Executive summary

Kenya Cabinet Secretary for the National Treasury and Economic Planning issued the Tax Procedures (Electronic Tax Invoice) Regulations, 2024 through Legal Notice No. 64, dated 25 March 2024. These Regulations were gazetted on 3 May 2024.

Electronic tax invoicing regulations were introduced on 25 September 2020 targeting Value Added Tax (VAT)-registered taxpayers. Taxpayers were required to secure Tax Invoice Management System (TIMS)-compliant hardware devices from the Kenya Revenue Authority (KRA)-approved providers. Following the rollout of the Electronic Tax Invoicing Regulations, 2020, the KRA provided a 12-month period (August 2021 — July 2022) for VAT registered taxpayers to comply with TIMS. The deadline was subsequently extended to 30 November 2022.

In February 2023, the KRA rolled out the Electronic Tax Invoicing Management System (e-TIMS) as an alternative to the TIMS devices. In a bid to broaden the application of e-TIMS, the KRA issued a Gazette notice requiring all persons conducting business in Kenya to comply with e-TIMS by 31 March 2024.

Subsequently, the Cabinet Secretary on 25 March 2024 issued Electronic Tax Invoice Regulations, 2024 (the Regulations) to provide clarity on the electronic tax invoicing requirements.

Detailed discussion

The Regulations apply to any person conducting business in Kenya, unless exempted under Section 23A of the Tax Procedures Act (TPA).

Key terms

The Regulations define a "system" as an electronic tax invoicing or receipting system that is maintained and used in accordance with the Regulations.

The "user of a system" is defined as a person who carries on business.

Use of a system

The user should ensure that each sale is recorded in the system and the invoice generated through the system is transmitted to the buyer as per the requirements of the tax invoice, credit note or debit note.

The user should also ensure invoice details are transmitted to the KRA and a record of stock-in and stock-out is maintained. The stocks records should be maintained to record local purchases and imports. If a business closes, a notification should be made to the KRA in writing within 30 days indicating the records of current stock or any transfer of stock.

The Regulations allow the following persons to use a system that does not maintain a record of stock:

• Service providers
• Non-VAT-registered persons and persons with an annual turnover below 25m Kenyan Shillings
• Any other person using a system prescribed by the KRA

Availability of the system

The Regulations stipulate that the system should be operational at all times. If the system becomes inoperable, the user should notify the KRA in writing within 24 hours and record subsequent sales using any other means prescribed by the KRA.

When use of the system is regained, the Regulations provide that the sales recorded using any other means should be entered into the system.

Obligations of the system user

The Regulations provide that the user should:

• Ensure availability of the system at the point of sale
• Facilitate inspection of the system by an authorized officer
• Ensure regular maintenance of the system
• Keep and maintain a system ledger that records the maintenance and update of the system's software with:
  1. The name and address of the person maintaining the system
  2. An entry for each time maintenance is undertaken on the system, describing the maintenance and name of the person performing the service
• Comply with other requirements as may be specified by the KRA

The Regulations further stipulates the user of a system must provide written notice to the KRA within 30 days if the user intends to discontinue the use of a system due to change of business model, closure of business or any other reason. If the discontinuance was unplanned, a notice in writing shall be made to the KRA within seven days after discontinuance.

The KRA may by provide a responding written notice and within 30 days after receipt of notification, retire the system.

Requirements of a tax invoice, credit note and debit note

As provided for in the Regulations, an invoice generated through TIMS/e-TIMS should contain:

• Seller's personal identification number (PIN)
• Time and date on which the invoice was issued
• Serial number of the invoice
• Buyer's PIN if the buyer intends to claim the expense or the input tax
• Total gross amount
• Total tax amount, where applicable
• Item code of supplies as provided for by the KRA
• Brief description of the goods and services
• Quantity of the supply
• Unit of measure
• Applicable tax rate
• Unique system identifier
• Unique invoice identifier
• Quick response (QR) code
• Any other information as may be specified by the KRA

A credit note or debit note must refer to the original invoice number to which the supply relates.

Specifications of the system

The system should:

• Be interconnective with other information technology networks including the KRA systems
• Have sufficient data storage capacity
• Display messages in English or Kiswahili
• Be secure or tamper proof
• Be capable of integrating with the KRA system, transmitting data to the KRA system, adjusting to comply with any changes to the tax laws, and recording and storing information as required under the Regulations

Transmission of invoice data and security

The system should be able to:

• Transmit electronic tax invoice data in the manner specified by the KRA
• Maintain the integrity of the data
• Secure authentication for authorized users
• Record and store a log of all activities on the system
• Assign a unique identifier to each invoice

Exclusions from Electronic Tax Invoicing

The Regulations provide that transactions that are excluded from the requirement of an electronic tax invoice include:

• Emoluments
• Imports
• Investment allowances, including internal accounting adjustments
• Airline passenger ticketing
• Interest
• Fees charged by financial institutions
• Expenses subject to withholding tax that is a final tax
• Services provided by nonresident persons without a permanent establishment in Kenya
• Any other exclusion under Section 23A of the TPA

Exemptions from Electronic Tax Invoicing

The Regulations provide that the KRA may, via a notice in the Gazette, exempt a person from the requirements to use an electronic tax invoice. The KRA may also revoke the exemption by publishing a notice in the Gazette, for reasons specified in the notice.

The KRA may also grant an exemption from the TIMS/e-TIMS requirement where the business income is received through a platform recommended by the KRA and information transmitted to the KRA system.

A person required to issue an electronic tax invoice may submit a written application to the Commissioner requesting to be exempted if:

• An alternative automated method for recording, storing and transmitting data to the KRA is available and recommended by the KRA.
• The transactions at issue are not under the mandate of a ministry or any other regulatory authority.

Applicable penalties

A person commits an offense under these Regulations by:

• Failing to comply with any provisions in the Regulations
• Tampering with, manipulating, or interfering with the proper functioning of the system, including uninstalling and changing a device without notifying the KRA

The penalty for committing an offense under the Regulations is two times the tax due.

Next steps

Any person conducting business in Kenya, unless specifically exempted in the Regulations, should make certain they are registered on TIMS/e-TIMS to ensure compliance.

If a taxpayer wishes to transition/change a system (e.g., from TIMS devices to e-TIMS), the taxpayer should submit a pertinent a written notification to the KRA.

In line with the requirement that only expenses issued through TIMS/e-TIMS should be deductible for corporate income tax purposes, it is of great importance for every business to ensure that the invoices received from suppliers are TIMS/e-TIMS-compliant.

To ensure compliance with these Regulations, businesses should frequently check the system to ensure it is operating effectively, transmitting invoices on a real-time basis and properly maintained.