Kenya mandates VAT on non-resident B2B digital services

Kenya's Finance Act 2022, which amends the country’s national VAT Act, has updated the VAT registration rules for non-resident suppliers of digital services. 

The changes which have been effective since July 1, 2022 are: 

• Non-resident businesses must charge Kenyan VAT on B2B digital service transactions – therefore widening the scope from just supplies made to Kenyan consumers (B2C).  

• No threshold for VAT registration – therefore meaning that digital services suppliers are required to register for VAT in Kenya irrespective of the local turnover/sales amounts.

These are significant changes that will likely impact most digital service providers with customers in Kenya. The vast majority of countries globally only require businesses to charge VAT to consumers, and business customers are instead responsible for self-accounting for local VAT under the reverse charge mechanism. However, Kenya joins a handful of countries that have extended the scope to B2B (including Malaysia, Russia, South Africa, Mexico, and Switzerland – once VAT registered). In addition, it was previously understood that non-resident businesses could rely on the domestic VAT threshold in Kenya (KES 5 million per annum – approx. €42k). However, there is a nil threshold and therefore the first sale is taxable. This means that just a single business customer or a consumer in Kenya can trigger a requirement to register for VAT.

The Kenyan Tax Authority has contacted a number of digital services businesses to explain the recent VAT changes and to raise awareness of the Digital Service Tax that is also payable on sales to Kenyan customers. Digital service providers with customers in Kenya are recommended to register for VAT as soon as possible in order to avoid possible penalties. 

Please contact us to discuss how Avalara can assist you with VAT compliance in Kenya or VAT/GST compliance for digital services across the globe - including registration and return preparation and submission.

You can also view Avalara’s Global VAT and GST on digital services tracker