Kenya has changed its VAT rules on certain imported services with effect from 21 March 2023. This is quite a big deal and will impact many businesses providing services into Africa, in particular when seen in the context of the various, and often aggressive, African changes in this space in recent years, as discussed in our previous newsletter.
What is the overall aim of the amended regulations?
Firstly, the new regulations are an expansion of the 2020 regulations. They now apply to any supply made over the internet, or via electronic networks, not just through a digital marketplace. Secondly the new regulations have widened the tax net, to include any sale or licence or other activities or payment for the transfer of digital assets. It seems that the intention is to include crypto currency trading in the VAT net, but the terms are not well defined. Further, the new rules cover both business-to-business service providers, as well as business-to-consumer.
What supplies are within the widened scope of the regulations?
The regulations previously applied to “the supply made over the internet, an electronic network or any digital marketplace,” as well as some specific inclusions, and these have now been widened slightly by including the exchange or transfer of digital assets which we understand was inserted to include the trading in crypto currencies. We have noted that the term “digital assets” is not defined, which is not very helpful as the scope can thus be very wide.
Place of supply rules expanded
A supply is made in Kenya where the recipient is in Kenya. However, the Kenyan Revenue Authority can determine if the recipient is in Kenya.
Tax invoice rules changed
The good news is that the supplier does not have to issue an electronic tax invoice. The bad news is that the supplier still must issue an invoice or receipt, which must at least show the value of the supply, the VAT applicable and the PIN of the customer.
What is the impact of the new rules for suppliers?
For the suppliers the expanded scope and place of supply rules do not differ materially from the original rules, so it is likely business as usual. However, non-resident suppliers should take note of the compliance requirements to register and collect the tax and very importantly the new requirement to include the recipient’s pin number so as not to prejudice their customers’ ability to claim input tax credits. A foreign supplier will not be able to claim any input tax, which can be problematic / unfair unless there are limited local expenses.
What is the impact of the new rules for recipients?
The main impact for recipients of is that they should insist that they receive the tax invoice in the correct format (including the PIN) so that they can claim the input tax deduction where they are registered vendors.
If your business could be impacted by these rules in Kenya, or the broader changes to the taxation of digital services across Africa, contact us to discuss.
Meet the author
Today’s newsletter was written by Russell Eastaugh, our African advisory lead. Russell has 40 years of experience across Africa, including as a partner at PwC Nigeria and PwC Uganda.
Contact Russell at firstname.lastname@example.org if you’d like to talk African tax.