In Kenya, e-invoicing is becoming increasingly prevalent, with the government mandating VAT-registered businesses to adopt a compliant Electronic Tax Register (ETR) to record their transactions.
E-invoicing is mandatory for VAT-registered taxpayers who must adopt a compliant Electronic Tax Register (ETR) to transmit tax invoice data. To confirm validity, a valid electronic tax invoice must include key features such as a buyer PIN, control unit serial and invoice numbers, and a QR code.
Failure to comply with e-invoicing regulations could cause fines, imprisonment, and other legal consequences.
This article covers everything you need to know about the electronic tax invoice requirements in Kenya, including compliance requirements, the timeline for implementation, and the characteristics of a valid electronic tax invoice. In addition, we offer practical tips on how businesses can send compliant e-invoices.
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Is e-invoicing mandatory in Kenya?
E-invoicing is not mandatory for all taxpayers in Kenya. Only VAT (value-added tax) registered taxpayers are legally required to use a tax register according to the VAT (ETI) Regulations (2020) and the VAT Act (2013).
Even if a business' billing system is fully automated, it must still adopt a compliant Electronic Tax Register (ETR) to issue tax invoices.
What’s the timeline for e-invoicing compliance?
As of March 2023, the deadline for using the electronic tax invoice system in Kenya has already passed. The twelve-month transition period began in August 2021 and ended on July 31, 2022.
The Kenya Revenue Authority (KRA) had extended the deadline for compliance to September 30, 2022, according to a public notice issued on August 1, 2022. Therefore, businesses must comply with the Tax Invoice Management System (TIMS) requirements to avoid potential penalties or fines.
Non-compliance with these regulations can attract penalties of up to Kshs 1 million in fines, imprisonment of up to three years, or both. VAT-registered taxpayers can only claim input tax and refunds using TIMS-compliant tax invoices.
What is TIMS?
The Tax Invoice Management System (TIMS) facilitates electronic tax invoice management. The e-invoicing system is an improved version of the current Electronic Tax Register (ETR) system in place since 2005.
It has many benefits, including standardized electronic invoice management, improved validation of data, and real-time or near real-time transmission of invoices to the Kenya Revenue Authority (KRA).
TIMS streamlines invoicing and tax collection, making it easier for businesses to comply with tax laws and reducing the likelihood of errors or fraudulent activity.
What else do I need to know?
Taxpayers must still withhold VAT as per Section 25A of the VAT Act 2013, even using e-invoicing. Traders will continue to issue invoices as usual and use their Withholding VAT credits in their respective VAT returns every month.
However, introducing electronic tax invoices does not affect the requirement for VAT withholding or the process for utilizing withholding VAT credits.
Failure to deduct or remit Withholding Tax is an offense under Kenyan tax laws. The penalty for this offense is 10% of the tax involved, up to a maximum of Kshs 1 million.
Therefore, taxpayers must comply with all the relevant tax laws, including those related to e-invoicing and withholding tax, to avoid penalties and fines.
How to send compliant e-invoices in Kenya?
A VAT-registered taxpayer can comply with the electronic tax invoice by adopting a compliant ETR (Electronic Tax Register). Once you activate your ETR, you can validate and transmit compliant e-invoices to the KRA.
We’ll cover the key features of a compliant e-invoice later. First, check out the steps to send compliant e-invoices below.
1. Get your compliant ETR
Check the KRA website for the list of approved ETR suppliers and get a compliant Electronic Tax Register.
A compliant ETR must have these functionalities:
- Before issuing the e-invoice to the customer, the registered trader must check the tax invoice data, including the tax rate, taxable value, total tax, and total gross amount, to ensure accuracy and compliance with tax laws.
- The tax register must be capable of transmitting validated tax invoices to the Kenya Revenue Authority (KRA) over the internet in real-time or near real-time.
- The ETR should generate a unique QR code and invoice number for every invoice or receipt, which helps to confirm its authenticity and avoid fraudulent activities.
- Finally, compliant ETRs can generate credit and debit notes and correct or amend an invoice if necessary.
What are my options for getting an ETR?
You can choose an integrated tax register with built-in functionality to validate, generate, and transmit tax invoices to the Kenya Revenue Authority (KRA).
Alternatively, you could opt for an independent tax register that's connected to your invoicing system to validate and transmit tax invoices to the KRA, such as an upgraded Electronic Signature Device (ESD).
Another option is a centralized tax register connected to more than one cashier till (one - many).
Different Electronic Tax Registers (ETRs) are available to suit various business needs.
Types of ETRs
- Type A ETRs are ideal for small businesses that use manual record-keeping systems or make sales while on the go, such as van sales because they are portable.
- Type B ETRs are suitable for retail outlets and shops that use point-of-sale terminals.
- If you have already automated your business operations and you use software billing systems or Enterprise Resource Planning (ERP) systems, then Type C ETRs may be the right fit.
- Lastly, Type D ETRs are versatile and can be used by many business entities.
Do I need a new ETR?
Whether you need to purchase a new ETR device depends on an assessment of your current device or invoicing system, as advised by the ETR supplier.
For example, if you replace your current tax register, you must keep the previous register’s records for five years, per the Tax Procedures Act, 2015.
2. Activate the ETR
Once you have a compliant ETR, you must activate the device through ITax to validate and transmit invoices to the KRA. To do that, the ETR supplier will submit the details of the ETR and your VAT details to KRA (through ITax). After registration, the KRA will authenticate the details.
Once authenticated, ITax will send you an automated email to confirm the details of your VAT and the ETR associated with your VAT.
To activate the ETR, respond to the confirmation email from ITax to acknowledge that the information is correct.
3. Start transmitting compliant invoices
After the KRA receives your acknowledgment email, they will activate your ETR. You can start validating and transmitting compliant invoices in real time using your ETR.
Whenever your ETR generates an invoice, it will automatically transmit it to the KRA as long as you have an internet connection.
If you're unsure how to generate a valid electronic tax invoice or have questions about compliance, Storecove’s e-invoicing experts are ready to help.
Characteristics of the electronic invoice in Kenya
For your electronic tax invoice to be valid, it must have the following features:
- Buyer PIN (optional): This refers to the PIN of the purchaser, and its capture is only applicable when they intend to claim input tax for the VAT paid. In such a case, the buyer should provide their PIN details.
- Control Unit serial number: This is a unique number issued by the Kenya Revenue Authority (KRA) to identify the ETR.
- Control Unit invoice number: The ETR generates this unique number upon issuance of each tax invoice.
- Quick Response (QR) code: This is included in the tax invoice to confirm validity.
A valid tax invoice/receipt should have the following details:
- Total Gross Amount
- Description of goods/services
- Time and Date of the Invoice
- Quantity of supply
- PIN and Name of trader
- Total Tax Amount
- Tax Rate
- Unit cost
What should businesses do to comply with the e-invoice regulations in Kenya?
To send compliant e-invoices in Kenya, VAT-registered traders must adopt a compliant Electronic Tax Register (ETR) from an approved ETR supplier to record their transactions.
A compliant Electronic Tax Register has functionalities like checking the invoice details (such as tax rate, total tax, taxable value, and total gross amount) before issuing the tax invoice to the customer.
Businesses should also transmit validated tax invoices to the KRA over the internet on a real-time or near-real-time basis.
A valid electronic tax invoice must include critical features, such as a buyer PIN, control unit serial number and invoice number, and a Quick Response (QR) code to confirm its validity.
By following these requirements, you can ensure that your e-invoices comply with Kenyan tax laws.
Takeaway: Start sending compliant e-invoices with Storecove
As of July 31, 2022, all VAT-registered taxpayers in Kenya must adopt a compliant Electronic Tax Register (ETR) to record their transactions and send compliant e-invoices.
To ensure compliance, businesses must have compliant ETRs with functionalities like checking the invoice details, transmitting validated tax invoices to the KRA, and generating a unique QR code and invoice number for every invoice or receipt.
Getting a compliant ETR is your first step to generating compliant e-invoices in Kenya. If you have questions about compliance, Storecove's e-invoicing experts can help. Contact us to speak with a specialist today.
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