Kenyan VAT (Value Added Tax) compliance is now won or lost at the invoicing stage, not on the 20th. Monthly returns, mandatory eTIMS invoicing, and pre-filled returns mean the figures the Kenya Revenue Authority (KRA) shows you come from invoices your suppliers already transmitted. Get the invoice right in real time, and the return mostly fills itself.
This guide covers rates, registration, deadlines, iTax filing steps, input VAT, refunds, penalties, and deregistration, grounded in the official KRA VAT guidance and the VAT Act, 2013.
| Item | Rule (as of 2026) | Source |
|---|---|---|
| Standard rate | 16% | KRA VAT page |
| Registration threshold | KES 5,000,000 in any 12 months | VAT Act, 2013 s.34; KRA |
| Filing frequency | Monthly | KRA VAT page |
| Deadline | 20th of the following month | KRA VAT page |
| Portal | iTax | KRA VAT page |
| Invoicing | eTIMS (electronic) | KRA eTIMS page |
What Is a VAT Return in Kenya?
A VAT return is a monthly statutory declaration where a registered business reports output VAT charged on sales and input VAT paid on purchases, then remits the difference to KRA through iTax. The Value Added Tax Act, 2013 governs the tax. The Tax Procedures Act, 2015 governs penalties, interest, and administration.
This post relies on specific provisions: VAT Act Section 17 for input tax, Section 31 for bad-debt relief, Tax Procedures Act Section 83 for the late-filing penalty, and Section 38 for late-payment interest. New to credit-invoice VAT systems? See our VAT vs sales tax explainer.
What Are the VAT Rates in Kenya in 2026?
Kenya applies three VAT treatments: a 16% standard rate on most goods and services, a 0% zero rate (input VAT still recoverable), and exempt supplies that carry no VAT and allow no input VAT recovery. KRA confirms the 16% general rate and the 0% zero rate for Second Schedule supplies.
| Rate | Applies to | Input VAT recoverable? | Source |
|---|---|---|---|
| 16% standard | Most goods and services | Yes | KRA VAT page |
| 0% zero-rated | Exports, Second Schedule goods | Yes | VAT Act, 2013, Second Schedule (Kenya Law) |
| Exempt | Financial services, insurance, unprocessed agricultural produce (First Schedule) | No | VAT Act, 2013, First Schedule (Kenya Law) |
| Petroleum (excluding LPG), 16% | Moved from 8% by the Finance Act, 2023 | Yes | Finance Act, 2023 (KRA) |
| LPG (Liquefied Petroleum Gas), 0% | Zero-rated by the Finance Act, 2023 | Yes | Finance Act, 2023 (KRA) |
The Finance Act, 2023 deleted the preferential 8% rate on petroleum products, moving them to 16% and zero-rating LPG, effective 1 July 2023.
What Did the Finance Act 2025 Change for VAT?
The Finance Act, 2025 was assented on 27 June 2025, and its VAT provisions took effect 1 July 2025. It shortened the refund and bad-debt claim windows, added a new liability rule for misused reliefs, and reshuffled the exempt and zero-rated lists.
| Change | Old rule | New rule | Effective | Source |
|---|---|---|---|---|
| Excess-input-tax refund window (s.17(5)(d)) | 24 months | 12 months | 1 Jul 2025 | Finance Act, 2025 (Kenya Law) |
| Bad-debt VAT relief window (s.31(1)) | 3 years | 2 years | 1 Jul 2025 | Finance Act, 2025 (Kenya Law) |
| New Section 66A | None | VAT due when exempt/zero-rated goods are misused | 1 Jul 2025 | Finance Act, 2025 (Kenya Law) |
| First Schedule (exempt) | Prior list | Adds mosquito repellent, its inputs, locally consumed teas | 1 Jul 2025 | Finance Act, 2025 (Kenya Law) |
| Second Schedule (zero-rated) | Prior list | Adds tea and coffee packaging materials | 1 Jul 2025 | Finance Act, 2025 (Kenya Law) |
What Is the Difference Between Zero-Rated and Exempt VAT in Kenya?
Zero-rated suppliers charge 0% VAT and can still reclaim input VAT, often ending in a refund position. Exempt suppliers charge no VAT and cannot reclaim input VAT, so the tax becomes a cost. KRA confirms the distinction: zero-rated supplies sit in the Second Schedule, exempt supplies in the First Schedule.
| Feature | Zero-rated (0%) | Exempt |
|---|---|---|
| VAT charged on sale | 0% | None |
| Reclaim input VAT? | Yes | No |
| Refund eligible? | Yes | No |
| Examples | Exports, Second Schedule goods | Financial services, insurance, unprocessed agricultural produce |
| Source | VAT Act, 2013 (Kenya Law); KRA | VAT Act, 2013 (Kenya Law); KRA |
Who Must Register for VAT in Kenya?
Registration is mandatory once taxable supplies reach or are expected to reach KES 5 million in any 12-month period, and you must apply within 30 days of becoming liable, per the VAT Act, 2013 and KRA. Businesses below the threshold can register voluntarily with KRA approval. Importers, manufacturers, wholesalers, retailers, and digital providers all register on this basis.
Non-resident suppliers of digital services must register regardless of turnover, covered in the digital services section below.
When Are VAT Returns Due in Kenya?
VAT returns are due monthly, on or before the 20th day of the month following the tax period, filed via iTax, per KRA. There is no quarterly or annual option. A nil return is mandatory even with zero activity: select your VAT obligation on iTax and file the nil e-return.
Track the 20th across every jurisdiction with Commenda’s compliance calendar.
How Do You File VAT Returns on iTax? (Step-by-Step)
Filing runs through iTax, where returns are increasingly pre-filled from eTIMS data, so your task is to review and confirm rather than key in every figure. The nine steps below take you from login to payment.
- Log in to iTax with your KRA PIN (Personal Identification Number) and password.
- Open Returns, then File Return.
- Select the Value Added Tax obligation.
- Download the VAT3 Excel return template for the relevant period.
- Complete the output and input schedules by rate category (standard, zero-rated, exempt).
- Validate the template, then upload the generated zip file.
- Review the pre-filled eTIMS data and reconcile it against your records.
- Submit the return and save the acknowledgment receipt.
- Generate a PRN (Payment Registration Number) and pay by the 20th.
| Payment channel | Detail | Source |
|---|---|---|
| Agent banks | Appointed KRA banks | KRA |
| M-Pesa | Paybill 222222 | KRA Paybill 222222 public notice |
| Card | Debit or credit card | KRA |
| RTGS/EFT | Bank transfer | KRA |
Paybill 222222 is the sole authorized government paybill for tax payments, per Kenya Gazette No. 16008 of 2022 and a Presidential Directive; any other paybill claiming to collect taxes is a scam.
How Do Pre-Filled VAT Returns from KRA Work?
KRA pre-populates your output and input VAT from eTIMS invoice data and customs import records, so your job is to review, reconcile, and confirm, not to enter figures. If a supplier never transmits a compliant eTIMS invoice, that purchase is missing from your return and the input claim is effectively blocked.
The second failure mode is a mismatch between what a supplier declared and what your records show. Compliance work has moved upstream, to getting invoicing accurate in real time.
What Are the eTIMS Invoicing Requirements in Kenya?
Every VAT invoice must be issued electronically through eTIMS (electronic Tax Invoice Management System) and transmitted to KRA. eTIMS succeeded the hardware-based TIMS (Tax Invoice Management System) and runs via web, app, USSD, and API. Since 2024, all businesses, including non-VAT-registered ones, must issue electronic invoices for expenses to be income-tax deductible.
A compliant eTIMS invoice must carry:
- Supplier name and KRA PIN
- Buyer PIN if VAT-registered
- Unique invoice number and date
- Description and quantity of goods or services
- VAT amount charged
- QR code or control unit invoice number
KRA offers eTIMS Lite (web and USSD *222#) as the simplified option for smaller taxpayers, and eTIMS Client for larger operations. Purchases not backed by a valid eTIMS invoice risk denied input VAT.
What Input VAT Can You Deduct in Kenya?
You can deduct input VAT on goods, services, and imports acquired to make taxable supplies, provided you hold a valid eTIMS invoice and claim within the statutory window. Under the VAT Act, 2013 Section 17, input tax is deductible in the return for the period incurred, or within six months after the end of that tax period.
| Non-deductible or restricted item | Rule | Source |
|---|---|---|
| Passenger/saloon vehicles and their repair and maintenance | Non-deductible unless you deal in vehicles | VAT Act, 2013 s.17 |
| Entertainment, restaurant, and accommodation services | Non-deductible except for the trade | VAT Act, 2013 s.17 |
| Purchases relating to exempt supplies or activities | Non-deductible | VAT Act, 2013 s.17 |
| Purchases without a valid eTIMS invoice | Non-deductible | KRA eTIMS guidance |
How Does Input VAT Apportionment Work for Mixed Supplies?
Businesses making both taxable and exempt supplies apportion input VAT by their taxable ratio. Under the VAT Act, 2013 Section 17 de minimis rule, taxable supplies at or above 90% of total supplies allow full deduction; at or below 10% allow none; between the two, input VAT is apportioned by the taxable proportion.
How Do VAT Refunds Work in Kenya?
When input VAT exceeds output VAT, common for exporters and zero-rated suppliers, you apply for a refund via iTax with supporting documents, or carry the credit forward. The Finance Act, 2025 cut the claim window for excess-input-tax refunds from 24 months to 12 months (VAT Act Section 17(5)(d)), effective 1 July 2025.
Bad-debt relief also changed: the Finance Act, 2025 shortened the VAT bad-debt claim period from three years to two years (VAT Act Section 31(1)) and allows the relief to offset other VAT liability on Commissioner approval.
How Does VAT Apply to Imports, Exports, and Reverse Charge?
Imports are taxed at entry, exports are zero-rated with documentation, and services bought from non-residents shift the VAT charge to the Kenyan buyer.
How Is VAT Charged on Imports?
Import VAT is payable at the point of entry on the customs value of the goods. Importers need an Import Declaration Form (IDF), a customs entry, and an eTIMS invoice to support the transaction and any later input VAT claim, per KRA.
How Are Exports and Reverse-Charge Services Treated?
Exports are zero-rated when supported by proper export documentation, so exporters charge 0% and reclaim input VAT. Under the reverse charge, a Kenyan business buying taxable services from a non-resident not registered in Kenya self-accounts for the VAT, a duty commonly missed on cross-border B2B services.
Exporters selling into the EU should also review our IOSS and OSS EU VAT guide.
Do Non-Resident Digital Service Providers Owe VAT in Kenya?
Yes. Non-residents supplying digital services to Kenyan consumers must register under the simplified regime regardless of turnover, charge 16% VAT, and file monthly, per the VAT Act, 2013 and the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023. Scope covers streaming, SaaS (Software as a Service), downloadable content, online advertising, e-learning, and marketplace facilitation.
Verify buyer and counterparty tax IDs across borders with Commenda’s Global Tax ID Verification.
What Are the Penalties for Late VAT Filing in Kenya?
Late filing attracts the higher of KES 10,000 or 5% of the tax due; late payment adds a 5% penalty plus interest of 1% per month on the outstanding balance. False or misleading returns carry a tax-shortfall penalty of 20%, or 75% if deliberate.
| Breach | Penalty | Source |
|---|---|---|
| Late filing | Higher of KES 10,000 or 5% of tax due | Tax Procedures Act, 2015 s.83; KRA offences page |
| Late payment | 5% of tax due | Tax Procedures Act, 2015; KRA offences page |
| Late-payment interest | 1% per month, simple, capped at 100% of principal | Tax Procedures Act, 2015 s.38; KRA |
| False or misleading return (shortfall) | 20% of shortfall, or 75% if deliberate; +10pp/+25pp for repeats | Tax Procedures Act, 2015 s.84 |
| Failure to register | Register within 30 days of liability to avoid exposure | VAT Act, 2013 s.34; KRA |
Found an error? Amend the return via iTax promptly to limit interest and shortfall penalties.
How Do You Deregister for VAT in Kenya?
Apply to KRA for cancellation when your taxable turnover falls below KES 5 million or you stop making taxable supplies, per KRA. KRA approval is required, and you must file final returns and settle outstanding liabilities. Filing and eTIMS obligations continue until KRA formally confirms deregistration, so do not stop filing early.
VAT Compliance Checklist for Kenyan Businesses
- Monitor the KES 5 million rolling 12-month threshold; register within 30 days of crossing it.
- Onboard eTIMS and transmit every invoice electronically.
- Issue compliant invoices with PIN, VAT breakdown, and QR or control unit number.
- Reconcile the pre-filled return against your own records every month.
- Claim input VAT within the six-month window with valid eTIMS invoices.
- Self-account for reverse charge on non-resident services.
- File by the 20th, including nil returns.
- Keep records for five years.
How Commenda Helps With VAT Compliance in Kenya
Commenda’s global indirect tax software tracks VAT registration obligations, filing deadlines, and return preparation across jurisdictions, including Kenya. It maps each product and service to the correct tax code (standard, zero-rated, or exempt), reconciles eTIMS data against your records, and confirms every filing got done, so your controller closes the laptop at 6, not 8.
Commenda connects through 100+ ERP, API, and custom integrations, and pairs with the compliance calendar so you never miss the 20th. Book a demo for a free assessment of your Kenya VAT registration and filing obligations.
