Registering for VAT changes how a business invoices, claims costs and files returns. Some businesses must register, others may choose to, and a few register too early and take on work they did not need. This guide explains when to register, how to do it on iTax and what to do next.

When you must register

A person must register when the value of their taxable supplies over a period of twelve months reaches KES 5,000,000, or is expected to reach it within the next twelve months. Taxable supplies include standard-rated and zero-rated sales, but not exempt supplies. Check where you stand with the VAT registration checker and track your sales with the VAT threshold monitor. Read VAT for small businesses for what counts.

When you may choose to register

You can register voluntarily below the threshold. The benefit is that you can claim input VAT on purchases, which helps if you buy a lot of VAT-bearing inputs and sell to VAT-registered customers who want an invoice. The cost is that you must charge VAT, issue eTIMS invoices and file a return every month. If you mostly sell to consumers, charging 16 percent may make you less competitive. Test with the VAT calculator. Small businesses on turnover tax cannot also be VAT-registered for the same income.

Documents to prepare

  • KRA PIN and an active iTax account with correct email and phone
  • Certificate of registration or incorporation, and CR12 for companies
  • National ID or passport of the owner or directors
  • Business premises details and a lease or proof of address
  • Business bank account details
  • A description of the business activity and expected turnover
  • A business licence where applicable: business licences and permits

Steps on iTax

  1. Log in with your PIN and password: how to register on iTax.
  2. Go to the registration menu and choose amend PIN details or add tax obligation.
  3. Select VAT as the obligation, with an effective date. Use the date you reached the threshold, not a later date, to avoid disputes.
  4. Complete the form on the business activity, premises and bank details.
  5. Upload supporting documents.
  6. Submit and note the acknowledgement. KRA may verify the details and visit the premises.
  7. When approved, you receive a VAT certificate and your obligation shows on your profile.

Registration can take days. Keep your phone and email available for queries.

After you register

  1. Set up eTIMS so that you can issue valid tax invoices with the control codes: eTIMS and e-invoicing explained and VAT invoices and quotations.
  2. Charge VAT at the right rate: 16% for standard-rated goods and services; zero for zero-rated; none for exempt.
  3. Record input VAT on purchases with valid invoices.
  4. File a return every month by the 20th, even if there are no sales: how to file a VAT return and the VAT return calculator.
  5. Pay the net VAT with a PRN: how to pay KRA taxes.

Late registration

If you reached the threshold and did not register, KRA can register you from the date you should have, and assess VAT on all your sales since then, even though you did not charge it to customers. You then bear the VAT out of your own pocket, with penalties and interest. This is the most expensive VAT mistake. Check your sales each month, and register promptly.

Pricing after registration

Decide whether to add VAT on top of your prices or absorb it. For business customers who claim input VAT, adding it makes no difference to them. For consumers, a price increase of 16 percent may affect demand. Review your margins: how to price your products and services.

Deregistration

If your sales fall well below the threshold, you can apply to deregister. File all returns first. See how to close or deregister a business.

Checklist

  1. Sales checked against the threshold
  2. Documents prepared
  3. Obligation added with the right date
  4. eTIMS set up
  5. Prices and invoices updated
  6. First return diarised for the 20th

Frequently asked questions

Is the threshold based on profit? No. It is based on the value of taxable supplies (sales), not on profit.

Can I claim VAT on purchases made before I registered? Limited claims may be possible for certain goods held at registration, with evidence. Ask your adviser.

Do I have to register if I sell only exempt or zero-rated goods? Zero-rated supplies count towards the threshold, and registration lets you claim input VAT. Exempt supplies do not count.

Will KRA visit my premises? It may. Have your documents and records ready.