Does Your NGO Need to Register for VAT?
Many NGOs assume they are exempt from VAT registration because their work is charitable. The Kenya VAT Act treats NGOs like any other business for registration purposes: if your annual taxable turnover exceeds KES 5 million, you must register.
The key distinction: VAT registration and VAT exemption on supplies are separate things. Your NGO may be required to register for VAT even if all the services it provides are exempt from VAT. KRA needs you registered so you can report your exempt turnover on monthly returns.
| Scenario | Must Register? | Can Claim Input VAT? |
|---|---|---|
| NGO with exempt supplies only, turnover < KES 5M | No | No |
| NGO with exempt supplies only, turnover > KES 5M | Yes | No (exempt supplies) |
| NGO with taxable supplies (e.g. consultancy fees) | Yes, at KES 5M | Yes, on taxable supplies |
| NGO registered and holding exemption certificate | Yes (if over threshold) | Only on taxable purchases |
VAT Exemptions Available to NGOs
Under the First Schedule (Part B) of the VAT Act 2013, certain goods imported or purchased by registered charities are exempt from VAT. These include:
- Medicines, vaccines, and pharmaceutical products
- Medical equipment, hospital furniture, and laboratory supplies
- Educational materials, books, and school equipment
- Agricultural inputs — seeds, fertilisers, pesticides, and farm machinery
- Food items for distribution in feeding programmes
- Vehicles designed or adapted for use by persons with disabilities
- Goods imported using funds from a recognised donor agency
The exemption is not automatic. Your NGO must obtain an exemption certificate from KRA before the transaction. Goods imported or purchased without prior approval are subject to the standard 16% VAT.
Grant-funded imports: If your NGO imports goods using funds from USAID, DFID, EU, UN agencies, or other recognised donors, you may qualify for a VAT and import duty exemption. The exemption applies to the goods, not the grant itself.
How to Get the KRA Exemption Certificate
The process for obtaining a VAT exemption certificate for an NGO involves submitting an application to KRA with supporting documentation:
- Certificate of registration as an NGO from the NGO Coordination Board
- KRA PIN certificate for the organisation
- Detailed list of goods to be imported or purchased with quantities and estimated value
- Proof of funding (donor agreement, grant letter, or funding commitment)
- Letter from the NGO explaining how the goods will be used for charitable purposes
- Any relevant project agreements or contracts with implementing partners
KRA takes 14 to 30 working days to process exemption certificate applications. Apply well before the planned import or purchase date. The certificate is typically valid for a single transaction or a specific project period.
Retroactive exemption is not possible
If your NGO imports goods and pays VAT without an exemption certificate, you cannot claim a refund later. The exemption must be approved before the transaction. Plan ahead.
Common VAT Mistakes NGOs Make
Assuming exemption is automatic
Many NGOs import goods and assume their charitable status exempts them from VAT. KRA requires a valid exemption certificate for every qualifying transaction. Without it, VAT is due.
Ignoring the VAT registration threshold
If your NGO has grant-funded activities exceeding KES 5 million in annual turnover, you must register for VAT. Failure attracts penalties of KES 100,000 or more.
Filing nil returns incorrectly
NGOs that are VAT-registered but make only exempt supplies must still file monthly nil returns. Missing a return triggers a KES 10,000 late filing penalty.
Claiming input VAT on exempt supplies
VAT-registered NGOs cannot claim input VAT on purchases used to make exempt supplies. This is a common audit finding that results in VAT assessments plus penalties.
Letting the exemption certificate expire
Exemption certificates have a limited validity period. NGOs that continue importing without renewing their certificate are charged VAT at the border.
Frequently Asked Questions
- Do NGOs have to register for VAT in Kenya?
- Yes, if your NGO's annual taxable turnover exceeds KES 5 million. The VAT exemption on certain supplies does not remove the obligation to register. Many NGOs registered as VAT persons must still file monthly returns — even if all their supplies are exempt — to report their exempt status.
- Can NGOs claim back VAT on purchases?
- Only if the NGO is registered for VAT and makes taxable (not exempt) supplies. NGOs that make wholly exempt supplies cannot register for VAT and cannot claim input VAT. However, NGOs can apply for VAT and import duty exemptions on donated goods through KRA's exemption certificate process.
- What goods are VAT-exempt for NGOs?
- Medicines, medical equipment, educational materials, agricultural inputs, and certain food items donated to registered charities can qualify for VAT exemption. The NGO must obtain an exemption certificate from KRA before importing or purchasing these goods. Without the certificate, standard VAT rates apply.
- Are donations to NGOs subject to VAT?
- Cash donations are not subject to VAT. Donations-in-kind (goods) may qualify for VAT exemption if the NGO holds a valid exemption certificate and the goods fall under the approved categories. Grants from donors are treated as income, not taxable supplies, and do not attract VAT.
- What is the penalty for an NGO claiming VAT exemption incorrectly?
- KRA can impose penalties of up to KES 100,000 per instance plus recovery of the VAT evaded, plus a 50% surcharge on audit adjustments. NGOs found to have misapplied exemptions risk losing their exemption certificate and being placed under enhanced compliance monitoring.