Regulatory updates - Kenya

On 3 May 2024, the Cabinet Secretary for the National Treasury and Economic Planning announced the Tax Procedures (Electronic Tax Invoice) Regulations 2024 in the Kenya Gazette.

The framework is the same as last year and includes additional clarifications while revoking the Electronic Tax Invoicing Regulations 2023. The main areas of clarification include but are not limited to the following.

The application and the users’ obligations

• The Authority’s system meaning a system prescribed by the Commissioner, i.e. the authority;
• Each System should display messages in English or Kiswahili;
• The Commissioner may require the following persons to use a system that does not maintain a record of stocks:
  • Persons providing services
  • Persons not registered under the VAT Act with an annual turnover of less than 25 million KES (ca. EUR 176 000), using a simplified system prescribed by the Commissioner
  • Any other person using a system prescribed by the Commissioner;
• In the event of an unplanned business closing, the Commissioner must be notified within seven days after the closing.

Invoice content

• Tax invoices should include the buyer’s Personal Identification Number (PIN) when the buyer intends to claim the expense or the input tax, the applicable tax rate, and a QR code.

Excluded transactions

• New transactions are added to the list of exclusions from the requirement of an electronic tax invoice, e.g., fees charged by financial institutions and expenses subject to withholding final tax;
• Specifying transactions on the list, such as investment allowances, including internal accounting adjustments and services provided by a non-resident person without a permanent establishment in Kenya.

The available eTIMS solutions are listed on the Kenya Revenue Authority’s website.

On 27 December 2023, the Kenya Revenue Authority (KRA) published a public notice informing non-VAT registered taxpayers that the onboarding to the electronic Tax Invoice Management System eTIMS has been extended until 31 March 2024.

During this time, the applicable penalties for not issuing electronic tax invoices will not be imposed on non-VAT registered taxpayers.

Once onboarded, the taxpayers must successively capture manually generated invoices and receipts issued after 1 January 2024 until the onboarding date to KRA’s system.

On 17 November 2023, the Kenya Revenue Authority (KRA) published its public notice about onboarding non-VAT registered taxpayers on the electronic Tax Invoice Management System (eTIMS).

All business entities, including entities not registered for VAT, will have to electronically generate and transmit their invoices to KRA via the eTIMS.

Deduction of expenses for tax purposes not generated through eTIMS will not be allowed starting from 1 January 2024.

As previously mentioned, the Kenyan Revenue Authority (KRA) has unveiled the electronic Tax Invoice Management System (eTIMs) to help Kenyan businesses transmit tax invoices in real time or near-real-time and at their convenience. 

KRA has announced the enforcement of the electronic tax invoice and rolling out eTIMS. According to the announcement, all VAT-registered taxpayers will have to accept only electronic tax invoices from registered taxpayers starting from 1 June 2023.

Aiming to claim input tax and process refunds, the roll-out should comply with the VAT (Electronic Tax Invoice) Regulations 2020 (“Regulation”).

Registered non-resident suppliers of digital services are exempt from this requirement, whilst they are required to issue invoices or receipts showing the value of the supply and tax charged.

VAT-registered taxpayers not complying with the Regulation and the requirements under this statement will be affected by the following:

• Tax Compliance Certificate will not be issued;
• VAT refunds will not be processed and paid. 

The Kenyan Revenue Authority (KRA) has unveiled a new technology to help Kenyan businesses transmit tax invoices in real time and at their convenience. 

The electronic Tax Invoice Management System (eTIMs) is an upgrade of the Tax Invoice Management System (TIMS). This upgrade is being offered free of charge to facilitate compliance, as per the KRA announcement from 28 February 2023.

The system will be available as an online platform facilitating integration with existing billing systems. It is accessible through various electronic and digital devices, such as computers and mobile phone apps.

What will the new functionalities solve?

The objectives of eTIMS are:

• Reduced costs of compliance for VAT-registered businesses;
• Fully address issues of missing trader invoices and fictitious claims;
• Real-time invoice transmission providing accuracy in tax invoice declarations and reconciliation between filed returns and payments and
• Eliminate the need for multiple hardware purchases.

In addition, eTIMS is set to incorporate a Supply Chain Module (SCM) to manage the taxpayer’s inventory, enhancing compliance and giving taxpayers visibility of their transactions from the point of acquisition to the point of sale.

Who is expected to use eTIMS?

The main target of eTIMS are traders who could not purchase the upgraded Electronic Tax Registers. Last year, KRA had set a deadline of 30 November 2022 for all VAT-registered taxpayers to migrate to the new ETR devices.

The new version complements the TIMS where businesses were expected to acquire internet-enabled tax registers (ETRs) that capture and send all real-time transactions to KRA. The roll out of the eTIMS has entered the second phase, which will be done gradually.

The decision to roll out the new version was made after several taxpayers pointed out issues in adopting TIMS because of the high cost of the ETRs, which is between (EUR 253,00 - 290,00).

According to KRA, since 6 March 2023, 67 954 out of 113 239 taxpayers have switched to the system. The agency expects to onboard the remaining ones by the end of the pilot phase.

As previously mentioned, all VAT-registered taxpayers were supposed to comply with the provisions of the Regulations by 31 July 2022.

According to the KRA, several taxpayers are still acquiring and integrating Electronic Tax Registers (ETR) with their invoicing systems. Therefore, an administrative decision has been made to postpone the timeline until 30 November 2022.

The new deadline will allow taxpayers to complete the necessary steps to prepare for the obligation.

Under the Value Added Tax Regulations, 2020, VAT-registered taxpayers are required to issue electronic tax invoices. However, previously, it was not made clear that non-resident suppliers in the digital marketplace were exempt from this obligation.

Furthermore, it should be noted that while non-resident suppliers are not required to issue electronic tax invoices, they still have to issue invoices or receipts detailing the value of the transaction, the supply, and the taxed amount.

As we previously wrote, all VAT-registered taxpayers have to comply with the provisions of the Regulations by 31 July 2022.

Furthermore, taxpayers shall obtain a compliant tax register from an approved supplier. The approved Electronic Tax Register supplier will assist the taxpayer with ETR activation and authentication by the Kenya Revenue Authority (KRA). Once these procedures are done, VAT-registered persons will be able to send tax invoice details to the KRA.

In addition, there are guidelines available for the taxpayers, which describe the above steps in more detail.

The list of the currently approved service providers is accessible here. It is anticipated that the KRA will list more suppliers and manufacturers in the future.

The Public Notice from 9 July 2021 also states that all VAT-registered taxpayers will have 12 months from the start period to comply with the new electronic invoice system requirements.

In case the taxable persons mentioned are not able to comply with the Regulations within the established 12 months, there is still a possibility to get an extension of a maximum of 6 months extra. For this matter, taxpayers will need to apply for the extension at least 30 days before 1 August 2022.

For more information and guidance on the new VAT e-invoicing system in Kenya, KRA encourages VAT-registered taxpayers and suppliers of Electronic Tax Register to contact the Authority at [email protected]

According to information from 16th July 2019 from the Kenya Revenue Authority (KRA), all traders, manufacturers and suppliers that generate over 5 million Kenyan Shillings per month (approximately €43 000) will be obliged to install electronic tax registers (Control Units). These Control Unites will communicate invoice data with the new system, called Tax Invoice Management System (TIMS), in real time. The TIMS will receive both individual transactions as well as end-of-day reports from Control Units and pass them to the KRA’s iTax system.

“The roll out will enable seamless population to the taxpayers VAT returns hence reducing filing errors and ultimately reducing the cost of tax compliance,” KRA said in their notice.

What is the current status of the TIMS program?

The TIMS pilot phase started in June 2019 and will continue until December this year, operating on voluntary basis with businesses. According to the KRA, the private sector’s comments and feedback will be incorporated into the system, while all flaws identified during the pilot phase will be fixed before the full roll out. A final date for the full rollout has not yet been set.

What is the Control Unit?

The Control Unit (CU) is a piece of hardware certified by the KRA, that all businesses will have to install on their electronic tax register (ETR) or point-of-sale devise (PoS), or otherwise integrate with their ERP or billing system. The CU will validate and sign the invoice data before transmitting the information to the TIMS according to the supplier’s schedule. However, data must be transmitted in time for end-of-day reporting that is produced by the CU. Once validated and approved, the CU will return to the issuer additional values which the supplier must include on the invoice distributed to the buyer.

How will this change impact the buyers?

Currently, there are no explicit requirements posed on the buyers. However, it is highly recommended that buyers adjust their processes and systems to the new invoice content requirements to ensure that they are receiving and handling correctly-issued invoices.

In our communication with the TIMS team of the KRA, they have confirmed that changes will be made to the VAT Act in order to reflect the above-mentioned novelties and how this will impact the obligations of both the suppliers and the buyers.