VAT registration: the KShs 5 million threshold, the 20th, and eTIMS

Leading with this because it is the most commonly repeated out-of-date VAT fact in Kenya.

There used to be a third VAT rate of 8% on petroleum products. It was deleted by the Finance Act 2023. Kenya now has two VAT rates: 16% general and 0% zero-rated.

If you are reading a guide, a template invoice or an accounting system default that still carries 8%, it predates the Finance Act 2023 and everything else on that page should be treated with the same suspicion.

These get used interchangeably in conversation and they are not the same thing, with real cash consequences.

Zero-rated supplies are taxable at 0%. They are listed in the Second Schedule to the VAT Act 2013. Because they are taxable, you can still recover the input VAT you paid on the costs of making them, which is what produces a refund position.

Exempt supplies are outside the VAT charge, and input VAT on the costs of making them is not recoverable.

A business that treats zero-rated supplies as exempt writes off input VAT it was entitled to claim back. Over a year that is real money left with KRA.

Registration is required once taxable turnover reaches KShs 5 million in a twelve-month period. It is a rolling test, not a calendar-year one, so the obligation can arrive mid-year.

There is a planning point here worth stating plainly. The Turnover Tax band runs from KShs 1 million to KShs 25 million. The VAT threshold sits at 5 million, inside that range. So a business can be a TOT filer and be required to register for VAT at the same time. The two thresholds are set by different provisions and they do not line up. Crossing 5 million does not take you out of TOT, and being in TOT does not exempt you from VAT registration.

The VAT return and the VAT payment are both due on or before the 20th of the month following the reporting period.

It is one date for two obligations, which is why filing on time and still being penalised is a common and avoidable outcome. A return filed on the 20th with payment on the 25th is a late payment, not an on-time filing.

Onboarding to eTIMS is mandatory, via etims.kra.go.ke. Invoices have to be generated through a compliant system.

This reaches further than VAT. As covered on our Tax Compliance Certificate page, the enhanced TCC now checks eTIMS/TIMS registration and VAT compliance including VAT Special Table status. A business that is not on eTIMS will find out at the point it needs a TCC for a tender, which is the worst possible moment to discover it.