VAT Returns in Kenya and Essential Filing Steps

What Is a VAT Return in Kenya?

A VAT return is a monthly statutory declaration where a registered business reports output VAT charged on sales and input VAT paid on purchases, then remits the difference to KRA through iTax. The Value Added Tax Act, 2013 governs the tax itself. The Tax Procedures Act, 2015 (TPA) governs penalties, interest, and administration.

This post relies on specific provisions: VAT Act Section 17 for input tax, Section 31 for bad-debt relief, Section 34 for registration, TPA Section 83 for the late-filing penalty, and TPA Section 38 for late-payment interest. New to credit-invoice VAT systems? See our VAT vs sales tax explainer.

What Are the VAT Rates in Kenya in 2026?

Kenya applies three VAT treatments: a 16% standard rate on most goods and services, a 0% zero rate that still allows input VAT recovery, and exempt supplies that carry no VAT and allow no input VAT recovery. KRA confirms the 16% general rate and the 0% zero rate for Second Schedule supplies.

The Finance Act, 2023 deleted the preferential 8% rate on super petrol, diesel, and kerosene, moving them to 16% and zero-rating LPG, effective 1 July 2023, per KRA.

What Did the Finance Act 2025 Change for VAT?

The Finance Act, 2025 was assented on 27 June 2025, and its VAT provisions took effect 1 July 2025. It shortened the refund and bad-debt claim windows, added a new liability rule for misused reliefs, and adjusted the exempt and zero-rated schedules, per the Finance Act, 2025.

Section 66A targets relief misuse. VAT becomes due at the applicable rate when goods or services bought exempt or zero-rated are later used or disposed of for a purpose other than the one that qualified them for relief, for example zero-rated inputs diverted to exempt or non-qualifying use. Note that the Finance Act, 2026 later reversed the bad-debt change, as the refunds section below explains.

What Is the Difference Between Zero-Rated and Exempt VAT in Kenya?

Zero-rated suppliers charge 0% VAT and still reclaim input VAT, often ending in a refund position. Exempt suppliers charge no VAT and reclaim nothing, so the tax embeds as a cost in their pricing. KRA places zero-rated supplies in the Second Schedule and exempt supplies in the First Schedule of the VAT Act, 2013.

Who Must Register for VAT in Kenya?

Registration is mandatory once taxable supplies reach or are expected to reach KES 5 million in any 12-month period, and you must apply within 30 days of becoming liable, per VAT Act, 2013 Section 34 and KRA. Businesses below the threshold may register voluntarily with KRA approval. Importers, manufacturers, wholesalers, retailers, and digital providers all register on this basis.

Non-resident suppliers of digital services must register regardless of turnover, a rule the digital services section below sets out in full.

When Are VAT Returns Due in Kenya?

VAT returns are due monthly, on or before the 20th day of the month following the tax period, filed via iTax, per VAT Act, 2013 Section 44 and KRA. There is no quarterly or annual option. Filing and payment are separate acts, so filing on time but paying late still triggers late-payment interest.

Track the 20th across every jurisdiction with Commenda’s compliance calendar.

How Do You File VAT Returns on iTax? (Step-by-Step)

Filing runs through iTax, where returns are increasingly pre-filled from eTIMS data, so your task is to review and confirm rather than key in every figure. The nine steps below take you from login to payment.

1. Log in to iTax with your KRA PIN (Personal Identification Number) and password.
2. Open Returns, then File Return.
3. Select the Value Added Tax obligation.
4. Download the VAT3 Excel return template for the relevant period.
5. Complete the output and input schedules by rate category (standard, zero-rated, exempt).
6. Validate the template, then upload the generated zip file.
7. Review the pre-filled eTIMS data and reconcile it against your records.
8. Submit the return and save the acknowledgment receipt.
9. Generate a PRN (Payment Registration Number) and pay by the 20th.

Paybill 222222 is the sole authorized government paybill for tax payments, per Kenya Gazette Notice No. 16008 of 2022. Any other paybill claiming to collect taxes is a scam.

How Do Pre-Filled VAT Returns from KRA Work?

KRA pre-populates your output and input VAT from eTIMS invoice data and customs import records, so your job is to review, reconcile, and confirm, not to author figures. Two failure modes recur. First, if a supplier never transmits a compliant eTIMS invoice, that purchase is missing and the input claim is effectively blocked.

The second failure mode is a mismatch between what the supplier declared and what your records show. Compliance work has moved upstream, to getting the invoice accurate in real time.

How Do You File a Nil VAT Return in Kenya?

A nil VAT return is mandatory every month you have zero activity, per KRA. Select your VAT obligation on iTax and file the nil e-return by the 20th. The late-filing penalty, the higher of KES 10,000 or 5% of tax due, applies to a missed nil return exactly as it applies to any other return, so a dormant month still needs filing.

Skipping a nil return is one of the most common and most avoidable compliance traps for registered Kenyan businesses.

What Are the eTIMS Invoicing Requirements in Kenya?

Every VAT invoice must be issued and transmitted through eTIMS (electronic Tax Invoice Management System), which succeeded the hardware-based TIMS (Tax Invoice Management System). Since 2024, all businesses, VAT-registered or not, must issue electronic invoices for expenses to be income-tax deductible, per KRA.

A compliant eTIMS invoice must carry:

• Supplier name and KRA PIN
• Buyer PIN if VAT-registered
• Unique invoice number and date
• Description and quantity of goods or services
• VAT amount charged
• QR (Quick Response) code or control unit invoice number

The seller must capture and validate the buyer’s KRA PIN in eTIMS before transmission. An invalid or missing buyer PIN can cause transmission to fail and leaves the buyer’s input claim unsupported. KRA offers eTIMS Lite, whose USSD channel (\*222#) exists specifically for small taxpayers without smartphones or internet access, alongside a web option. eTIMS Client and the system-to-system API serve larger operations.

What Input VAT Can You Deduct in Kenya?

You can deduct input VAT on goods, services, and imports acquired to make taxable supplies, provided you hold a valid eTIMS invoice and claim within the statutory window. Under VAT Act, 2013 Section 17, the deduction must be claimed within six months after the end of the tax period in which the supply or importation occurred. The Finance Act, 2025 did not alter this six-month window.

How Does Input VAT Apportionment Work for Mixed Supplies?

Businesses making both taxable and exempt supplies apportion their shared input VAT by the taxable ratio, under VAT Act, 2013 Section 17. Taxable supplies at or above 90% of total supplies allow full input VAT deduction. Taxable supplies at or below 10% allow no deduction. Between 10% and 90%, deductible input VAT equals total input VAT multiplied by taxable supplies divided by total supplies.

How Do VAT Refunds Work in Kenya?

A refund arises when input VAT exceeds output VAT, mainly for exporters, zero-rated suppliers, and businesses holding withholding VAT credits. You apply via iTax within 12 months of the tax becoming due, a window the Finance Act, 2025 cut from 24 months (VAT Act s.17(5)(d)), effective 1 July 2025, or you carry the credit forward. KRA verifies and may audit claims before paying.

Appointed withholding VAT agents, mainly large taxpayers and government bodies, withhold 2% of the taxable value on payments to suppliers and remit it directly to KRA, per KRA. The supplier claims the withheld amount as a credit on its return, and persistent excess credits qualify for refund.

Bad-debt relief changed twice. The Finance Act, 2025 cut the claim window from three years to two years (VAT Act s.31(1)), effective 1 July 2025. The Finance Act, 2026 then restored it to three years, effective 1 July 2026, per KRA, so three years is the rule in force today. The relief can offset other VAT liability on Commissioner approval.

How Does VAT Apply to Imports, Exports, and Reverse Charge?

Imports are taxed at entry, exports are zero-rated with documentation, and services bought from non-residents shift the VAT charge to the Kenyan buyer.

How Is VAT Charged on Imports?

Import VAT is payable at the point of entry on the customs value of the goods, per KRA. Importers need an IDF (Import Declaration Form), a customs entry, and an eTIMS invoice to support the transaction and any later input VAT claim. VAT paid at import feeds your input VAT once the documentation is in order.

How Are Exports and Reverse-Charge Services Treated?

Exports are zero-rated when supported by proper export documentation, so exporters charge 0% and reclaim input VAT. Under the reverse charge, a Kenyan business buying taxable services from a non-resident not registered in Kenya self-accounts for the VAT, a duty commonly missed on cross-border business-to-business services.

Exporters selling into the EU should also review our IOSS and OSS EU VAT guide.

Do Non-Resident Digital Service Providers Owe VAT in Kenya?

Yes. Non-residents supplying digital services to Kenyan consumers must register under the simplified regime regardless of turnover, charge 16% VAT, and file monthly, per the VAT Act, 2013 and the VAT (Electronic, Internet and Digital Marketplace Supply) Regulations, 2023. Scope covers streaming, SaaS (Software as a Service), downloadable content, online advertising, e-learning, and marketplace facilitation.

This digital-supplies VAT is separate from the income-tax Significant Economic Presence (SEP) tax, which replaced the former Digital Service Tax (DST). Verify buyer and counterparty tax IDs across borders with Commenda’s Global Tax ID Verification.

What Are the Penalties for Late VAT Filing in Kenya?

Late filing costs the higher of KES 10,000 or 5% of the tax due, under TPA Section 83 and VAT Act Section 44(5). Late payment adds a 5% penalty plus interest of 1% per month on the outstanding balance (TPA Section 38, simple interest, capped at 100% of the principal). A tax-shortfall penalty runs at 20% of the shortfall, or 75% if deliberate (TPA Section 84).

Unpaid VAT also blocks issuance or renewal of your TCC (Tax Compliance Certificate), which many tenders, licenses, and bank processes require, so late payment costs more than the penalty itself. Found an error? Amend the return via iTax promptly to limit interest and shortfall penalties.

How Do You Deregister for VAT in Kenya?

Apply to KRA via iTax for cancellation when your taxable turnover falls below KES 5 million or you stop making taxable supplies, per KRA. Commissioner approval is required, and you must file final returns and settle outstanding liabilities. Filing and eTIMS obligations continue until KRA formally confirms cancellation, so do not stop filing early.

VAT Compliance Checklist for Kenyan Businesses

• Monitor the KES 5 million rolling 12-month threshold; register within 30 days of crossing it.
• Onboard eTIMS and transmit every invoice electronically.
• Issue compliant invoices with PIN, VAT breakdown, and QR code or control unit number.
• Reconcile the pre-filled return against your own records every month.
• Claim input VAT within the six-month window with valid eTIMS invoices.
• Self-account for reverse charge on non-resident services.
• File by the 20th, including nil returns.
• Keep records for five years.

How We Help With VAT Compliance in Kenya

Commenda’s global indirect tax software tracks VAT registration obligations, filing deadlines, and return preparation across jurisdictions, including Kenya. It maps each product and service to the correct tax code (standard, zero-rated, or exempt), reconciles eTIMS data against your records, and confirms every filing got done, so your controller closes the laptop at 6, not 8.

Commenda connects through 100+ ERP, API, and custom integrations, and pairs with the compliance calendar so you never miss the 20th. Book a demo for a free assessment of your Kenya VAT registration and filing obligations.