Do Kenyan financial advisers charge VAT?
Whether a Kenyan financial adviser's or mortgage originator's fees fall under the VAT exemption for financial services, and how to code each invoice line.
By Achekam · · 4 min read · For Financial services businesses in Kenya
A Nairobi advice practice sends out its first invoices of the year and gets two different answers from two different clients. One client's finance team says advice fees are financial services and should carry no VAT. Another insists on a VAT line because their last adviser charged one. Both cannot be right, and the practice, not the client, carries the risk if it gets this wrong.
The question is narrower than it looks. Kenyan law does exempt financial services from VAT. What it does not do is say that every fee an adviser or mortgage originator charges is a financial service. This article sets out the rule at the time of writing, how to get a reliable answer for your own fees, and how to code the invoice lines in Achekam once you have one.
Financial services on the exempt list, at the time of writing
Kenya's VAT Act 2013 sets the standard rate at 16%. Its Fifth Schedule zero-rates items such as exports of goods, supplies to export processing zones and ship stores. Its Second Schedule exempts, among other things, financial services, unprocessed agricultural produce and the letting of residential premises.
The full consolidated Value Added Tax Act on Kenya Law sets out registration, the standard and zero rates, both schedules, tax invoices, input tax and returns. Read the exempt schedule's wording on financial services yourself before deciding anything, because rates and schedules are amended by Finance Acts and the text in force is what counts.
Advice fees versus financial services: get a written view
The exemption covers financial services as the Act describes them. Whether your particular fees fall inside that description is a question of wording, and different fees from the same practice may land on different sides of the line. Typical fees an advice practice charges:
- An initial advice fee for a financial needs analysis.
- A fee for preparing a written financial plan.
- An ongoing advice fee for annual reviews.
- An arrangement or origination fee for securing a mortgage or loan.
- Hourly fees for estate planning or one-off questions.
Do not decide these on instinct or on what a competitor does. Ask a tax adviser for a written view that takes each type of fee in turn, quotes the provision relied on, and says whether the fee is exempt, standard-rated or out of scope. The cost of that opinion is small compared with assessing VAT on several years of fees after the event.
Exempt, zero-rated or standard
The three treatments are not interchangeable, even though two of them put no VAT on the invoice.
| Treatment | VAT on your invoice | Where the law lists it |
|---|---|---|
| Standard | 16% at the time of writing | Everything taxable and not listed elsewhere |
| Zero-rated | None | The Fifth Schedule |
| Exempt | None | The Second Schedule |
The law treats the two very differently, including for registration and for VAT on your own costs, so ask your adviser what the difference means for your practice and code the treatment you were actually advised, not simply "no VAT".
Coding the invoice line
In Achekam, once the Kenya pack is activated under Settings, Jurisdiction & regulators, a Kenyan business picks a tax code on each invoice line: standard, zero-rated, exempt, out of scope or reverse charge. Only standard lines carry VAT, at the approved rate for the country.
Three practical points for advice practices:
- Use the invoice form under Accounting. The New invoice form under Billing & Finance offers only 15% or 0% VAT and shows rand, so it does not follow Kenyan VAT. The Accounting invoice form follows the country's tax codes.
- Standard-rated lines may be refused for now. While the Kenyan VAT rate rule awaits platform approval, Achekam refuses to charge standard-rate VAT on a Kenyan workspace's invoice and asks you to choose a code without VAT or wait. A practice whose written view says some fees are standard-rated should hold those invoices until the rate is approved, rather than coding them as exempt to get them out.
- Check the PDF your client receives. The invoice PDF downloaded or e-mailed from the invoice screen is currently always headed TAX INVOICE and cites the South African VAT Act, whatever your country. Tell your accountant, and explain it to any client who queries it.
Registration and exempt income
A business in Kenya must apply for VAT registration within 30 days once its taxable supplies reach KES 5 million in 12 months. The test is worded in terms of taxable supplies, so a practice cannot tell whether it has crossed the line until it knows which of its fees are taxable. A practice that is mostly exempt but earns some standard-rated fees should track those fees separately and watch the running twelve-month total.
eTIMS is a separate duty. Under the Tax Procedures Act, every business in Kenya must issue electronic tax invoices through KRA's eTIMS system, with listed exclusions that include employment income, imports, interest, airline tickets and payments subject to withholding tax. Being exempt from VAT does not by itself take your invoices outside eTIMS. Where Achekam has no live eTIMS connection, you issue the invoice through another eTIMS channel and record its control-unit invoice number, internal data and receipt signature in Achekam, which a second person verifies.
Keeping the reasoning on file
Keep the written view with your accounting records, together with a note of which tax code each type of fee uses in Achekam. Review it whenever a Finance Act amends the VAT Act or you add a new kind of fee. If KRA ever asks why your advice fees carry no VAT, the answer should be a document, not a recollection.
For which of your transactions need an eTIMS invoice, read which Kenyan transactions need an eTIMS invoice, and for the current state of standard-rate VAT in Achekam, see charging VAT in Nigeria and Kenya while rates await approval.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
