VAT on services you buy from abroad
When a Kenyan business owes reverse VAT on services from foreign suppliers, when it falls due, and when that VAT can be claimed back as input tax.
By Achekam · · 4 min read · For Running a business businesses in Kenya
A Nairobi marketing agency pays a design studio in Cape Town. A Mombasa logistics firm subscribes to route-planning software billed from Europe. A family business hires a consultant in Dubai to review its pricing. None of these suppliers charges Kenyan VAT on their invoices, and it is easy to assume that means there is no Kenyan VAT to think about.
KRA takes a different view. When a Kenyan business brings in a service from abroad, KRA treats the business itself as liable for the VAT, through what it calls reverse VAT. This article explains who pays it, when, whether it can be recovered, and how to keep foreign service bills straight in your books.
Reverse VAT whatever your registration status
KRA says any importer of an imported service is liable to pay VAT on it, which it calls reverse VAT, whatever its VAT registration status. That last phrase catches many businesses out. A business below the VAT registration threshold, which might reasonably think VAT is not its concern, is still liable for reverse VAT on services it imports.
For context, the VAT Act, as published on Kenya Law, requires a person whose taxable supplies are, or are expected to be, five million shillings or more in any twelve-month period to apply for registration within thirty days of becoming liable. Reverse VAT sits outside that threshold: it attaches to the imported service, not to the size of the buyer.
KRA's Value Added Tax page explains reverse VAT on imported services alongside the rest of Kenya's VAT rules, and is the first place to check how KRA expects it paid.
When the tax becomes due
KRA says reverse VAT becomes due at the earliest of three events: receiving the service, receiving the invoice, or paying for it.
"Earliest" is the word to hold on to. A worked example in words: a consultant abroad finishes a review in March, sends the invoice in April, and is paid in May. The service was received in March, which is the earliest of the three, so March is when the reverse VAT is due, not May when the money left. A business that only looks at its bank payments will consistently account for reverse VAT late.
Make it a habit to log foreign service contracts when the work starts, not when the bill is paid, so that the right date is captured.
Claiming it as input tax
Paying reverse VAT is not always a pure cost. KRA adds that VAT paid on imported services used in a registered person's taxable business may be deducted as input tax in subsequent VAT returns.
Two conditions sit inside that sentence. The business must be registered, and the service must be used in its taxable business. A VAT-registered business that imports a service for its taxable activities can recover the reverse VAT in a later return. A business that is not registered, or that uses the service for exempt activities, pays the reverse VAT without recovering it. For the wider rules, see when you can claim input VAT in Kenya.
Foreign digital suppliers that register in Kenya
Some foreign suppliers deal with Kenyan VAT themselves. The VAT Act requires suppliers of imported digital services to register whatever their turnover. And KRA allows input VAT on supplies from non-resident digital suppliers who declared the buyer's PIN on a line item.
So, when you buy a digital service from abroad, ask the supplier two questions: are you registered for Kenyan VAT, and will you put our KRA PIN on the invoice line? If the supplier is registered and declares your PIN, KRA's input VAT rule for such suppliers applies. If the supplier is not charging Kenyan VAT at all, the reverse VAT rule above is the one to look at.
The eTIMS point
KRA's list of business costs excluded from the eTIMS invoice requirement includes services from a non-resident without a permanent establishment in Kenya. A foreign consultant with no Kenyan presence will not issue you an eTIMS invoice, and KRA does not expect one for that cost. More on which costs need eTIMS invoices is in which transactions need an eTIMS invoice.
The reverse charge code on Achekam documents
In Achekam, a Kenyan business picks a tax code on each invoice line: standard, zero-rated, exempt, out of scope or reverse charge. Only standard lines carry VAT, at the approved rate. A reverse charge line therefore adds no VAT to the document itself, which reflects how reverse charge works: the VAT on that line is for the recipient to account for, not for the supplier to add.
Once the Kenyan rules in the workspace are approved, Achekam computes Kenyan VAT, among its other Kenyan tax computations. Before filing, check that every foreign service received in the period, not just those paid for, has been considered for reverse VAT, using the earliest-event rule above.
Examples: software, advisory work and advertising
| Purchase | Questions to ask |
|---|---|
| Software subscription from abroad | Is the supplier registered for Kenyan VAT as a digital supplier, and does it declare our PIN? If not, reverse VAT applies to us. |
| Advisory work by a foreign consultant | When was the service received? That date, if earliest, fixes when reverse VAT is due. Is withholding tax also due on the fee? |
| Advertising bought from a foreign platform | Is the platform charging Kenyan VAT with our PIN on the line? If not, treat it as an imported service. |
Payments to foreign suppliers can raise withholding tax as well as VAT, and the two are separate calculations; see withholding tax when you pay foreign suppliers.
Pull your list of foreign suppliers for the last twelve months this week, and mark each one against the questions in the table.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
