VAT and invoicing in Kenya (2026): rates, returns and eTIMS

Kenyan value added tax (VAT) is charged under the VAT Act, 2013 and administered by the Kenya Revenue Authority (KRA). For a small business, two things matter most in 2026: knowing when you must register and what to charge, and issuing every invoice through eTIMS, KRA's electronic tax invoice system. This guide covers both, plus returns, deadlines, a worked example and the mistakes that cost businesses their deductions.

VAT in Kenya at a glance

Only two rates. The 8% rate that used to apply to petroleum products was deleted by the Finance Act 2023, so taxable supplies are at 16% unless they are zero-rated.

What changed in 2026. The Finance Act 2026 brought digital payment services into VAT: payment processing, settlement, merchant acquiring, payment gateway and aggregation services supplied by payment providers for a fee or commission are no longer exempt. It also extended the period for claiming VAT relief on bad debts from two years back to three.

Who must register and when

• Compulsory registration: if you supply, or expect to supply, taxable goods or services worth KES 5 million or more in a year (any 12-month period). Sales of capital assets and of all or part of the business do not count towards the threshold.
• Voluntary registration: possible below KES 5 million, subject to KRA's conditions. It can help if your customers are VAT-registered businesses and you want to recover the VAT on your own costs.
• Non-resident suppliers of services over the internet or through a digital marketplace must register whatever their turnover.
• Only exempt supplies: you do not need to register.

Your KRA PIN is your tax identifier on iTax and on every invoice. KRA's guidance is blunt: an invoice without the supplier's PIN is not a valid tax invoice and cannot be used for a tax deduction.

VAT returns and payment

• Frequency: monthly, filed online on iTax.
• Deadline: the return and the payment are due on or before the 20th day of the following month. VAT for March is due by 20 April.
• VAT payable: output VAT on your sales minus the input VAT on your purchases, supported by valid electronic tax invoices.
• Input VAT time limit: you can deduct input VAT only within six months after the end of the tax period in which you received the supply or import. After that, it is lost.

Late filing and late payment attract penalties and interest under the Tax Procedures Act, so put the 20th of every month in your calendar.

Tax invoices in Kenya

The Finance Act 2025 made it clear that every registered person must issue a tax invoice at the time of supply, and the Finance Act 2026 added that an invoice may show VAT only for a taxable supply. In practice this means:

• issue the invoice when you make the sale, not when the customer pays
• show VAT only on supplies that are actually taxable, and none on exempt supplies
• make sure your KRA PIN is on every invoice
• issue the invoice through eTIMS, so it carries the details KRA validates and a QR code your customer can check

Corrections. You correct an issued invoice with a credit note, and on eTIMS a credit note can only be generated from the same eTIMS solution where the original invoice was raised. Each eTIMS solution keeps its own unique invoice number sequence.

Records. The Tax Procedures Act requires you to keep records for five years.

eTIMS: electronic tax invoices for every business

The Electronic Tax Invoice Management System (eTIMS) is KRA's system for issuing electronic tax invoices. The Finance Act 2023 gave the Commissioner the power to set up an electronic tax system for invoices (section 23A of the Tax Procedures Act), and KRA now requires that all persons engaged in business onboard eTIMS and issue electronic tax invoices.

Who is in scope. VAT-registered businesses, and also businesses that are not registered for VAT, such as schools, hospitals, tour and travel operators and NGOs carrying on business, even when what they sell is exempt.

Why it matters for your customers. Since 1 January 2024, a business that claims an expense must support it with a valid electronic tax invoice. If you do not issue eTIMS invoices, your customers cannot claim your invoices as business expenses in their income tax returns, nor deduct the input VAT if they are VAT-registered, so for business customers an eTIMS invoice is part of what they are paying for. Customers verify an invoice by scanning its QR code or entering its number in the invoice checker on iTax.

The eTIMS options KRA offers:

You can register on more than one solution at the same time.

Penalties. PwC reports that the Finance Act 2026 set the penalty for failing to meet the electronic tax system requirements at the higher of 5% of the tax due or KES 100,000 for a company (KES 10,000 for an individual).

A worked example in Kenyan shillings

You run a small printing business registered for VAT. In March you invoice customers KES 800,000 plus 16% VAT, all through eTIMS.

1. 1Output VAT: KES 800,000 × 16% = KES 128,000; your customers pay KES 928,000.
2. 2Input VAT: you buy paper and ink for KES 300,000 plus KES 48,000 VAT and a new printer for KES 100,000 plus KES 16,000 VAT, each with a valid eTIMS invoice from the supplier. Input VAT = KES 48,000 + KES 16,000 = KES 64,000.
3. 3VAT payable: KES 128,000 − KES 64,000 = KES 64,000, due by 20 April.

To find the VAT inside a VAT-inclusive price, multiply by 16 and divide by 116: KES 11,600 × 16 ÷ 116 = KES 1,600 VAT, so the price before VAT is KES 10,000.

Common VAT and invoicing mistakes in Kenya

1. 1Invoicing outside eTIMS. A PDF or a paper invoice that was not issued through eTIMS will not let your customer claim the expense or the VAT.
2. 2Accepting supplier invoices that are not eTIMS invoices, and then losing the deduction yourself.
3. 3Missing the 20th, which triggers penalties and interest.
4. 4Claiming input VAT too late. The window closes six months after the end of the tax period.
5. 5Not registering in time after your taxable supplies reach KES 5 million.
6. 6Still charging 8% on fuel, or charging VAT on an exempt supply.
7. 7Raising a credit note in a different eTIMS solution from the one that issued the original invoice.

How Clientlly helps

Clientlly keeps the rest of your invoicing and VAT work organised around eTIMS:

• Sequential invoice numbering per series, with the 16% and 0% rates on every invoice, and credit notes linked to the original invoice.
• Sales and purchase VAT books per rate, including exports, and VAT reports for you and your accountant, with Excel and PDF exports.
• Receipt scanning that reads the VAT automatically, so you can see which purchases support your input VAT.
• Multiple currencies for export clients, invoice PDFs in your client's language, a card payment link and a record of when each invoice was opened.
• Automatic reminders 3, 14 and 30 days after the due date, recurring invoices and a mobile app. See our guide to getting paid faster.

Clientlly is not an eTIMS solution and does not send invoices to KRA. The electronic tax invoice itself must be issued through eTIMS, using one of KRA's own options or an approved system-to-system integration. See the invoicing features and the accounting module.