VAT Threshold
VAT Threshold Kenya 2026: Is It KES 5 Million or 8 Million?
· Updated for Finance Act 2026
The VAT registration threshold in Kenya is KES 8 million in annual turnover as of the Finance Act 2024, confirmed under the Finance Act 2026. This is the amount at which mandatory VAT registration is triggered. However, the KES 5 million threshold still matters — it is the minimum turnover required for voluntary registration. Here is exactly how the two thresholds work in practice.
Quick Answer
8 million is the mandatory threshold. 5 million is the voluntary threshold. If you are below 5 million, you cannot register. Between 5 and 8 million, you may register voluntarily. Above 8 million, you must register.
Why Two Thresholds?
The Finance Act 2024 raised the mandatory VAT registration threshold from KES 5 million to KES 8 million, effective 1 September 2024. The change was intended to reduce the compliance burden on small businesses. However, the KES 5 million minimum for voluntary registration was retained so that businesses below the mandatory threshold could still choose to register if it benefited them.
The practical result is a three-tier system:
| Annual Turnover | VAT Status | What to Do |
|---|---|---|
| Below KES 5 million | Cannot register | Cannot register for VAT. Pay turnover tax or income tax as applicable. You cannot charge VAT on your invoices. |
| KES 5 million to 8 million | Voluntary registration | May register voluntarily. Evaluate whether your customers (B2B) need VAT invoices. If B2C-only, registration may not be beneficial. |
| Above KES 8 million | Mandatory registration | Must register within 30 days of exceeding the threshold. Charge 16% VAT, file monthly returns, use eTIMS. |
Should You Register Voluntarily? (KES 5M–8M)
Registering voluntarily adds compliance obligations (monthly filing, eTIMS, VAT charge on invoices). It is beneficial when:
- Your customers are VAT-registered businesses — they can claim input VAT on your invoices, making you a preferred supplier over non-registered competitors
- Your input VAT on purchases is significant — if you pay substantial VAT on rent, stock, equipment, or services, you can claim it back
- You want to avoid a future scramble — if you expect to cross KES 8 million soon, registering earlier gives you a smoother transition
- Industry norms favour it — in some sectors (construction, IT services, professional services), being VAT-registered signals credibility
Voluntary registration may not be beneficial when:
- Your customers are individuals (B2C) — they cannot claim input VAT, so VAT-registered pricing is just more expensive to them
- Your input VAT is low — if you buy mostly from non-VAT-registered suppliers (common for service businesses), you cannot claim much back
- You want to minimise compliance overhead — monthly filing, eTIMS invoicing, and stock reports add ongoing costs
How the Threshold Is Calculated
Annual turnover for threshold purposes is the total value of your taxable supplies in any 12-month period. This includes:
- All sales of goods and services at the standard rate (16%)
- Zero-rated supplies (0%) — these count toward the threshold even though no VAT is charged
- Exempt supplies do not count toward the threshold
- Turnover is measured excluding VAT itself
KRA uses both historical actuals (what you earned in the past 12 months) and forward projections (your expected turnover for the next 12 months). If either exceeds KES 8 million, you must register.
What Happens If You Cross the Threshold
- Register within 30 days of the month you crossed KES 8 million. Late registration attracts penalties
- Start charging 16% VAT on your invoices from the date of registration. KRA may charge VAT from the date you should have registered if you delay
- Onboard eTIMS within 30 days of registration (KES 50,000/month penalty for late onboarding)
- File monthly VAT returns by the 20th of each month
We handle the full registration process for KES 5,000 — including iTax application, PIN generation, and eTIMS onboarding guidance.
Related Resources
- How to Register for VAT in Kenya — Step-by-step registration guide
- Do I Need to Register for VAT? — Decision guide for SMEs
- VAT vs Turnover Tax — Comparison for small businesses
- Small Taxpayer Regime Guide — 8% turnover-inclusive option
- Finance Act 2026 VAT Changes — All VAT changes including threshold updates
- VAT Registration Service (KES 5,000) — We register you in 1–3 working days