Kenyan advisory firms that belong to international groups often invoice a foreign parent or sister company rather than the client on the ground. The usual assumption is that a service billed abroad is an export and carries no Kenyan VAT. Under the Value Added Tax Act, 2013 that is only true if the service is actually used or consumed outside Kenya, and who pays the invoice does not settle that question. This article explains the rule, how it applies to intra-group advisory work, and how to document the position.
The rule: exported services are zero-rated
Under section 7(2) of the VAT Act, a supply is zero-rated if it is of a description specified in the Second Schedule. Paragraph 23 of the Second Schedule lists “the exportation of taxable services”. The current wording comes from the Finance Act, 2023 (Act No. 4 of 2023), and it remains in the Act as consolidated on Kenya Law to 1 July 2026. The treatment of exported services had shifted several times in the years before that, which is one reason older advice on this point should be rechecked.
Zero-rating matters because of section 7(1): no VAT is charged on a zero-rated supply, but it is otherwise treated as a taxable supply. A registered supplier can therefore charge 0% and still claim credit for the input tax it incurs under section 17, subject to the Act’s conditions. An exempt supply, by contrast, carries no VAT but also no input credit.
What makes a service “exported”
Section 2 defines a “service exported out of Kenya” as a service provided for use or consumption outside Kenya. The test is about where the service is used or consumed. It is not about:
- where the customer is incorporated;
- which entity signs the contract or pays the invoice; or
- what currency the fee is paid in.
Separately, section 8(1) provides that a supply of services is made in Kenya if the supplier’s place of business from which the services are supplied is in Kenya. A Nairobi firm advising from Nairobi is therefore making its supply in Kenya. The only question is whether that supply qualifies for zero-rating as an export.
Applying the test to group advisory work
Consider three common arrangements.
Advice used offshore. A Kenyan subsidiary prepares market research for its Dutch parent, which uses it to decide on investments in other countries. The service is used outside Kenya and has a strong claim to zero-rating.
Advice about a Kenyan business, billed abroad. A Kenyan subsidiary advises a Kenyan company on raising capital, but the mandate is signed and paid by the foreign parent, which then charges the client or earns a fee from the deal. The work is about a Kenyan business, delivered to people in Kenya, and its benefit lands in Kenya. On the plain words of section 2, it is difficult to say this service is used or consumed outside Kenya, even though the invoice goes abroad.
Mixed work. A Kenyan team supports a fundraising for an offshore holding company whose only asset is a Kenyan operating company. Arguments exist both ways, and the answer depends on what the service actually is and who benefits from it. Mixed mandates should be broken down, with the fee for each element tied to where it is consumed.
The safer working assumption is that advice concerning a Kenyan business, Kenyan assets or Kenyan regulatory obligations is consumed in Kenya unless there is a clear basis for saying otherwise.
Documenting a zero-rated position
Where a firm treats a service as exported, it will need to show that the service qualifies if the Kenya Revenue Authority questions it. In practice, the file should include:
- a written agreement with the foreign recipient that describes the service and where it will be used;
- evidence of what was delivered and to whom;
- evidence of the foreign recipient’s own use of the output outside Kenya; and
- consistent treatment in the intra-group agreement, the transfer pricing documentation and the VAT return.
Inconsistency is a common weakness. A transfer pricing file that describes the Kenyan entity as serving the Kenyan market sits uneasily with a VAT return claiming its services are consumed abroad. Our article on whether Kenya’s transfer pricing regime applies to a foreign-owned subsidiary covers the transfer pricing side.
The reverse flow: services bought from abroad
The same groups often move services the other way, with a foreign parent advising or managing the Kenyan entity. Section 10(1) treats a person who receives a supply of imported taxable services as having made a taxable supply to itself, so VAT is accounted for in Kenya under the reverse-charge mechanism. A registered recipient entitled to full input credit for that supply reduces its value to zero under section 10(2)(b), but the obligation still has to be reflected in its returns. Payments to the parent can also carry withholding tax, covered in our article on paying a foreign parent company from Kenya.
Practical steps
- List every service the Kenyan entity provides to group companies and identify where each is used.
- Separate offshore-use services from Kenya-facing services in the intra-group agreement and on invoices.
- Charge VAT at 16% on Kenya-facing services, and zero-rate only those with evidence of use outside Kenya.
- Align the VAT position with transfer pricing and income tax filings.
- Review the position whenever the group’s business model changes.
How We Can Help
Clay & Associates Advocates advises foreign-owned advisory and services businesses on structuring intra-group arrangements in Kenya, including the VAT treatment of cross-border services and how it interacts with licensing and corporate structure. Our article on how Kenya taxes a branch compared with a subsidiary is a useful starting point. Contact our Corporate & Commercial practice. For tax computations and filings, we work alongside your tax advisers.
Sources: Value Added Tax Act, 2013, sections 2, 7, 8, 10 and 17 and the Second Schedule, paragraph 23.
Frequently asked questions
Is a service billed to a foreign company automatically zero-rated in Kenya?
No. Zero-rating applies to a service provided for use or consumption outside Kenya. Billing a foreign entity does not by itself meet that test.
Are exported services zero-rated or exempt in Kenya?
Zero-rated. The exportation of taxable services is listed in the Second Schedule to the VAT Act, so no VAT is charged but input tax can generally be claimed.
What VAT applies to advice about a Kenyan company paid by its foreign parent?
Advice about a Kenyan business is likely to be treated as consumed in Kenya, so 16% VAT should be expected unless there is a clear basis for zero-rating.
Does Kenyan VAT apply when the foreign parent provides services to the Kenyan subsidiary?
Yes, through the reverse charge on imported services in section 10 of the VAT Act.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
