Value Added Tax is charged on most goods and services sold in Kenya. If your business is VAT-registered you collect the tax from customers and pay it to KRA, after subtracting the VAT you paid on your own purchases. For a small business the first question is always the same: do I have to register?
The registration threshold
You must register once your taxable supplies reach KES 5 million in any 12-month period. You can also register earlier by choice. The VAT registration checker tells you whether your sales have crossed the line.
The rate and the three categories
The standard VAT rate is 16%. Supplies fall into three categories:
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| Category | Charge VAT? | Claim input VAT? |
|---|---|---|
| Standard-rated | Yes, 16% | Yes |
| Zero-rated (for example exports) | Yes, at 0% | Yes |
| Exempt (certain basic goods and services) | No | No |
A few items are charged at 8%, including fuel. Use the VAT calculator to add VAT to a price or take it out of a VAT-inclusive amount.
Input and output VAT
Output VAT is the VAT you charge customers. Input VAT is the VAT you pay suppliers. Each month you pay KRA the difference. If your input VAT is bigger than your output VAT you carry the credit forward. The VAT return calculator shows the result, and our guide to filing a VAT return takes you through the iTax steps.
What you must do after registering
- Issue a proper tax invoice for every sale. Since the eTIMS rollout this is done electronically; read eTIMS e-invoicing explained.
- Keep purchase invoices carrying your PIN, because only valid invoices support an input VAT claim.
- File a return and pay by the 20th of the following month, even when nothing is due.
- Keep records for at least five years. See how to keep business records for KRA.
Tools that make VAT easier
- The free invoice with VAT and quotation with VAT templates work out the tax on every line.
- The expense tracker with VAT separates the VAT you can claim.
- The VAT return working sheet collects sales and purchases and gives you the figures in the same layout as the return.
Is registering always a bad thing?
Many small traders fear VAT because it adds paperwork. But registration lets you claim input VAT, which lowers your costs when you buy from other VAT-registered businesses. If your customers are VAT-registered businesses, being registered can even help you win work.
If your turnover is below the threshold, you may prefer turnover tax for your income tax, with VAT handled separately.
Withholding VAT
Some customers, called withholding agents, keep back 2% of the taxable value of the supply and pay it to KRA on your behalf. You claim it as a credit. The withholding VAT calculator shows the split.
Quick checklist
Before you register, check that you have a KRA PIN (see how to get a KRA PIN), a way to issue electronic invoices, and a system to separate VAT in your books. After registering, diarise the 20th of every month, and use the KRA filing and payment calendar to track each return. If you also hire staff, read how to run payroll for a small business.
Rates and thresholds change with each Finance Act, so confirm them with KRA before you file.
Common questions
Can I register for VAT before I reach the threshold? Yes. Voluntary registration lets you claim input VAT on purchases, which can help if you buy a lot of VAT-bearing stock and sell to VAT-registered businesses. The cost is that you must charge VAT, issue eTIMS invoices and file a return every month.
What is the difference between zero-rated and exempt supplies? Zero-rated supplies are taxable at 0%, so you can still claim the VAT you paid on costs. Exempt supplies are outside VAT altogether, so the VAT on related costs cannot be claimed. The distinction matters most when you decide whether to register.
What happens if I charge VAT but am not registered? You may not charge VAT unless you are registered. VAT collected without registration is a wrong charge to customers and can attract penalties, so register first and only then show VAT on invoices.