31st August 2026
In two Judgments delivered on 10th July 2026, Sybrin Kenya Ltd v Commissioner of Domestic Taxes [2026] KECA 1293 (KLR) and Commissioner of Domestic Taxes v Airflo Limited [2026] KECA 1378 (KLR), the Court of Appeal held that a service may be supplied from Kenya and yet qualify as an exported service if it is used or consumed outside Kenya, firmly anchoring Kenyan VAT jurisprudence on the destination principle.
On 10th July 2026, the Court of Appeal delivered two significant judgments that are likely to shape Kenyan VAT jurisprudence for years to come: Sybrin Kenya Ltd v Commissioner of Domestic Taxes [2026] KECA 1293 (KLR) and Commissioner of Domestic Taxes v Airflo Limited [2026] KECA 1378 (KLR). Although the disputes arose from markedly different commercial contexts, software services in one instance and logistics services in the other, both appeals required the Court to answer the same fundamental question: when does a service rendered in Kenya qualify as an exported service for VAT purposes?
While previous High Court decisions had attempted to answer this question, the jurisprudence remained somewhat fragmented. In some decisions, considerable emphasis was placed on the physical location where services were performed. In others, attention shifted to the identity of the ultimate beneficiary or end-user. The Court of Appeal has now provided much-needed clarity by firmly anchoring the analysis on the concept of consumption and expressly reaffirming the destination principle as the governing framework for determining whether services qualify as exported services under the Value Added Tax Act.
The Sybrin Decision
The dispute in Sybrin arose from a familiar multinational corporate structure. Sybrin Kenya Limited provided specialized hardware and software support services to two foreign affiliated entities, namely Sybrin Systems (Proprietary) Limited in South Africa and Sybrin Limited in Guernsey. Those foreign affiliates subsequently integrated the services supplied by the Kenyan entity into larger proprietary software solutions ultimately supplied to financial institutions operating in Kenya.
Following a VAT verification exercise, KRA assessed Sybrin Kenya to VAT amounting to KES 40,689,306 on the basis that the services were consumed in Kenya and therefore did not qualify as exported services. KRA’s position was that the Kenyan banks were the ultimate users of the software solutions and therefore constituted the final consumers of the services supplied by Sybrin Kenya.
The Tax Appeals Tribunal disagreed and held that the services constituted exported services. However, on appeal, the High Court overturned the Tribunal’s decision and concluded that the Kenyan banks were the relevant consumers for VAT purposes. Sybrin Kenya subsequently appealed to the Court of Appeal.
The Court of Appeal rejected the High Court’s approach. In a detailed analysis of the contractual structure governing the transactions, the Court emphasized that Sybrin Kenya supplied its services exclusively to its foreign affiliates. Those affiliates commissioned the services, contracted for the services, paid for the services and incorporated them into their own proprietary offerings. In the Court’s view, it was those foreign affiliates that consumed and benefited from the particular services supplied by Sybrin Kenya. Accordingly, the services qualified as exported services within the meaning of the VAT Act.
Perhaps the most significant aspect of the decision lies in the Court’s recognition that modern commercial relationships cannot always be analyzed through the lens of the ultimate end-user. The Court accepted that different participants within a commercial supply chain may consume different services at different stages of the transaction. The fact that Kenyan banks ultimately received the final software solution did not mean that they consumed the specialized services supplied by Sybrin Kenya to its foreign affiliates. The Court therefore refused to collapse the entire commercial chain into a single supply and instead focused on the actual contractual transaction under consideration.
The Airflo Decision
The decision in Airflo presented the same legal question from an entirely different factual setting.
Airflo supplied warehousing, cold-room storage, vacuum cooling, X-ray screening, palletisation and export documentation services at Jomo Kenyatta International Airport. Unlike Sybrin, every aspect of the services in issue was physically performed within Kenya. Airflo treated the services as exported services and consequently submitted VAT refund claims totaling approximately KES 46 million arising from excess input VAT attributable to its zero-rated supplies. KRA rejected the refund claims on the basis that the services were consumed in Kenya and therefore subject to VAT at the standard rate.
The Court of Appeal rejected KRA’s position and upheld both the Tax Appeals Tribunal and the High Court.
In doing so, the Court drew what may prove to be the most important distinction emerging from these decisions: the distinction between the place of supply and the place of consumption. The Court explained that Section 8 of the VAT Act performs a jurisdictional function. It determines whether a supply falls within Kenya’s VAT net. However, that inquiry is distinct from the separate question of how that supply should be treated for VAT purposes. Once it is established that a supply falls within Kenya’s VAT jurisdiction, the Court must then determine whether it is standard-rated, exempt or zero-rated.
The Court therefore rejected KRA’s argument that because the services were rendered in Kenya, they necessarily had to be standard-rated. Instead, it held that a service may be supplied from Kenya and yet qualify as an exported service if it is used or consumed outside Kenya. Applying that principle, the Court found that Airflo’s services were provided for the benefit of Airflo BV in the Netherlands and its customers, who had already acquired ownership of the flowers destined for export. The place of consumption was therefore outside Kenya notwithstanding that the services were physically rendered within Kenya.
The Court’s Broader Jurisprudential Shift
Viewed together, these decisions reveal a significant shift in the Court’s analytical approach to VAT disputes involving cross-border services.
Historically, many disputes concerning exported services have been dominated by arguments relating to the physical location of performance. Such an approach may have been suitable in a traditional economy where services and consumption often occurred in the same jurisdiction. However, it is increasingly difficult to reconcile that approach with contemporary business models characterized by multinational corporate structures, cross-border technology solutions, shared service centres and global outsourcing arrangements.
The Court of Appeal’s analysis reflects a clear appreciation of this commercial reality. In both decisions, the Court focused not on the location of employees, infrastructure or servers, nor on the location of the ultimate end-user, but on the commercial substance of the transaction itself. The recurring questions throughout the judgments were who commissioned the services, who paid for the services, who contracted for the services and who derived the relevant economic benefit.
This approach aligns Kenyan VAT jurisprudence more closely with internationally accepted destination-based taxation principles. In Sybrin, the Court expressly relied on OECD VAT/GST Guidelines which provide that internationally traded services should generally be taxed in the jurisdiction where consumption occurs and that, for business-to-business transactions, the location of the customer ordinarily determines the place of consumption.
Significance for Multinational Groups, Technology Businesses and Shared Service Centres
The implications of these decisions extend far beyond the facts of the individual disputes.
For multinational groups, the judgments provide substantial comfort that services supplied by Kenyan subsidiaries to foreign parent companies or affiliates do not automatically cease to be exported services merely because the broader commercial activity has a Kenyan dimension. The Court’s emphasis on contractual relationships and economic benefit provides a principled framework for analyzing intra-group service arrangements involving multiple entities across different jurisdictions.
The decisions are equally important for technology businesses. Modern software delivery models frequently involve separate entities undertaking development, implementation, integration, maintenance and support functions across different jurisdictions. By recognizing that the consumer of a particular service may be a foreign affiliate rather than the eventual user of the finished solution, the Court has provided significant certainty for software developers, fintech businesses, SaaS providers and technology support centres operating from Kenya.
The reasoning adopted by the Court also naturally extends to shared service centres and business process outsourcing providers. Kenyan entities routinely provide finance, procurement, compliance, customer support, operational and administrative services to foreign group companies and clients. These businesses have historically faced VAT uncertainty because services are often physically performed in Kenya. The Court’s reaffirmation that consumption, rather than performance, remains the decisive criterion significantly strengthens the basis upon which such services may properly be treated as exported services where the contractual customer is located outside Kenya.
Has the Court of Appeal Settled the Law?
Earlier High Court decisions such as Commissioner of Domestic Taxes v Total Touch Cargo Holland and Commissioner of Domestic Taxes v W.E.C. Lines (K) Limited had already embraced the destination principle. Nevertheless, uncertainty persisted due to inconsistent administrative positions and sporadic judicial emphasis on physical performance and end-user location. Indeed, both Sybrin and Airflo arose precisely because KRA continued to advocate for a more restrictive interpretation centered on the location where services were performed and the ultimate beneficiaries thereof.
The Court of Appeal has now emphatically endorsed the destination principle and embedded it within Kenyan VAT jurisprudence at the highest appellate level. Read together, Sybrin and Airflo establish three core propositions. First, the place where a service is physically performed is not determinative. Second, the place of consumption remains the governing test under the VAT Act. Third, the identity of the contractual customer and the recipient of the commercial benefit are central to determining where consumption occurs.
Conclusion
The twin decisions in Sybrin and Airflo represent one of the most important developments in Kenyan VAT jurisprudence in recent years. They reflect a sophisticated judicial appreciation of modern cross-border commerce and provide a coherent framework for analyzing exported services in an increasingly interconnected economy. For multinational enterprises, technology companies, shared service centres, outsourcing providers and businesses supplying services to foreign affiliates, the judgments provide perhaps the strongest authority to date for the proposition that a service may be performed in Kenya and nevertheless qualify as an exported service where the commercial consumer is located outside Kenya.
Disclaimer: This legal alert is meant for general information only and should not be construed otherwise. You are hereby advised, in all circumstances, to seek clarification from Victor Kaula (victor@oklawllp.com) or OK Law Advocates LLP (legal@oklawllp.com).