Buyer-Initiated Invoicing in Kenya – Complete SME Tax Compliance Guide

What Is Buyer-Initiated Invoicing in Kenya (Reverse Invoicing)?

Buyer-initiated invoicing, also called reverse invoicing in Kenya, is transforming how small and informal businesses comply with the Kenya Revenue Authority’s (KRA) electronic tax invoicing requirements. This system allows a buyer to create a fully tax-compliant KRA eTIMS invoice on behalf of the seller. It is an administrative tax compliance solution designed to help informal traders and SMEs participate in the formal tax system without investing in expensive invoicing infrastructure.

Kenya’s Informal Sector and Tax Compliance Challenges

The informal sector contributes about 24% of Kenya’s GDP and employs more than 80% of the workforce informally. Many of these businesses earn less than KES 5 million annually, which puts them in the small taxpayer category. Unfortunately, many lack access to computers, stable internet, or trained staff for generating compliant invoices on eTIMS. Buyer-initiated invoicing shifts this task to the buyer, ensuring transactions are captured in KRA’s system and allowing buyers—often larger companies—to secure valid VAT input claims.

Difference Between Buyer-Initiated Invoicing and VAT Reverse-Charge in Kenya

Although the names are similar, buyer-initiated invoicing and VAT reverse-charge are not the same thing.

• Buyer-initiated invoicing (Kenya): The purchaser issues the eTIMS invoice on behalf of the seller for compliance and record-keeping purposes.
• VAT reverse-charge (global practice): The VAT liability shifts from the seller to the buyer, often in cross-border transactions or high-risk sectors.

In Kenya, a buyer-issued invoice might still need to reflect reverse-charge VAT treatment if the specific transaction falls under reverse-charge rules, but the two concepts remain distinct.

How Buyer-Initiated Invoicing Works on KRA eTIMS

Here’s the step-by-step process:

1. The small-scale supplier delivers goods or services to the buyer.
2. The buyer logs into the KRA eTIMS Buyer Solution via eCitizen (ecitizen.kra.go.ke).
3. The buyer enters the supplier’s KRA PIN, transaction description, unit price, quantity, total value, supplier’s name, ID number, and mobile phone number.
4. The seller receives a notification and must give consent. This can be done via USSD code (*222*5*4*2#) or by logging into the eCitizen portal.
5. Once approved, the invoice is recorded in KRA’s system as if the seller issued it. Both parties can view the record.

Why Buyer-Initiated Invoicing Matters for SMEs and Large Purchasers

For small suppliers, this system removes the need for costly tax-compliant invoicing systems. For larger businesses, it ensures that all purchases from informal or small-scale suppliers are backed by valid eTIMS invoices, allowing smooth VAT claims. This is particularly useful in sectors like agriculture, retail, and small-scale manufacturing where transactions often involve suppliers who are outside the formal tax net.

Step-by-Step Compliance Process for Buyer-Initiated Invoicing in Kenya

• Confirm that your supplier’s annual turnover is under KES 5 million.
• Obtain their consent through eCitizen or USSD before generating the invoice.
• Enter all transaction details accurately.
• Keep proof of consent and invoice copies for tax records.
• Ensure correct VAT treatment if reverse-charge rules apply.
• Reconcile eTIMS invoices with your accounting system each month.

Key Tax Compliance Tips for Businesses Using Buyer-Initiated Invoicing

• Always verify supplier eligibility before using the system.
• Store digital and physical records of all invoices and consents.
• Train your finance team on KRA eTIMS buyer solution procedures.
• Double-check VAT classification to avoid return mismatches.

Risks and Common Mistakes in Buyer-Initiated Invoicing

Businesses often run into problems when they fail to keep proof of supplier consent, which can lead to disputes over invoice legitimacy. Incorrect VAT classification, particularly when reverse-charge rules should apply, can cause filing errors and penalties. Poor reconciliation between buyer and seller records can create mismatches in VAT returns. Inaccurate data entry by the buyer might require issuing credit or debit notes to correct mistakes, adding unnecessary administrative work. Even with buyer-initiated invoicing, both parties remain fully responsible for accurate reporting to the KRA.

Frequently Asked Questions (FAQ) About Buyer-Initiated Invoicing in Kenya

1. Who qualifies for buyer-initiated invoicing in Kenya?
Only suppliers with an annual turnover of KES 5 million or less can have invoices issued on their behalf by a buyer through KRA eTIMS.

2. Can I use buyer-initiated invoicing for VAT-registered suppliers?
Yes, if they meet the turnover requirement and give consent. However, VAT reverse-charge rules may still apply depending on the transaction type.

3. Does buyer-initiated invoicing affect my VAT liability?
No, it does not shift VAT liability. It simply helps record the transaction in eTIMS. The buyer and seller must still meet their VAT reporting obligations.

4. How does the supplier approve an invoice?
Suppliers can approve or reject an invoice via USSD code (*222*5*4*2#) or by logging into ecitizen.kra.go.ke.

5. Why should my business use buyer-initiated invoicing?
It ensures that all purchases from small or informal suppliers are backed by valid eTIMS invoices, helping you claim VAT and maintain compliance.

For more information call +254 723 768 286 or email [email protected].