VAT Bad Debt Relief Kenya 2026: Guide for Unpaid Invoices

If your customer does not pay, you can claim back the VAT you already remitted on that unpaid invoice — this is called VAT bad debt relief. The Finance Act 2026 extended the waiting period from 2 years to 3 years, unless the customer enters statutory management, receivership, or liquidation, in which case you can claim immediately.

How Bad Debt VAT Relief Works

When you issue a VAT invoice to a customer, you must remit the VAT to KRA regardless of whether the customer pays you. If the customer defaults, you have paid VAT to KRA on income you never received. Bad debt relief allows you to reclaim that VAT.

Example:

• You invoice a customer KES 116,000 (KES 100,000 + KES 16,000 VAT)
• You remit the KES 16,000 VAT to KRA on your monthly return
• The customer defaults and never pays
• After 3 years (or earlier if the customer goes into liquidation), you claim back the KES 16,000

Qualifying Conditions

• Taxable supply: The debt must arise from a standard-rated (16%) or zero-rated (0%) supply. Exempt supplies do not qualify
• eTIMS-compliant invoice: You must have issued a valid eTIMS invoice for the supply
• VAT accounted for: You must have already remitted the VAT to KRA on your return
• Waiting period: 3 years from the date of supply (extended from 2 years by Finance Act 2026), unless the customer enters statutory management, receivership, or liquidation
• Recovery attempts: You must have taken reasonable steps to recover the debt
• Written off: The debt must be written off as irrecoverable in your accounting records
• Not a related party: The customer must not be a related party to you

Key Change Under Finance Act 2026

The bad debt relief waiting period was extended from 2 years to 3 years. This means:

• For supplies made before 1 July 2026 where 2 years have already passed, the old 2-year rule likely applies — check with a tax advisor
• For supplies made on or after 1 July 2026, you must wait 3 years before claiming unless the customer's financial distress accelerates the timeline
• The immediate claim trigger for customers in statutory management, receivership, or liquidation remains unchanged — this is not affected by the extension

How to Apply

1. Ensure the debt qualifies under all conditions above
2. Prepare supporting documents: original eTIMS invoice, proof of VAT remittance, evidence of recovery attempts (demand letters, emails, legal notices), debt write-off confirmation from your accounting records, declaration that the customer is not a related party
3. Log in to iTax and navigate to the bad debt relief application section
4. Submit the application with all supporting documents attached
5. KRA reviews and issues a decision — if approved, the refund is processed or offset against future VAT liabilities

What If the Customer Later Pays?

If the customer pays you (even partially) after you received the bad debt refund, you must repay the refunded VAT to KRA on your next VAT return. This is a straight reversal: you received KES 16,000 as a refund, the customer pays you KES 116,000, you remit KES 16,000 back to KRA.

Related Resources

• VAT Refund Guide Kenya — General VAT refund process and documentation
• Finance Act 2026 VAT Changes — All VAT-related changes including bad debt relief timeline
• Monthly VAT Filing Service (KES 3,500/month) — We handle returns, refund claims, and compliance