What is VAT?

VAT is an indirect tax that is paid by the person who consumes taxable goods and taxable services supplied in Kenya and/or imported into Kenya. VAT on goods and services supplied in Kenya is collected at designated points by VAT registered persons who act as the agents of the Government.

Who must pay VAT?

VAT registration is required for persons making or expecting to make taxable supplies of over KES 5 million in a 12-month period. In determining the registration threshold, the sale of capital assets is excluded. A person making taxable supplies below the registration threshold may voluntarily apply for VAT registration upon meeting the set requirements.

The Value Added Tax (Digital Marketplace Supply) Regulations, 2020, which seek to operationalise the collection of VAT on digital marketplace supplies as provided for in the VAT Act, are now published. The regulations provide clarity on the nature of supplies subject to VAT, at the standard rate of 16%, when supplied through a digital marketplace.

Here is the link from the Kenya Portal.

https://www.kra.go.ke/individual/filing-paying/types-of-taxes/value-added-tax

Why am I being charged VAT?

Freshworks provides Software-as-a-Service that falls within the rules concerning Digital Services in Kenya.  As such, Freshworks is required to collect Kenya VAT on all supplies made to customers in Kenya.

How is Freshworks determining which customers Kenya VAT applies to?

According to Kenya Revenue Authority any person supplying or who expects to supply taxable goods and taxable services with a value of Kshs 5 million or more in a year is required to register for VAT to which Freshworks will abide.

Does Freshworks provide VAT exempt or non-Vatable services?

The digital products provided by Freshworks to customers in Kenya are subject to Kenya VAT at the standard rate.

Are there any special exemptions applicable for charities under which VAT may not be charged?

There is no general exemption from Value-Added Tax (VAT) for charities.

Will VAT apply even if a Kenya company provides a valid VAT number to Freshworks?

Yes, Freshworks will still collect VAT. Kenya does not exempt you from the tax if you provide your VAT ID.

 

Disclaimer

Every customer is unique and so are their specific tax circumstances. The above stated information should not be considered as tax advice, but as a general overview of relevant tax rules. Freshworks cannot provide you with tax advice for your individual situation, and therefore we strongly recommend speaking with a professional tax advisor for tailored advice.