Claiming Pre-Registration Input VAT in Kenya

Started a Business in Kenya? Here’s a VAT Hack You Should Know

Imagine you’ve just launched a new business in Kenya. Maybe it’s a construction company, a manufacturing company, or a small retail shop. You’ve spent months preparing: buying equipment, setting up your office, and covering all sorts of startup costs.

Now, here’s something most people don’t realize. You might be able to get back the VAT you paid during that pre-launch phase. It’s called pre-registration input VAT (also called inventory relief), and yes, it’s allowed under Kenyan VAT law.

This article breaks it down: what it is, how it works, and how you can claim it. I’ll also share two practical examples so you can see how it works in real life.

What is Pre-Registration Input VAT? 

It’s the VAT your business paid on goods or services before you registered for VAT with KRA. If those purchases were made for your business and are related to goods or services that attract VAT, you may be able to claim that VAT back once you're registered.

Think of it as a refund for startup expenses. And if you’re a new business, this can really help with your cash flow.

What Does the Law Say?

To understand how pre-registration input VAT works, let’s dive into the legal backbone—Section 18 of Kenya’s VAT Act, titled “Tax Paid Prior to Registration.” Here’s the full text of the relevant part:

"Where—
(a) on the date exempt supplies made by a registered person become taxable, and the person had incurred input tax on such supplies; or

(b) on the date he is registered, a person has incurred tax on taxable supplies which are intended for use in making taxable supplies, the person may, within three months from that date, claim relief from any tax shown to have been incurred on such supplies:

Provided that this subsection shall apply where such supplies are purchased, within the period of twenty-four months immediately preceding registration or the exempt supplies becoming taxable."

Let’s Break It Down

Here are the two common situations:

1. You bought stock or assets before registering for VAT

If you bought goods or services subject to VAT before registering your business for VAT, and you plan to use them to make taxable sales (things you’ll charge VAT on), you can claim that VAT back. Again, the purchases must have happened within the 24 months before your registration date.

Say you were setting up a bakery and bought ovens, furniture, and ingredients before registering. If these were bought within the last 24 months and will be used to make taxable sales (like selling cakes), then you can claim the VAT.

2. Your products or services were previously exempt but are now taxable

If your business was selling goods or services that were exempt from VAT (meaning no VAT was charged), and then the rules change so those supplies become vatable, you can claim back the VAT you paid on inputs or purchases related to those supplies. This only applies to costs from the 24 months before the change.

For example, if you were selling bread that was previously VAT-exempt, and the law changes to make it standard rated, you can claim VAT on earlier bread inputs purchases — provided the purchases were within 24 months before the change.

Most important: You must apply for the claim within three months of registration or when the supplies became vatable. If you miss that window, the claim will be rejected.

Let's Have 2 Case Studies

1. A Coffee Shop in Mombasa

Peter opens a coffee shop and registers for VAT on July 1, 2025. Before that, he had spent:

• KES 100,000 on a coffee machine in August 2023 (VAT included: KES 16,000)

• KES 50,000 on rent in May 2025 (VAT included: KES 8,000)

• KES 20,000 on coffee beans in June 2025 (VAT included: KES 3,200)

All of these were purchased within 24 months before Peter’s VAT registration date. They are also directly related to his taxable sales (selling coffee), so he can claim the VAT.

Peter has until October 1, 2025 to make the claim.

Total VAT refundable: KES 27,200

This startup VAT relief could be the financial breather your new Kenyan business needs.

2. Real Estate Developer Constructing Rental Units

CitySpace Ltd. is a property company that started constructing commercial office buildings in January 2023. The plan is to rent the units to businesses — which is a VAT-taxable activity. However, the company only registers for VAT in February 2025, just before the buildings are completed.

Between January 2023 and February 2025, CitySpace Ltd. paid VAT on:

• Construction materials worth KES 10 million (VAT: KES 1.6 million)

• Architectural and legal services worth KES 2 million (VAT: KES 320,000)

• Office fittings worth KES 500,000 (VAT: KES 80,000)

Since all these costs were incurred within 24 months of registration and are related to taxable rental income, the company can claim the VAT — totaling KES 2 million.

The claim must be submitted by May 2025 (three months after VAT registration).

Why This Matters

For any business, especially one that’s just getting started, this kind of VAT recovery can:

- Boost your cash flow by returning money you’ve already spent
- Lower your startup costs, making your operations more sustainable
- Help you compete, since you can afford to price your goods or services more efficiently

Just remember: keep your receipts and invoices. KRA will only accept claims that are backed by proper documentation.

In Conclusion

Pre-registration input VAT is one of the lesser-known benefits in Kenya’s VAT system. Whether you’re just starting out or adapting to new tax rules. Section 18 of the VAT Act opens the door to reclaiming VAT paid before registration, as long as you act within the time limits and follow the rules. 

With the right know-how, you can turn this provision into a financial win. So, dig out those pre-VAT registration receipts, check the dates, and see if you can lighten your load! 

Written by CPA Joseph Wachira 
The author is a senior Tax Advisor at ClearTax and can be reached via wachira@cleartax.co.ke