New VAT Act imposes VAT on various IP dealings

Kenya

The Value Added Tax Act (35/2013) took effect in Kenya on September 2 2013. Among a number of changes to the value added tax (VAT) regime, the act specifically provides for the imposition of VAT at the standard rate (currently 16%) on various dealings in intellectual property in Kenya, including “a transfer or assignment of, or grant of a right to use, a copyright, patent, trademark or similar right in Kenya”.  

The former VAT legislation did not make specific mention of IP transactions, which possibly led to the assumption that VAT was not chargeable. Further, as far as the author is aware, there were no claims by the tax authority for VAT to be imposed on these transactions, leading to the assumption that they were not taxable supplies for VAT purposes.

Under the current VAT law, in the context of a trademark assignment, for example, VAT is chargeable at 16% regardless of whether or not the assignor has a place of business in Kenya. The taxable value of the assignment on which VAT is charged is: 

  • the consideration for the supply; or 
  • if the supplier and recipient are related, the open market value of the supply.

Where the assignor has a place of business in Kenya, it is the assignor’s duty to remit the VAT charged to the taxing authority. Where the assignor does not have a place of business in Kenya and the assignment is to an unregistered person (invariably a consumer or a foreign-based business), VAT is due from the assignor, which is required to have a representative based in Kenya for the purposes of remitting VAT. Where the assignor does not have a place of business in Kenya and the assignee is a registered person (invariably a Kenya-based business), the assignment will be treated as an imported taxable service and VAT on the assignment will be due from the assignee.

There are, as yet, no regulations or directions from the tax authority in respect of collection and remittance of VAT on IP transactions. However, it is expected that there will be closer monitoring and sharing of information between the IP offices and the tax authorities for the purposes of enforcing the requirement to pay VAT on these transactions.

John Syekei, Coulson Harney Advocates, Nairobi

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