Tax Alert: July 2023 Kenya VAT Zero-rating of Exported Services
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In Summary
- As per the Finance Act 2023, the exportation of goods and services has now been VAT zero-rated, as was the position before the Finance Act 2021. This is a much-welcome move, as it aligns with the Organization for Economic Cooperation and Development (OECD) destination principle, which provides for the allocation of taxing rights to the jurisdiction where the final consumption occurs. Kenya is also a burgeoning international services hub and the charging of this VAT was making the country less competitive in the global market.
- Previously, as per the Kenya Finance Act 2022 (in a provision applicable from July 2022 to June 2023), exported services were subject to 16% VAT, with zero-rating only applicable to exported BPO (Business Process Outsourcing) services.
- As per the Kenya Finance Act 2021 (in a provision applicable from July 2021 to June 2022),exported services had a VAT-exempt status, meaning that entities purely dealing in exported services were not required to register for a VAT obligation, could not claim Input VAT incurred and had to fully expense the VAT in their books of accounts.
- Value-added tax highlights include increased rates on certain goods, exemptions for others, a zero rating for some supplies and a new deadline for remitting the tax.
The exemption of these services implies that suppliers may not claim input tax. Also, suppliers that exclusively deal in these services will need to consider VAT deregistration, as persons dealing wholly in exempt supplies are not required to register for VAT.
The Act amends the VAT status of the following supplies to a zero rating:
Currently, unprocessed green tea is exempt while supply of tea for export to tea auction centres is zero-rated.
Zero-rating” all tea and coffee locally purchased for the purpose of value addition before exportation” is a welcome move as it aligns with the VAT status of exported goods.
