1) What is the effective date for VAT on Digital Marketplace Supply (DMS) in Kenya?
The effective date for VAT on Digital Marketplace Supply is the 9th of October 2020. However, the VAT (Digital Marketplace Supply) Regulations 2020 provided a six (6) month transition clause from the date of gazettement of the regulations to enable taxpayers to comply.
2) Is there a turnover registration threshold for vat to be applicable to digital services provided by foreign suppliers?
There is no threshold required for registration of VAT Digital Marketplace Supplies.
3) How do foreign digital service suppliers comply with the requirements for VAT on DMS in Kenya?
- A foreign supplier of digital services without a fixed place of business in Kenya (overseas supplier) to a recipient in Kenya may register under the simplified tax registration framework via the iTax portal;
- The User guide for the simplified registration process is accessible on the KRA Website using this link; https://www.kra.go.ke/images/publications/USERGUIDE---DST-NON-RESIDENT-REGISTRATION-REVIEWED-FINAL-18.12.2020-1.pdf
- Upon successful registration on iTax, the digital service supplier will be able to file the tax return and make payment for the VAT due within the stipulated timelines.
- If a non-resident without a fixed place of business in Kenya (overseas supplier) chooses not to register through the simplified registration framework, they SHALL appoint a tax representative.
- The tax representative shall be responsible for performing any tax obligations required, including the submission of returns and the payment of taxes with respect to the VAT on the Digital marketplace Supply.
4) In which currency should the payments be made by foreign digital service suppliers?
The tax due is payable in Kenyan currency (KES) and deposited into the KRA accounts of the Authorized banks in Kenya. The payments user guide can be accessed through https://www.kra.go.ke/images/publications/User-Guide-on-Filing-and-Payment-of-VAT-on-DMS----August-2022.pdf
5) Can foreign Digital service suppliers without a fixed place of business in Kenya deduct input VAT incurred from Kenyan suppliers from the VAT payable?
No. The VAT (DMS) Regulations do not allow foreign digital service suppliers to deduct input VAT incurred from Kenyan suppliers from the output VAT payable.
6) Do consumers of digital services/over the top content withhold VAT from the service provider?
Consumers of digital services only withhold if they are appointed as withholding VAT agents. The rate of withholding VAT is 2%. Final consumers do not withhold VAT. You can confirm if a customer is an appointed withholding agent through the online checker; https://itax.kra.go.ke/KRA-Portal/pinChecker.htm?actionCode=loadPage&viewType=static
7) Do digital service providers pay both VAT & DST?
Yes, foreign digital service suppliers will be liable to VAT and in case the services also fall within the scope of DST then DST will be applicable.
8) If a business advertises a product/ service on social media platform targeting Kenyan Market is VAT on DMS applicable?
Advertising on social media is considered a digital service and thus will be subjected to VAT on DMS. The supplier of the advertising service if non-resident, will be expected to charge and remit the VAT.
9) Are intermediaries such as digital insurance agents (where the insurance agent provides the digital platform but the insurance policy is ultimately issued by the insurance company) classified as digital marketplace providers?
No. If the insurance agent is using the platform for the business of selling policies, then it not liable to VAT on the digital market Place. Insurance is exempt from VAT under the VAT Act, 2013. However, if the agent pays for the insurance platform owned by a person in an export country (overseas), then yes, it will be deemed a digital service and VAT will apply.
10) Do digital service suppliers from an export country qualify for tax refunds?
No, they are not entitled to a tax refund since they cannot claim input VAT. However, the regulations allow for the offset of overpayments in subsequent tax periods.
11) Why are Educational services, which are exempt under the VAT Act, listed as taxable supply under VAT regulation on digital marketplace?
The Regulations apply to customised training and educational services supplied through a digital marketplace to Kenyan recipients.
12) Are transactions like buying word processing software, email hosting services, reading subscriptions and cloud back-up services liable to VAT on DMS?
Yes, the services enumerated above fall within the defined scope of DMS.
13) If a business entity provides a platform to companies through which they pay their suppliers and employees and then pay transaction charges for use of the platform, will the transaction qualify for VAT on DMS?
The transaction charges qualify for VAT on DMS if the supplier of the platform is a person without a fixed place of business in Kenya.
14) Who accounts for VAT on Digital Marketplace Supply when an international payment on a Social Media website is made using a payment card issued by a local bank?
The Social Media website will account for VAT since they are the supplier of the service.
15) Are taxi hailing services or food delivery services provided by Non-Residents, where the drivers/restaurants use the platform to connect their services to consumers, placed under B2B or B2C and would both DST and VAT apply or will DST apply but not VA
If the services are supplied to both businesses and consumers in Kenya both DST and VAT on DMS will apply.
16) Does VAT on DMS apply for items bought on international digital market places?
DMS is imposed on services that are imported into Kenya and does not apply on goods since VAT on goods will be accounted for at the point of entry into the country
17) What is the prescribed rate for VAT on DMS/ how will VAT be computed?
A registered person shall declare and pay tax on the supplies made on the digital marketplace at the rate of 16% specified in section 5(2) (b) of the VAT Act.
18) Can digital service providers amend a VAT return?
An amended return can be done to rectify a position in line with the provisions of the Tax Procedures Act (“TPA”). However, Where an amendment results in an overpayment of tax, the overpaid amount shall be retained as a credit in favour of the person who overpaid and offset against the tax payable in the subsequent tax period.
19) When is VAT on DMS due?
It is due on or before the 20th day of the succeeding month in which the digital service was performed, invoice raised or payment made whichever comes earlier.
20) Do digital service suppliers need to issue an electronic tax invoice?
No. The supplier is however required to issue an invoice or receipt showing the value of the supply and the tax charged. The non-resident digital service suppliers are exempt from the provisions of the Electronic Tax Register.
21) Is there DMS income that will be exempt?
Yes, supplies exempt under first schedule of the VAT act of 2013.
22) What is a taxable supply in the context of a digital marketplace?
The scope for services that attract VAT on DMS have been well elaborated in the Regulations https://www.kra.go.ke/images/publications/VAT-Digital-Marketplace-Supply-Regulations.pdf
23) Who is going to account for B2B and B2C transactions relating to VAT DMS?
The non-resident supplier of digital services will account for VAT on all transactions.
24) Will registered VAT taxpayers claim the input tax charged in the absence of a valid tax invoice as provided for by the VAT (Electronic Tax Invoice) Regulations , 2020?
Yes. The registered taxpayer in Kenya will claim the input tax so charged in line with section 17 of the VAT Act provided that the non-resident supplier has issued an invoice or receipt showing the value and the tax of the supply so charged.
25) Is extension of time to comply with the Finance Act 2022 amendments on VAT on electronic services allowed?
No transitional period has been provided under the law in order for one to comply with the Finance Act 2022 amendments
26) Will Withholding VAT put the taxpayers in a perpetual credit position?
WHT VAT is only at 2%, which is quite modest and in most cases would not put the taxpayer in a perpetual credit cycle.
27) Do the VAT(DMS) regulations exempt the non-resident digital service suppliers/providers from the provisions of the Electronic Tax Invoice Regulations, 2020?
Yes. The non-residents are exempted from the provisions within the Electronic Tax Invoice Regulations, 2020 as part of the simplified registration, filing and payment framework.