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October 2, 2023
2023-1633

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

DST

VAT

  • Downloadable digital content including downloadable mobile applications, e-books and films
  • Over-the-top services, including streaming television shows, films, music, podcasts and any form of digital content
  • Sale or licensing of, or any other form of monetizing data collected about Kenyan users that has been generated from the users' activities on a digital marketplace.
  • Provision of a digital marketplace
  • Subscription-based media including news, magazines and journals.
  • Electronic data management including website hosting, online data warehousing, file-sharing and cloud storage services.
  • Electronic booking or electronic ticketing services including the online sale of tickets
  • Provision of search engine and automated held desk services including supply of customized search engine services
  • Online distance training through pre-recorded media or e-learning, including online courses and training
  • Any other service provided through a digital marketplace
  • Downloadable digital content, including downloadable mobile applications, e-books and films
  • Subscription-based media, including news magazines and journals
  • Over-the-top services, including streaming television shows, films, music, podcasts and any form of digital content
  • Software programs, including software, drivers, website filters and firewalls
  • Electronic data management, including website hosting, online data warehousing, file sharing and cloud storage services
  • Music and games
  • Search engines and automated helpdesk services, including customizable search engine services
  • Ticketing services for events, theaters, restaurants, and similar services.
  • Online education programs, including distance teaching programs through prerecorded media, e-learning, education webcasts, webinars, online courses and training, but excluding education services exempted under the First Schedule to the Act
  • Digital content for listening, viewing or playing on any audio, visual or digital media
  • Services that link the supplier to the recipient, including transportation-hailing platform
  • Electronic services specified under section 8(3)
  • Sales, licensing or any other form of monetizing data generated from users' activities
  • Facilitation of online payment for, exchange or transfer of digital assets excluding services exempted under the Act
  • Any other service provided through an electronic, internet and digital marketplace that is not exempt under the Act

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.

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

Ernst & Young (Kenya), Nairobi

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

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ENDNOTE

1 KES refers to Kenyan shillings.

 

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