Guide — VAT Rates
VAT Rates in Kenya 2026 — Standard (16%), Zero-Rated & Exempt
Kenya operates a three-tier VAT system. Most goods and services attract the standard rate of 16%. Some are zero-rated at 0% (exports, unprocessed foods, agricultural inputs), while others are exempt (financial services, residential rent, education). Getting the rate right is critical — errors can mean overpaying tax or facing KRA penalties. This guide covers each rate with full lists and practical examples.
Kenya's Three VAT Rates
The VAT Act, Cap. 476 (as amended by the Finance Act 2025 and Finance Act 2026) establishes three categories of VAT treatment for supplies of goods and services in Kenya. Every supply falls into exactly one category, determined by its nature and the schedules to the Act.
Getting the classification right is one of the most common compliance challenges. A misclassified supply — for example, treating a standard-rated item as zero-rated — can result in KRA audit adjustments, penalties, and interest. If in doubt, you can consult KRA for a private ruling, or seek professional advice.
Not sure if you need to register? See our VAT registration guide for the KES 5 million threshold, voluntary registration, and registration requirements for non-residents.
Standard Rate (16%)
The standard rate of 16% applies to all supplies of goods and services in Kenya that are not specifically zero-rated or exempt under the VAT Act. This is the default rate — if a supply is not listed in the First Schedule (zero-rated) or Second Schedule (exempt), it is standard-rated.
What is subject to 16% VAT?
Electronics & appliances
TVs, laptops, smartphones, refrigerators, washing machines
Motor vehicles & parts
New and used cars, motorcycles, tyres, batteries, spare parts
Furniture & home goods
Sofas, beds, cabinets, curtains, kitchenware
Processed foods & beverages
Bottled drinks, packaged snacks, confectionery, cooking oil, bread
Hotel & hospitality
Room charges, restaurant meals, conference facilities, event catering
Professional services
Legal fees, accounting services, consulting, architectural, engineering
Construction materials
Cement, steel, roofing sheets, paint, plumbing fixtures, timber
Telecommunications & internet
Mobile airtime, data bundles, internet subscriptions, phone charges
Clothing & footwear
Shoes, shirts, suits, uniforms, textile products
Marketing & advertising
Print, digital, radio, TV ads, promotional materials
Vehicle repair & maintenance
Garage services, mechanic labour, spare parts fitting
Real estate (commercial)
Commercial property rent, sale of commercial buildings
Payment processing (from July 2026)
Merchant fees, gateway fees, aggregation, settlement services
General retail
Most goods bought in retail stores, supermarkets, and shops
Practical example: If you run a retail electronics shop and sell a laptop for KES 100,000, you charge the customer KES 116,000 (including KES 16,000 VAT). You remit KES 16,000 to KRA less any input VAT you claimed on the purchase of the laptop from your supplier.
Zero-Rated Supplies (0%)
Zero-rated supplies are taxable supplies charged at 0%. You must still issue a tax invoice and include the supply in your VAT return — but no VAT is charged to the customer. Crucially, you can claim input VAT on costs related to making zero-rated supplies and apply for refunds from KRA if you have excess input tax.
Full list of zero-rated supplies (VAT Act First Schedule)
- Exports of goods and services — any goods or services exported from Kenya
- Unprocessed agricultural products — maize, wheat, rice, barley, sorghum, millet, fresh milk, potatoes, beans, peas, fresh fruits and vegetables, unprocessed meat and fish, eggs, honey
- Agricultural inputs — fertilisers, pesticides, herbicides, fungicides, seeds and seedlings, animal feeds and feed ingredients
- Pharmaceuticals and medical supplies — prescription medicines, medical equipment and apparatus, surgical instruments, laboratory reagents
- Books, educational materials, and printed materials — textbooks, exercise books, newspapers
- Goods supplied to EPZ and SEZ enterprises — goods supplied to Export Processing Zones and Special Economic Zones
- Aircraft, aircraft engines, and spare parts — for use in air transport
- Goods supplied to diplomatic missions — accredited diplomats and international organisations
- International transport services — international freight and passenger transport
- Tea and coffee packaging materials — packaging materials for tea and coffee (added by Finance Act 2025)
- Supplies to registered pharmaceutical manufacturers — raw materials and inputs for pharmaceutical manufacturing
- Supply of taxable goods to manufacturers of agricultural machinery — inputs for making agricultural equipment
- Services rendered outside Kenya — services physically performed outside the country
Practical example: If you export fresh flowers worth KES 500,000, you issue an invoice at 0% VAT. You can claim input VAT on packaging materials, cold storage, transport, and other costs. If your input VAT on these costs is KES 30,000, you can apply for a refund from KRA.
Zero-rated does not mean exempt
Many businesses mistakenly treat zero-rated supplies as exempt. They are not. You must still issue a tax invoice, include the supply in your VAT return, and you have the right to claim input VAT. Filing nil returns when you have zero-rated supplies means you are missing out on legitimate input VAT recovery.
Exempt Supplies
Exempt supplies are not subject to VAT at all. You do not charge VAT on exempt supplies, but you also cannot claim input VAT on costs related to making exempt supplies (with narrow exceptions such as supplies to KDF, NIS, and NPS under the Finance Act 2026). This makes exempt treatment a true cost to the business — the VAT you pay on inputs is not recoverable.
Full list of exempt supplies (VAT Act Second Schedule)
Financial services
Insurance, reinsurance, lending, credit facilities, issuance of securities, foreign exchange transactions (but NOT payment processing services — now 16% VAT)
Residential rent
Letting of residential premises for dwelling purposes. Landlords of residential property cannot charge VAT or claim input VAT
Education services
Tuition fees at registered educational institutions, training services, and educational materials supplied by the institution
Medical, dental, and hospital services
Services provided by registered medical practitioners, hospitals, clinics, dentists, and opticians
Public transport services
Matatu, bus, and railway passenger transport within Kenya (excluding tour vehicles and hired cars)
Funeral services
Burial and cremation services, coffins, and related funeral supplies
Betting, gaming, and lotteries
Gambling services, sports betting, lottery tickets, and casino operations
Supply of land
Sale of land (not including construction services or building materials)
Goods imported for official government use
Imports by the Government of Kenya for official purposes
Goods imported by registered NGOs
Goods imported by registered NGOs for donation to charitable institutions
Mosquito repellent products
Reclassified from 16% to exempt effective 1 July 2025
Supplies to KDF, NIS, NPS, DEFWES
Exempt, but input VAT on related costs is recoverable (Finance Act 2026 exception)
Important: If you make both taxable and exempt supplies (mixed supplies), you must apportion input VAT. The 90:10 rule was removed by the Finance Act 2025 — you can no longer claim full input VAT even if exempt supplies are under 10% of turnover. See our Input VAT Deduction Guide for the apportionment formula.
Quick Reference: Kenya VAT Rate Comparison
| Feature | Standard Rate | Zero-Rated | Exempt |
|---|---|---|---|
| Rate | 16% | 0% | No VAT |
| Charge VAT on invoice? | Yes — 16% | Yes — but at 0% | No |
| Issue tax invoice required? | Yes | Yes | Generally no (but best practice) |
| Include in VAT return? | Yes | Yes | No (unless for apportionment) |
| Claim input VAT on costs? | Yes | Yes | No (narrow exceptions) |
| Apply for VAT refund? | Yes (if excess input) | Yes (if excess input) | No |
| Type of supply | Taxable supply | Taxable supply at zero rate | Not a taxable supply |
| Common examples | Retail goods, electronics, hotel, services, processed food | Exports, unprocessed food, pharma, agricultural inputs | Financial services, residential rent, education, medical |
Rate Guides by Industry
The VAT rate applicable to your business depends heavily on what you supply and who your customers are. These industry-specific guides cover rate classification in detail:
Restaurants & Hospitality
Meals, drinks, accommodation, event catering — which items are 16% vs zero-rated?
Fintech & Digital Payments
Payment processing, merchant fees, mobile money — now 16% VAT under Finance Act 2026
Importers
Import VAT at 16%, customs valuation, duty + VAT calculation, and deferment options
Landlords & Property
Residential rent (exempt) vs commercial rent (16%), input VAT on construction and maintenance
Digital Services
E-books, streaming, software downloads, SaaS, online advertising, digital broadcasting
Labour Outsourcing
Staff placement, temp labour — employee costs are disbursements, not subject to VAT
How to Get the Rate Right
Classifying your supplies correctly is the foundation of VAT compliance. Here is a simple checklist to apply when determining the correct VAT rate:
- Is the supply listed in the First Schedule (zero-rated)? If yes, apply 0%.
- If not, is it listed in the Second Schedule (exempt)? If yes, do not charge VAT, but remember you cannot claim input VAT.
- If it is in neither schedule, it is standard-rated at 16%. Charge VAT and issue a tax invoice.
- For mixed supplies (multiple items in one transaction), apply the correct rate to each item separately.
- If you export goods or services, ensure you have documentary proof of export (bill of lading, airway bill, customs export declaration).
- If you supply to an EPZ or SEZ enterprise, obtain their valid EPZ/SEZ certificate to support zero-rating.
- Review your product or service descriptions against the VAT Act Schedules each year — the lists change with each Finance Act.
- If uncertain, apply for a KRA private ruling or consult a tax professional.
Need to calculate VAT? See our How to Calculate VAT in Kenya guide for worked examples of VAT exclusive, inclusive, and input/output VAT calculations.
Frequently Asked Questions
- What is the standard VAT rate in Kenya?
- The standard VAT rate in Kenya is 16%. This rate applies to most supplies of goods and services unless they are specifically classified as zero-rated (0%) or exempt under the VAT Act. Examples include electronics, motor vehicles, hotel accommodation, professional services, construction materials, and processed foods.
- What is the difference between zero-rated and exempt supplies in Kenya?
- The key difference is input VAT recovery. Zero-rated supplies (0%) are taxable at 0% — you still charge VAT on your invoice but at 0%, and you CAN claim input VAT on related costs and apply for refunds if you have excess input tax. Exempt supplies have no VAT charged at all, but you CANNOT claim input VAT on costs related to exempt supplies, making it a true cost to your business. This distinction is crucial for pricing and profitability.
- Can I claim input VAT on zero-rated supplies?
- Yes. Zero-rated supplies are taxable supplies at 0%. This means you must still issue a tax invoice, include the supply in your VAT return, and you can claim input VAT on purchases related to making zero-rated supplies. If your input VAT exceeds your output VAT, you can apply for a VAT refund from KRA.
- What goods are zero-rated in Kenya?
- The VAT Act First Schedule lists zero-rated supplies, including: exports of goods and services, unprocessed agricultural products (maize, wheat, rice, fresh milk, potatoes, beans), agricultural inputs (fertilisers, pesticides, seeds, animal feeds), pharmaceuticals and medical supplies, books and educational materials, goods supplied to EPZ and SEZ enterprises, tea and coffee packaging materials, aircraft and spare parts, goods supplied to diplomatic missions, and international transport services.
- Is food zero-rated or exempt in Kenya?
- It depends on the type of food. Unprocessed agricultural products (raw maize flour, fresh milk, fresh fruits and vegetables, unprocessed meat and fish) are generally zero-rated. Processed and packaged foods (bottled drinks, packaged snacks, confectionery, restaurant meals) are subject to the standard 16% VAT rate. Food supplied as part of restaurant or catering services is subject to 16% VAT.
- Are financial services exempt from VAT in Kenya?
- Most financial services are exempt from VAT, including insurance, lending, and banking services. However, payment processing, settlement, merchant acquiring, gateway, and aggregation services supplied over a software platform were reclassified from exempt to taxable at 16% effective 1 July 2026. Fintech companies and payment service providers must now charge 16% VAT on their fees.
- Do I charge VAT on exports from Kenya?
- Exports of goods and services from Kenya are zero-rated (0%). This means you do not charge your customer 16% VAT, but you can still claim input VAT on costs related to the exported goods. This ensures Kenyan exporters are competitive internationally while still recovering VAT on their costs.
- Is residential rent subject to VAT?
- Residential rent (letting of residential premises for dwelling purposes) is exempt from VAT. Landlords receiving residential rental income do not charge VAT on rent, but also cannot claim input VAT on expenses related to the property. Commercial rent (rental of commercial property) is generally subject to 16% VAT if the landlord is VAT-registered.
- How do I know if my supply is zero-rated or exempt?
- Consult the VAT Act Schedules. Zero-rated supplies are listed in the First Schedule (Section 6 of the VAT Act). Exempt supplies are listed in the Second Schedule (Section 7 of the VAT Act). If your supply is not listed in either schedule, it is subject to the standard rate of 16%. When in doubt, seek professional advice — misclassifying a supply can lead to penalties, interest, and KRA audit adjustments.