Registering for VAT below the Kenyan threshold
Whether a Kenyan business under KES 5 million in sales can register for VAT voluntarily, what it gains, and the monthly obligations it takes on.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Most small businesses spend their energy staying out of VAT for as long as they can. A few go the other way and ask to be registered before the law requires it. Usually the reason is a customer: a large company or a government buyer that prefers suppliers who issue proper VAT invoices. Sometimes it is the business's own costs, with VAT on equipment and supplies that it would like to recover.
Kenyan law allows voluntary registration, but it is a commitment, not a badge. Once registered, the business carries the same monthly obligations as any VAT-registered trader. This guide explains the threshold, the reasons people register early, what it takes on, and the questions to settle first.
The threshold and the voluntary route
KRA says any person supplying, or expecting to supply, taxable goods and services worth Kshs 5 million or more in a year must register for VAT. Below that line registration is not compulsory, but KRA adds that a person below the threshold can be granted voluntary registration, subject to conditions.
"Granted" and "subject to conditions" are both doing work in that sentence. Voluntary registration is something KRA approves, not something the business simply declares. Ask KRA what its conditions are before you apply, and be ready to meet them. The documents KRA asks for are set out in documents KRA wants before adding VAT to your PIN, and KRA's Value Added Tax page states the threshold and the voluntary option in its own words.
Why some small businesses want to be registered
KRA draws a clear line between the two main business taxes: income tax is a compulsory obligation, while VAT is paid only by those who are registered for VAT. An unregistered business sits outside the VAT system entirely. That has consequences on both sides of its trade.
On the selling side, a business customer that is itself registered may prefer suppliers inside the VAT system, because those suppliers' invoices fit into its own VAT accounting.
On the buying side, KRA says only VAT-registered businesses can claim input tax, and only on purchases used in making taxable supplies. An unregistered business pays VAT on its purchases and has no way of recovering it. A registered one can claim it back against the VAT it charges, provided the purchases are used for taxable supplies. The full conditions are in when you can claim input VAT in Kenya.
A worked example in words: a small furniture maker buys timber, hardware and machinery, all with VAT, and sells mostly to hotels that are VAT-registered. Unregistered, the VAT on its purchases is simply a cost. Registered, it charges VAT to the hotels, which they can claim, and claims back the VAT on its own inputs. Whether that leaves it better off depends on its margins and its customers, which is why the decision needs numbers, not instinct.
Monthly returns, eTIMS invoices and verifying the pre-filled return
Registration brings a routine with no off-season. KRA says the VAT return and the VAT payment are both due on or before the 20th day of the following month, and returns are submitted online through iTax. That applies every month, including quiet ones.
The return itself now arrives partly filled in. KRA says the auto-populated VAT return is pre-filled with information from iTax, TIMS, eTIMS and the customs systems, and VAT-registered taxpayers must verify and confirm its accuracy. KRA also says registered taxpayers must issue electronic tax invoices, or demand them from suppliers, and transmit invoice details through TIMS or eTIMS.
So the commitment is three-fold: issue every sale through eTIMS, insist on eTIMS invoices from suppliers, and check KRA's pre-filled figures against your books every month before the 20th.
Turning on VAT in Achekam and the rate approval that comes first
Once KRA approves the registration, your documents need to reflect it. In Achekam, the business enters its VAT registration number in Settings under Firm Profile. Documents made by Achekam print it, and are titled Tax Invoice only when a VAT number is set.
There is a check before the first VAT invoice. While the Kenyan VAT rate rule is awaiting platform approval, Achekam refuses to charge standard-rate VAT on a Kenyan workspace's invoice, and tells the user to choose a tax code without VAT or to wait. If you see that refusal, the rate rule has not yet been approved; see VAT awaiting approval for what that means.
The opposite gap also exists. Achekam does not check whether the business is VAT-registered before charging VAT on its documents. That puts the responsibility on you: do not start charging VAT until KRA has actually granted the registration, however keen the customer is.
Questions to settle with your accountant beforehand
- What share of our sales go to VAT-registered customers who can claim our VAT?
- How much VAT do we pay on purchases used in our taxable supplies?
- Will customers who are not registered accept prices that now include VAT, or will we absorb it?
- Do we have an eTIMS channel in place for every sale, including at the counter?
- Who will verify the pre-filled return and file by the 20th each month?
- Can we meet KRA's conditions for voluntary registration, and do we have the documents ready?
If the answers point towards registering, gather the documents first and set up the monthly routine before KRA's approval arrives, so the first return after registration is not also the first time anyone looks at it.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
