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The Finance Bill 2025 is shaking things up in the Kenyan tax world, especially for businesses navigating the Value Added Tax (VAT) system. While the amendments may seem technical, they carry big implications for how companies manage invoicing, digital services, refunds, and cash flow.

Let’s unpack the most critical changes, what they mean in plain language, and how to stay ahead of the curve.

Tax Invoices Now Required for All Supplies

What’s changing?
Previously, only taxable supplies required a tax invoice. Exempt supplies? Not part of the deal. But under the new proposal, all supplies, including those exempt from VAT, will now require a tax invoice.

Why it matters:
This change demands a rethink of your invoicing system. If you’re dealing with both taxable and exempt supplies, you’ll now need to standardize how invoices are issued across the board.

Business impact:

• Increased administrative tasks
• Possible software upgrades for invoicing
• Higher risk of non-compliance if overlooked

Clarifying the “Place of Supply” for VAT

What’s this about?
The amendment tightens the definition of “place of supply,” especially when it comes to electronic services like digital broadcasting. According to Section 8(3)(g) of the VAT Act, services like streaming or internet-based television are now fully within the Kenyan VAT scope.

Bottom line:
If you’re providing digital services from abroad to customers in Kenya, you might now be liable for VAT in Kenya.

Say Goodbye to VAT Credit Offsets

What’s the current rule?
If your business had excess withholding VAT, you could offset that surplus against income tax or other obligations. Convenient, right?

What’s changing?
This option is going away. The amendment removes the cross-offset privilege. Now, you’ll only be able to claim a refund for any excess VAT credits.

Implications:

• Less flexibility in managing tax dues
• Potential cash flow hiccups
• Need to monitor refund timelines closely

VAT Refund Timelines Cut to 12 Months

Currently, there’s a bit of a mismatch:

• VAT Act: 24 months to file for a refund
• Tax Procedures Act (TPA): 12 months

The amendment seeks to unify and shorten this to 12 months.

So if you’ve got a refund to claim, don’t delay – your window just got smaller.

Faster Relief for Bad Debt Refunds

Under the current law, you can claim VAT refunds on bad debts only after 3 years of non-payment. The new bill proposes to shorten that period to 2 years.

Bonus change: You can now apply approved bad debt refunds not just to future VAT, but also to outstanding VAT obligations.

Translation?
You get to clean up your tax books faster and manage your obligations better.

Frequently Asked Questions

1. Will exempt supplies now attract VAT?
No, exempt supplies remain exempt. The change only requires that they be documented with a tax invoice.

2. Who is affected by the “place of supply” amendment?
Mainly digital service providers, especially those based outside Kenya offering services to Kenyan customers.

3. Can businesses still offset excess VAT credits against income tax?
Not anymore. That option is being removed. You’ll need to apply for a direct VAT refund instead.

4. When do these changes take effect?
Once the Finance Bill 2025 is passed into law. You’ll want to be prepared ahead of time.

Useful External Resources

• Kenya Revenue Authority (KRA) – VAT Guidelines

Stay Ahead with Proactive Tax Management

Regular tax health checks are an essential part of a strong financial strategy. By proactively addressing tax compliance issues, businesses can minimize risks, improve financial planning, and maintain a strong reputation with tax authorities.

Connect to Possibility with UHY Kenya. Let us help you safeguard your business with expert tax compliance solutions.

For more information, contact us today.

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