Zero-rated exports and EPZ supplies in Kenya
When a Kenyan business charges VAT at 0% on exports of goods, supplies to export processing zones and ship stores, and how to invoice and record them.
By Achekam · · 4 min read · For Running a business businesses in Kenya
A furniture workshop in Thika lands its first order from a buyer in Kampala. A packaging firm in Athi River starts supplying a factory inside an export processing zone. A Mombasa wholesaler is asked to provision a ship. Each of them faces the same question when the invoice is raised: should there be 16% VAT on it?
In each case the answer at the time of writing is that the supply is zero-rated, so VAT is charged at 0%. But zero-rating is a privilege that has to be earned with paperwork, not a box ticked on the invoice. This article covers the three zero-rated categories that matter most to traders, how to code them in Achekam, the currency limit on Achekam's invoices, and the records to keep for each export.
Exports of goods
Kenya's VAT Act zero-rates exports of goods, in its Fifth Schedule. The goods leave Kenya, so Kenyan VAT is not added to their price.
Note that the item is about goods. Services sold to customers abroad raise different questions, and the answer does not follow automatically from the goods rule. If you sell services across the border, such as consulting, software or design, take the question to your adviser. Billing overseas customers for software is discussed in billing overseas customers.
Supplies to export processing zones
Supplies to export processing zones are also zero-rated. For a Kenyan manufacturer or service provider whose customer operates inside an EPZ, that can mean a substantial share of sales carry VAT at 0% even though the goods never cross the border.
The zero rate depends on the customer genuinely being in the zone and the supply genuinely going to it. Before you code the first invoice, get confirmation of the customer's EPZ status and keep it on file.
Ship stores
Ship stores, the provisions and supplies taken on board a ship for its voyage, are the third zero-rated category. For traders at the coast this can be a meaningful line of business, and the same discipline applies: record which vessel, which voyage and what was supplied.
The full list of zero-rated and exempt supplies, along with the rates, registration and invoicing rules, is on KRA's page on Value Added Tax, which covers who must register, the 16% and 0% rates, exempt supplies, eTIMS tax invoices, input tax claims and the monthly return due by the 20th on iTax.
Coding the line as zero-rated in Achekam
Once the Kenya country 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 Kenya.
For an export, choose zero-rated. Do not choose exempt or out of scope because the VAT column comes out the same: an export is a taxable supply at 0%, and it belongs in the zero-rated part of your return. The difference between exempt and zero-rated is explained in exempt supplies under Kenyan VAT.
A practical bonus: while the Kenyan VAT rate rule awaits approval by an Achekam platform administrator, Achekam refuses to charge standard-rate VAT on a Kenyan invoice and asks the user to choose a code without VAT or wait. A correctly coded zero-rated export line carries no VAT, so it goes through.
Invoicing in shillings for now
Neither of Achekam's invoice forms lets a business invoice in another currency. An export invoice raised in Achekam is therefore a shilling invoice, even if the contract with your buyer is priced in dollars or another currency.
If your contracts are priced in a foreign currency, agree with your accountant how you will convert them for the invoice, which rate you will use and how you will record the difference when the money arrives. Put the agreed contract currency and amount in the invoice description so the buyer can match it to the order.
A shilling invoice can be paid through M-Pesa, Pesapal, Paystack, Flutterwave, Peach or bank transfer. A gateway that does not settle the invoice's currency is refused. For a buyer abroad, bank transfer or a card gateway is usually the practical route; agree it before you ship.
Records to keep for each export
The zero rate rests on evidence that the supply qualified. Your adviser will tell you exactly what KRA expects for your kind of export, but a sensible file for each shipment holds:
- the sales invoice, coded zero-rated, with its eTIMS details;
- the customer's order or contract;
- the customs export documents for the shipment;
- the transport document showing the goods left Kenya, or delivery into the EPZ, or loading onto the named vessel;
- proof of payment from the buyer;
- for EPZ customers, the confirmation of their status.
Keep these together, by shipment, and keep them for as long as the year can be assessed.
Build the file while the shipment is happening, not when someone asks for it. Customs entries and transport documents are easy to collect in the week the goods leave, and surprisingly hard to find two years later, when the forwarding agent has changed staff or systems and the buyer has moved on to other suppliers.
Before the first export invoice
- Confirm with your adviser that the supply is zero-rated, and under which item.
- Set the line's tax code to zero-rated, not exempt.
- Decide how you will convert a foreign-currency price into shillings.
- Agree the payment route with the buyer.
- Open a file for the shipment and fill it as the documents arrive.
Getting the first one right sets the pattern for every shipment after 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.
