A new machine, a generator, a delivery truck or a stock of spare parts is a large expense. The price on the supplier's invoice is only the start. Import duty, VAT, freight, installation and clearing add to it, and the tax treatment decides how quickly the business recovers the cost. This guide covers the import side and the tax benefits that follow.

Classify the machine and the parts

Machinery and its parts sit in specific headings of the tariff, and the duty rate depends on the heading. Capital goods and raw materials often attract low or zero duty under the EAC Common External Tariff, while some finished consumer items attract the highest rate. Parts may have a different rate from the complete machine, and a machine imported in separate pieces is generally classified as the machine if the pieces are meant to be assembled. See HS codes and customs classification and the EAC Common External Tariff.

Look for relief

Governments sometimes give duty remission or exemptions for capital equipment used in manufacturing, agriculture, tourism, health or renewable energy. The rules are specific, change often and usually require an application before shipment or approval from a ministry or authority. Ask your clearing agent and the relevant agency whether your machine qualifies, and do not assume. Where relief applies, the approval letter must accompany the customs entry.

Compute the taxes

For each item compute:

  1. Customs value = price + freight + insurance (CIF). See customs valuation explained.
  2. Import duty at the rate for the code.
  3. Excise duty, if the item is excisable (vehicles have their own rules: excise duty on imports and vehicles).
  4. IDF and RDL. IDF and RDL explained.
  5. VAT at 16% on the total of value, duty and excise. A VAT-registered business making taxable supplies claims this back: import VAT: how to claim it back.

Use the import duty calculator and the landed cost calculator for scenarios. Add installation, commissioning and training to the cost of the asset.

Spare parts

For stock of spare parts for resale, treat them as trading stock: duty and VAT form the cost, and VAT is claimable. For parts used in your own machines, the cost is a repair expense when they restore the machine, or part of a capital improvement when they upgrade it. The split matters for tax; compare with repairs versus improvements for the principle.

Capital allowances after import

Once the machine is in use, the cost, including duty and non-claimable VAT, qualifies for capital allowances. Under the current schedule, many items earn a straight-line allowance, and machinery used in manufacturing may earn 50 percent in the first year. The capital allowances calculator shows the allowance for each type, and fixed assets and capital allowances explained gives the background. Qualifying hotels, hospitals and manufacturing projects may also get a higher first-year deduction: see the investment deduction calculator.

Start claiming from the year the asset is first used in the business, not the year of purchase. Record each asset on the fixed asset register or depreciation schedule workbook.

Financing

Machines are often financed by asset finance or loans. The interest is deductible as a business expense: borrowing for your business: loans and tax. Model the repayment with the loan repayment and amortisation schedule.

Practical steps

  1. Get a pro forma invoice with the model, price and specification.
  2. Classify and check permits and standards, since many machines need safety approval.
  3. Ask the supplier about installation, spares and warranty.
  4. Choose delivery terms with an Incoterm that fits: Incoterms explained.
  5. Budget for taxes and the cash needed upfront.
  6. Brief your agent, and clear the goods in the business's PIN.
  7. Record the cost and install date for the allowance.

Risks

Machinery can be damaged in transit; insure it. Large items need special handling and heavy transport. Used machinery may attract different treatment and age restrictions. A second-hand machine without proof of its history may face valuation challenges.

Frequently asked questions

Is VAT on machinery recoverable? Yes, if you are VAT-registered and use the machine to make taxable supplies, with a customs entry in your PIN.

Can I claim allowances on a second-hand machine? Generally yes for the price paid, provided the asset is used in the business and you have the records.

Is installation cost part of the asset? Yes, costs necessary to bring the machine into use are generally added to its cost.

Does duty remission need approval before shipment? Often yes. Apply before the goods arrive, because retrospective approvals are difficult.