 2021||OMR 35,000|
|Saudi Arabia||15%||Jan 2018||Nil|
|South Africa||15%||Jun 2014||ZAR 1 million|
|Tanzania||18%||Jul 2022||Nil||Residents since Jul 2015|
|Tunisia||19%||Jan 2020||Nil||Withholding VAT; 3% Royalty Tax|
|Uganda||18%||Jan 2020||UGX 150m|
|United Arab Emirates||5%||Jan 2018||AED 375,000|