Reverse Invoicing on eTIMS

System Overview

Reverse Invoicing is a tax compliance tool that allows a registered buyer to generate tax invoices on behalf of sellers for goods or services received by the buyer. eTIMS invoices are generated through an existing billing system owned and operated by the buyer for the purposes of paying small-scale sellers. The existing system is then integrated with eTIMS through OSCU or VSCU.

By shifting the invoicing responsibility to the buyer, the system lessens the burden of compliance on the small-scale seller, enhances data accuracy, reduces opportunities for tax evasion, and strengthens oversight across key economic sectors.

Reverse Invoicing aims to:

i) Provide a structured and standardized approach for the implementation and governance of self-billing.

ii) Enhance transparency, compliance, and efficiency in revenue collection and business transactions.

Existing billing system of a buyer shall:

i. Ensure consent management and PIN validation.

ii. Implement automated alerts (SMS/email) for each invoice event.

iii. Comply with data protection laws.

iv. Ensure all parties are well defined within the system.

v. Initiate invoices with accurate details (seller PIN, quantity, and price).

vi. Ensure transparency of invoices generated.

vii. Maintain invoicing records.

viii. Generate credit note to correct original invoice errors.

ix. Maintain a secure and auditable invoicing environment.

The Seller is similarly required to comply with data protection laws, ensure the contract agreement is adhered to and provide informed consent for buyer-generated invoicing for the seller to approve or reject the on-boarding request. Sellers shall also on-board to the invoicing platform via eTIMS Reverse Invoicing where the Buyer’s system creates a unique secondary device for each seller and sellers can monitor and validate issued invoices.

This may be done in two ways:

a. Generation of a Sales Invoice on Behalf of the Seller
The buyer’s system issues a tax invoice that records the value of goods or services supplied by the seller.

Example: A dairy processor purchases milk from farmers and generates the eTIMS invoice on behalf of each farmer, reflecting the quantity and price of milk delivered.

b. Generation of the Commission/Service Invoice to the Seller
After a service invoice is issued, the system generates a separate invoice to the seller to account for the platform’s service fee or commission.

Example: Following the trip, the taxi-hailing platform issues a commission invoice to the driver, reflecting the agreed percentage fee charged for providing the digital service and processing the transaction.

Conditions

a. A trusted business Trader Invoicing System (TIS) must be established and maintained by the Buyer.

b. Both buyers and sellers shall be compliant under the eTIMS framework.

c. Buyer-seller agreements shall clearly articulate the roles and responsibilities of each party.

d. Seller consent for reverse invoicing must be formally obtained, including agreement to the applicable terms and conditions.

e. The allocation and distribution of revenue by buyers shall be clearly defined for both sales transactions and credit note issuance.

f. Products or services involved in transactions must be clearly specified and accurately classified.

g. The Trader Invoicing System shall be capable of system to system integration with eTIMS through an API.

Process Logic

a. The process begins with the Buyer’s System undertaking the eTIMS OSCU API and Reverse Invoicing API integration process and successfully integrating their solution to these APIs.

b. The system goes live and processes token generation and initialization for suppliers.

c. The system notifies the seller via SMS through their eTIMS-registered phone number that a secondary device has been created on their behalf.

d. The eTIMS portal is updated with a successful creation of a secondary device for seller.

e. The buyer can initiate invoice generation on behalf of the seller and the seller shall be informed through email or SMS.

Validation and KRA Transmission

a. Seller’s KRA PIN validity.

b. Seller’s eTIMS onboarding status.

c. VAT registration status.

Approved invoices are transmitted to eTIMS in real time and the system provides an audit trail by logging all actions such as invoice initiation, approval and/or modification.

Controls and Compliance Checks

a. Personal Identification Number (PIN) validation.

b. Rate validation.

c. Duplicate detection.

Compliance & Legal Safeguards

Taxpayers are required to agree to a Declaration of Compliance confirming their understanding and compliance with invoicing policies, legal requirements, and ethical standards. The buyer and sellers have to sign an agreed Service Level Agreement (SLA).

Buyers shall consent to KRA’s data usage policies. They are required to have certification as Data processors and Data controllers. Penalties shall apply for the deliberate misuse of data as per the provisions of Section 23A of the Tax Procedures Act.

Record Keeping

The Buyer shall maintain records of invoices issued through their system for a minimum of five (5) years. The system shall maintain an audit trail for all relevant records.

Issue Management

Effective issue management, through structured approaches to the handling of errors, technical faults and data inconsistencies that may occur when invoicing, is essential to system reliability.

Classification of Issues

a. Critical issues include system outages, data corruption or failures that significantly disrupt operations.

b. Minor issues involve non-blocking errors such as user interface bugs, isolated data discrepancies, or minor performance lags.

Monitoring & Reporting

Reports are generated on a real time basis through dashboards that track invoice status, that is, approved or rejected invoices and credit notes. Sellers can track invoices generated via Reverse Invoicing through their eTIMS dashboard.

Buyers enjoy greater control over invoicing, higher accuracy of financial records and reduced errors as buyers specify the purchase details. Reverse Invoicing helps to streamline procurement and payment processes for large organizations, hasten reconciliation and reduce disputes with suppliers. It also allows for bulk invoicing through batch upload of invoices.

Sellers enjoy reduced administrative burden and cost associated with invoice generation, quicker payments due to automated and verified invoicing, improved cash flow management and better supplier-buyer relationships.

Buyers are required to be approved by the KRA for Reverse Invoicing through the Know Your Customer (KYC) process. The Buyer is required to have a centralized and trusted Trader Invoicing System (TIS) which clearly defines sellers and lodges existing contracts/agreements between buyers and sellers.

Sellers shall give consent to the reverse invoicing process for the duration of the contract. Records of the consent must be maintained by the buyer. The buyer is required to comply with all applicable data protection laws.

All sellers will be assigned a unique identifier for invoicing, that is, a secondary device. The buyer shall ensure that sellers receive a notification for every invoice raised on their behalf through various communication channels such as email or SMS.

Transmission of invoices shall be in Kenya Shillings. The buyer is responsible for the reverse invoicing process done through their billing system and will be held liable in the event of any malpractice. Any cost associated with the reverse invoicing functionality is to be borne by the buyer and not transferred to the seller.

Integration Documents

Sandbox Environment