How VAT Works in Kenya: A Small Business Guide

What VAT actually is

Value Added Tax (VAT) is a tax on consumption. When your business is VAT-registered, you add VAT to the price of most things you sell, collect it from your customers, and later pay it over to the Kenya Revenue Authority (KRA). You are essentially collecting the tax on KRA's behalf — it is not your money to keep.

The clever part is that you also get to subtract the VAT you paid on your own business purchases (called input VAT) from the VAT you charged customers (called output VAT). You only send KRA the difference. This is why it's called a 'value added' tax: at each step, tax is effectively paid only on the value that business added.

The VAT rates in Kenya

There are three broad categories, and knowing which one your products fall into matters because it changes what you charge and what you can claim back.

• Standard rate — 16%. This applies to most goods and services, from electronics to professional services to restaurant meals.
• Zero-rated — 0%. Certain supplies (such as some exports and specified essential goods) carry a 0% rate. You charge no VAT but can still reclaim the input VAT you paid.
• Exempt — no VAT at all. Some supplies (such as certain financial services and specified essentials) are outside VAT entirely, and you cannot reclaim input VAT related to them.
• The difference between zero-rated and exempt is subtle but important for reclaiming input VAT — check each product against the current VAT schedules or ask a tax professional.

Who must register for VAT

You are required to register for VAT with KRA once your taxable turnover reaches — or you reasonably expect it to reach — KES 5,000,000 within any period of twelve months. Taxable turnover means your sales of standard-rated and zero-rated supplies, not exempt ones.

You can also register voluntarily before you hit that threshold. Voluntary registration can make sense if most of your customers are themselves VAT-registered businesses, or if you pay a lot of input VAT you'd like to reclaim — but it also means monthly filing obligations, so weigh it carefully.

Registration is done online through iTax using your KRA PIN. Once approved, you'll be issued a VAT obligation on your PIN and must begin charging and filing from your effective registration date.

The VAT3 return on iTax

VAT in Kenya is filed monthly. The return is called the VAT3 return and it is submitted through iTax, KRA's online tax portal. The deadline is the 20th day of the month following the tax period — so January's VAT is filed and paid by 20 February.

Two things trip up new business owners. First, you must file even in a month where you had no sales — this is a 'nil return.' Skipping it still counts as a late filing. Second, filing and paying are effectively linked: the amount you declare on the VAT3 is what you must pay by the same 20th deadline, using the payment registration number iTax generates.

1. 1

   Add up output VAT

   Total the VAT you charged customers on your sales for the month.

2. 2

   Add up input VAT

   Total the VAT you paid on business purchases that are supported by valid tax invoices.

3. 3

   Work out the difference

   Subtract input VAT from output VAT. A positive figure is what you owe KRA; a negative figure may be carried forward or claimed as a credit.

4. 4

   File the VAT3 on iTax

   Log into iTax, complete the VAT3 return (including nil returns), and submit before the 20th of the following month.

5. 5

   Generate a payment slip and pay

   Create the payment registration on iTax and settle the amount due through an approved bank or mobile channel by the same deadline.

eTIMS: electronic invoicing you can't skip

eTIMS (the electronic Tax Invoice Management System) is KRA's e-invoicing platform. VAT-registered businesses are required to generate their tax invoices electronically through eTIMS so that each invoice is validated and transmitted to KRA in real time.

In practice this means every sales invoice needs to carry the eTIMS details that make it a valid tax invoice — without them, your customer generally cannot claim the input VAT, and your own records won't line up at filing time. Just as importantly, the input VAT you reclaim usually needs to be backed by supplier invoices that were themselves generated through eTIMS.

Because so much now flows through eTIMS, it pays to have your point-of-sale and accounting connected to it rather than typing invoices twice. Rules and integration methods here change relatively often, so confirm the current eTIMS requirements with KRA or your tax advisor.

How Tallium helps you stay on top of it

Tallium is an all-in-one accounting, POS, inventory and e-commerce platform built for small and medium businesses. It records the VAT on every sale and purchase as you go, so by the time the 20th comes around your output and input VAT are already totalled — no scrambling through a shoebox of receipts.

You get proper tax invoices, receipt scanning that captures input VAT, VAT-aware reports, and AI insights that flag odd figures before they become filing errors. It's a genuine time-saver at month-end, though it doesn't replace professional advice on how the rules apply to your specific business.

Tallium's pricing is a simple per-unit monthly fee in US dollars, billed monthly from signup with no long contract: the shop/store plan is $79, an online store is $159, a warehouse is $99, and a factory is $269 per month. Every plan includes the full accounting core, tax handling, receipt scanning, reports, the mobile app and email support. There's no free trial — you're up and running from day one.

A few good habits

• Keep business and personal money separate — it makes input VAT far easier to prove.
• Only reclaim input VAT that is supported by a valid eTIMS-backed tax invoice.
• File the VAT3 even in quiet months; a nil return is still a return.
• Set a recurring reminder for the 20th, and pay at the same time you file.
• Keep your records for the period required by law in case KRA asks to see them.
• When something is unclear, ask KRA or a qualified local tax professional before you guess.