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April 18, 2023
Kenya issues VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023
The Kenyan Cabinet Secretary for National Treasury and Economic Planning has revoked the Value Added Tax (VAT) (Digital Marketplace Supply) Regulations, 2020 and issued VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023 (the Regulations) with effect from 15 March 2023.
The new VAT Regulations are intended to guide taxpayers on the taxation of electronic, internet and electronic marketplace supplies. They also are intended to bridge knowledge gaps that existed in the repealed regulations.
The repealed regulations provided that only suppliers from export countries dealing in business to consumer (B2C) supplies were required to register for VAT in Kenya. The Finance Act, 2022 exempted digital services from the ambit of reverse VAT (VAT on imported services). The Kenya Revenue Authority (KRA) subsequently issued guidelines indicating that business to business (B2B) supplies were subject to VAT, effective from 1 July 2022. This change was not reflected in the 2020 regulations, however, which created a legal gap.
The Regulations provide guidance on:
The Regulations guide that all taxable electronic, internet and digital marketplace supplies made in Kenya will be subject to VAT at 16%.
The scope of taxable supplies
The scope of electronic, internet and digital marketplace supplies includes:
Items (m) and (n) are new in the 2023 Regulations and were not in the repealed regulations. Their aim is to expand the scope of taxable supplies to include sales/licensing/monetizing data from user activities. The scope has been expanded to include facilitation of online payment for exchange or transfer of digital assets, although financial services that are exempt under the VAT Act are excluded.
The Regulations provide that any person producing taxable electronic, internet digital marketplace supplies should register for VAT in Kenya within 30 days if:
It is notable that the prescribed VAT registration threshold of KES5 million shall not apply as stipulated under section 34 of the VAT Act 2013.
An applicant must register online using the form prescribed by the KRA. Upon registration, the KRA will issue the applicant a personal identification number (PIN) for the purpose of filing returns and paying tax.
Any person who fails to apply for registration will be liable for late registration penalties.
If a nonresident person ceases to make taxable electronic, internet and digital marketplace supplies for a recipient in Kenya, the nonresident should apply to the KRA for deregistration. This change is in line with VAT Act, which stipules that a person who has stopped making taxable supplies in Kenya, should apply in writing to the KRA seeking cancellation of the VAT obligation within 30 days of ceasing operations.
A nonresident person can also appoint a tax representative to account for VAT on their behalf.
Place of supply
The Regulations provide that an electronic, internet or digital marketplace supply shall be deemed to have been made in Kenya if the recipient of the supply is in Kenya and if any of the following is true:
Time of supply
The Regulations provide that the "time of supply" shall be the earlier of:
A supplier that is registered under the VAT (electronic, internet & digital marketplace supply) Regulations, 2023, is not required to issue an electronic tax invoice. The invoice/receipt issued shall be considered as a tax invoice and should have the following details:
Claim of input tax
The Regulations restrict suppliers of electronic, internet and DMS supplies from claiming input tax. Input tax incurred is considered a cost to the business.
Accounting and payment of tax
All registered persons under the Regulations must submit a return in the prescribed form and remit the tax due in each tax period (a month) on or before the 20th day of the following month. Tax shall be paid by either the supplier or their appointed tax representative.
The Regulations further provide that, if an intermediary is responsible for making an electronic, internet or digital marketplace supply on behalf of another person, the intermediary will be required to charge and account for tax, whether or not the person is registered. The Regulations define an intermediary as a "person who facilitates the supply" of an electronic, internet or digital marketplace supply and "who is responsible for issuing invoices or collecting payments" in respect of the supply. This may include distributors, brokers/agents, payment providers or retailers.
The Regulations also allow returns to be amended; if the amendment results in an overpayment, the overpayment will be retained as a credit to be offset against VAT payable in subsequent periods.
The 2023 Regulations are aimed at eliminating uncertainties in the taxation of digital supplies in Kenya with regard to VAT. They are also consistent with the changes made by Finance Act, 2022 that requires suppliers in both B2B and B2C supplies to register and account for VAT in Kenya.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
Ernst & Young Société d'Avocats, Pan African Tax — Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor