Kenya Revenue Authority enforces VAT and DST compliance for electronic, internet and digital marketplace supplies

• Kenya introduced the taxation of digital services from both VAT and Income Tax perspective, with retroactive effect from January 2021.
  
  
• The Income Tax (DST) Regulations provide that a nonresident person without a Permanent Establishment in Kenya must register and account for DST in Kenya.
  
  
• The Commissioner for Domestic Taxes issued a public notice on 22 September 2023 reminding nonresident suppliers of digital services to register within 30 days from the date of the notice.
  
   

Executive summary

The Commissioner for Domestic Taxes, Kenya Revenue Authority issued a public notice reminding nonresident suppliers of digital services who have not yet complied with Digital Services Tax (DST) and value-added tax (VAT) regulations to register within 30 days of 22 September 2023. Failure to register will cause enforcement measures to be initiated.

Introduction

Kenya introduced the taxation of digital services from both a VAT and Income Tax perspective with effect from January 2021. This was backed up by enactment of the Income Tax (Digital Service Tax) Regulations 2020 and VAT (Digital Marketplace Supply) Regulations, 2020 which were effective from 1 January 2021.

The Income Tax (DST) Regulations provide that, a nonresident person without a Permanent Establishment in Kenya is required to register and account for DST in Kenya. The applicable rate is 1.5% of gross income (from digital services) earned/accrued from Kenya.

Under the VAT Regulations, 2023 (electronic, internet and digital marketplace supply) a nonresident person making taxable electronic, internet or digital marketplace supplies in Kenya is required to register and account for VAT in Kenya at the applicable VAT rate of 16%.

Scope of services

Registration requirements

Registration shall be online through a simplified registration framework. Upon registration, the Commissioner will issue the applicant a Kenya Revenue Authority personal identification number (KRA PIN) for purposes of filing returns and payment of tax.

Note: The VAT registration threshold of KES1 5 million shall not apply to nonresident supplies of taxable electronic, internet and digital marketplace supplies.

The nonresident suppliers may also elect to a appoint a tax representative who will be responsible for filing and remittance of tax.

KRA Notice

The Commissioner for Domestic taxes issued a public notice on 22 September 2023 reminding nonresident suppliers of digital services to apply for registration within 30 days from the date of this notice. Failure to comply, the notice indicates, will cause the Commissioner to commence enforcement measures as per the law. The enforcement measures include seeking the intervention of other relevant government authorities and appointing tax agents for purposes of collection and remittance of the tax.

Tax representatives

The Tax Procedures Act provides for appointment of a tax representative in Kenya. A nonresident supplier of digital services may appoint a tax representative who will be responsible for these taxes on behalf of the nonresident. Ernst & Young LLP is available to support.

Next steps

Nonresident digital services suppliers are now required to evaluate their supplies in an effort to determine DST and VAT applicability. Where VAT and DST apply, the suppliers are required to register and account for both VAT and DST in Kenya.

For additional information with respect to this Alert and its contents, please contact the following:

Ernst & Young (Kenya), Nairobi

• Francis Kamau
  
  
• Christopher Kirathe
  
  
• Hadijah Nannyomo
  
  
• Stephen Ndegwa
  
  
• Robert Maina
  
  
• Boaz Musina

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.