Kenyan Court of Appeal: Export-logistics Services Are Zero-rated; KRA Ordered to Refund Within 90 Days

Last reviewed: July 17, 2026

On 10 July 2026, the Kenyan Court of Appeal delivered a landmark judgment confirming that export-logistics services are zero-rated for VAT, ordering the Kenya Revenue Authority to process refund claims exceeding KSh 46 million within 90 days. In Airflo Limited v Commissioner of Domestic Taxes, the court applied the destination principle, holding that logistics and handling services provided at Jomo Kenyatta International Airport (JKIA) for cut-flower exports are consumed outside Kenya and therefore qualify for zero-rated VAT treatment. The ruling resolves years of litigation, upholds earlier decisions by the Tax Appeals Tribunal and the High Court, and sets binding precedent for every exporter, freight forwarder and airport logistics operator in Kenya.

For businesses that have been absorbing standard-rated VAT on services directly linked to export shipments, the practical effect is immediate: refund claims can now proceed, and new compliance frameworks should be put in place without delay.

Executive Summary: Topline Ruling and Commercial Impact

The Court of Appeal dismissed the Commissioner of Domestic Taxes’ appeal in its entirety, ruling in favour of Airflo Limited, a logistics and handling company operating at JKIA that provides cold-chain storage, palletisation, documentation and freight-forwarding services for Kenyan cut-flower exports destined for European markets. [Court of Appeal judgment, Kenyalaw.org, Jul 10, 2026]

The court held that the economic benefit of Airflo’s services was enjoyed by overseas buyers, not Kenyan entities, and that the services were therefore “exported services” within the meaning of the VAT Act. As a result, these services attract zero-rated VAT rather than the standard 16 per cent rate that KRA had sought to impose. [Court of Appeal judgment]

Crucially, the court ordered KRA to process Airflo’s accumulated refund claims, in excess of KSh 46 million, within 90 days of the judgment date. This gives KRA until approximately 8 October 2026 to complete the refund. [Business Daily Africa] For exporters and logistics firms across Kenya, the ruling opens a clear pathway to recover VAT overpayments and to restructure invoicing practices going forward.

Case Background and Procedural History

Facts of the Case: JKIA Export Services and VAT

Airflo Limited operates at JKIA, providing an integrated suite of logistics services for Kenya’s cut-flower export industry, one of the country’s largest foreign-exchange earners. Its services include temperature-controlled warehousing, consolidation and palletisation, airway-bill preparation, phytosanitary compliance documentation and cargo loading coordination. All services were performed at JKIA but were rendered exclusively in connection with flower shipments destined for auction houses and wholesale buyers in the Netherlands, the United Kingdom and other European markets. [AgrosocialServices, Kenya cut-flower export]

The dispute arose when the Commissioner of Domestic Taxes assessed Airflo for standard-rated VAT at 16 per cent on all logistics fees, on the basis that the services were physically performed within Kenya and were therefore taxable at the standard rate. Airflo objected, arguing the services qualified as exported services attracting zero-rated VAT.

Lower Tribunals: Tax Appeals Tribunal and High Court Decisions

Airflo first challenged the assessment before the Tax Appeals Tribunal, which ruled in its favour after examining documentary evidence, including airway bills, export declarations and service contracts, and concluding that the economic benefit of the logistics services was enjoyed by overseas recipients. KRA appealed to the High Court, which affirmed the Tribunal’s decision and emphasised that the destination principle applied to determine where the services were consumed. [Court of Appeal judgment, referencing lower court proceedings]

Issues on Appeal and Arguments Before the Court of Appeal

KRA’s appeal to the Court of Appeal centred on two arguments: first, that the physical location of service delivery (JKIA, within Kenya) determined taxability; and second, that Airflo had failed to satisfy the evidentiary burden for zero-rating. Airflo countered that the VAT Act’s zero-rating provisions and the internationally recognised destination principle required the court to look at where the benefit of the services was ultimately enjoyed, not merely where the work was physically performed. [Court of Appeal judgment]

Legal Test: When Are Exported Services VAT Kenya Qualify as Zero-Rated?

Understanding zero-rated VAT in Kenya requires close attention to the VAT Act, 2013 and its associated schedules. The Second Schedule to the VAT Act lists categories of goods and services that are zero-rated, meaning VAT is charged at 0 per cent rather than the standard 16 per cent. Exported services fall within this schedule, but the Act does not provide an exhaustive definition of what constitutes an “exported service.” [KRA, Items in First & Second Schedule of the VAT Act]

The critical question in cases like Airflo’s is whether a service performed within Kenya can nonetheless be classified as exported. The destination principle VAT framework, widely adopted in international tax practice, provides the answer. Under this principle, VAT is levied where the service is consumed or where its economic benefit is enjoyed, rather than where the service is physically performed. The Court of Appeal expressly adopted this approach, holding that the geographic location of service delivery is not determinative. [Court of Appeal judgment]

Industry observers and leading tax advisory firms have consistently maintained that the destination principle is the correct framework for analysing exported services. As KPMG Kenya noted in its tax alert on VAT and exported services, “the place of consumption, not the place of performance, should be the decisive factor,” a position now unequivocally endorsed by Kenya’s highest appellate court below the Supreme Court. [KPMG Kenya, Tax Alert]

PwC Kenya has similarly observed that businesses providing services integrally connected to export transactions have a strong basis for zero-rating, provided they can produce sufficient documentary evidence linking the service to an overseas recipient and demonstrating that the economic benefit is enjoyed outside Kenya. [PwC Kenya, Tax Alert]

Key Legal Authorities and Precedents

The Court of Appeal considered earlier Kenyan tax decisions, including cases before the Tax Appeals Tribunal involving freight-handling services and airfreight logistics. Comparative references to international jurisprudence on the destination principle reinforced the court’s reasoning. Andersen Kenya has noted that the judgment is consistent with a growing body of Kenyan case law supporting the destination-based analysis of exported services VAT in Kenya. [Andersen, Export of Services in Kenya]

Judgment Analysis: How the Court Applied the Law to JKIA Logistics

Reasoning on Nexus and Economic Benefit

The Court of Appeal’s analysis turned on the concept of economic benefit. The court found that while Airflo’s employees physically handled flowers at JKIA, the purpose and ultimate beneficiary of every service was the overseas buyer. Cold-chain integrity, phytosanitary documentation and airway-bill coordination existed solely to ensure that flowers arrived in marketable condition at European auction houses. The Kenyan exporter was merely the supplier; the economic benefit of the logistics, preservation of product quality, regulatory compliance for importation and timely delivery, accrued to the foreign purchaser. [Court of Appeal judgment]

This reasoning directly rejected KRA’s position that physical performance within Kenya’s borders was sufficient to classify the services as domestic supplies. The court emphasised that adopting KRA’s interpretation would effectively render the zero-rating provision for exported services meaningless, since virtually all export-related services involve some physical activity on Kenyan soil.

Evidence Considered: Airway Bills, Export Documentation and Contracts

The Court of Appeal gave significant weight to Airflo’s documentary record. The evidence that proved decisive included:

• Airway bills and cargo manifests. These demonstrated that every shipment was destined for a specific overseas consignee, confirming the cross-border nature of the transaction.
• Export declarations (customs entries). Filed with KRA’s own Customs department, these proved that the flowers left Kenyan territory.
• Service contracts. The agreements between Airflo and the exporting farms specified that logistics services were to be performed exclusively for export consignments.
• Payment records. Invoices and remittance evidence showed that payments often originated from or were financed by overseas parties.

The court noted that this level of documentation satisfied the evidentiary burden and demonstrated a clear, unbroken nexus between the services performed and the export transaction. [Court of Appeal judgment]

Limits of the Decision: Scope and Applicability

While the ruling is binding precedent, its direct application is to logistics and handling services at JKIA connected with cut-flower exports. Industry observers expect the destination-principle reasoning to apply broadly across other export commodities, including coffee, tea, avocados and horticultural produce, and across other logistics hubs such as the Port of Mombasa. However, each case will turn on its own facts and documentary evidence. Services that have a mixed domestic-and-export character, or where the economic benefit is shared between Kenyan and overseas parties, will require careful analysis before zero-rating treatment is adopted.

The likely practical effect is that logistics firms serving any export-oriented industry can now build their compliance and refund strategies around the destination principle, provided they maintain the calibre of documentation that the court found persuasive in Airflo’s case. Dentons Hamilton Harrison & Mathews has previously highlighted the importance of documenting the export nexus thoroughly, a point that this judgment reinforces emphatically. [Dentons HHM, VAT on exported services]

Practical Implications for Exporters and Logistics Providers

Immediate Next Steps for Firms With Similar Claims

Businesses that have been paying or accounting for standard-rated VAT on logistics services connected to exports should act promptly. The Airflo ruling provides the strongest possible authority for filing or pressing existing refund claims with KRA. The following steps are recommended:

• Audit historical VAT filings. Review all periods in which export-related logistics services were treated as standard-rated. Identify the total VAT overpaid and confirm that the statutory limitation period for refund claims has not expired.
• File or reactivate refund applications. Submit formal refund claims to KRA citing the Court of Appeal judgment. Where claims have been previously rejected or are pending, file supplementary submissions referencing the binding precedent.
• Engage tax counsel. Given KRA’s historical resistance to zero-rating these services, professional representation is advisable, particularly for claims of significant value. Experienced Kenya-based tax litigation lawyers can advise on strategy, documentation gaps and enforcement mechanisms.
• Notify contractual counterparties. Exporters and farms that have borne the cost of VAT charged by logistics providers should be informed that future invoicing will reflect zero-rated treatment and that retrospective adjustments may be available.

How to Prepare a Strong Refund Claim File

The Airflo judgment makes clear that documentary evidence is the foundation of a successful zero-rating claim. Every refund application should be supported by a comprehensive file. The following table summarises the core documents, their purpose and how to obtain them:

Accounting and Compliance Notes

Going forward, logistics firms should record export-related services as zero-rated supplies in their VAT returns. Tax invoices must clearly identify the service as zero-rated, reference the applicable Second Schedule provision and include the export destination. Businesses should also implement internal controls to segregate export-related services from any domestic supplies and ensure that each export consignment has a corresponding documentation package. This approach not only supports ongoing zero-rated VAT treatment but also pre-positions the firm for any future KRA audit. For broader context on tax obligations for Kenya-based businesses earning income from property or services, see also the Kenya residential rental income rules.

KRA VAT Refund Process, 90-Day Order and Enforcement Options

The Court of Appeal’s order directing KRA to process refund claims within 90 days carries significant legal weight. It is not a recommendation, it is a binding judicial order, and failure to comply exposes KRA officials to contempt-of-court proceedings. The 90-day period runs from the date of the judgment, 10 July 2026, placing the deadline at approximately 8 October 2026. [Court of Appeal judgment; The Kenya Times]

In practice, the KRA VAT refund process involves submission of a formal claim through the iTax platform, accompanied by supporting documentation. KRA conducts a verification exercise, typically including a desk audit and, in some cases, a field audit. The court’s 90-day order effectively compresses KRA’s usual administrative timeline, which has historically extended to 12 months or longer for contested refund claims.

Practical Timeline and Escalation Options

Businesses should plan for the following escalation pathway if KRA does not act within the court-ordered period:

• Day 1–30 (by early August 2026): File or confirm the refund claim via iTax. Attach a cover letter referencing the Court of Appeal judgment and the 90-day order. Request written acknowledgement.
• Day 31–60 (by early September 2026): Follow up with KRA’s Domestic Taxes Department. Request a status update in writing. If no substantive response, issue a formal demand letter through counsel.
• Day 61–90 (by 8 October 2026): If the refund has not been processed, prepare enforcement proceedings. Options include filing for execution of the Court of Appeal judgment, applying for contempt of court against the responsible KRA officials, or seeking interlocutory orders to compel payment.
• Beyond 90 days: Proceed with enforcement. Courts have broad powers to attach government funds, and contempt applications carry the possibility of penalties against individual officials who obstruct compliance with court orders.

Early indications suggest that KRA may seek to comply with high-profile court orders promptly following this judgment, given the public attention the case has received. Nonetheless, businesses with VAT refunds timeline concerns in Kenya should not rely on goodwill, proactive follow-up and legal representation remain essential.

Risk Management and Future Compliance: Drafting Contracts and Invoicing

The Airflo decision underscores the importance of contractual and invoicing clarity for businesses wishing to zero-rate export-logistics services. Going forward, exporters and logistics providers should adopt the following compliance practices:

• Explicitly describe exported services in contracts. Service agreements should specify that the services are performed exclusively in connection with export consignments and should identify the overseas destination.
• Include zero-rating clauses. Contracts should reference the applicable provision of the Second Schedule to the VAT Act and state that services will be invoiced at 0 per cent VAT.
• Require export documentation as a condition of zero-rating. Contracts should obligate the exporter to provide airway bills, export declarations and phytosanitary certificates to the logistics provider within a defined timeframe.
• Maintain a complete audit trail. Every export consignment should have a matching file of service invoices, shipping documents and payment records, stored for at least the statutory retention period.
• Review existing contracts. Any agreements that currently reference standard-rated VAT on export-logistics services should be amended to reflect the zero-rated position confirmed by the Court of Appeal.

Comparison Table: Litigation Pathway and Remedies for Exported Services VAT Disputes in Kenya

For businesses weighing whether to challenge a KRA assessment, this progression illustrates that persistence through the appellate system can yield a definitive, and enforceable, outcome. The Airflo case took several years to reach the Court of Appeal, but the binding precedent it established benefits the entire export sector.

Conclusion: Zero-Rated Export-Logistics Services and the Path Forward

The Court of Appeal’s judgment in Airflo Limited v Commissioner of Domestic Taxes is a defining moment for Kenya’s export economy. By confirming that export-logistics services at JKIA are zero-rated and ordering KRA to refund over KSh 46 million within 90 days, the court has provided the clearest possible authority for exporters, logistics providers and freight forwarders operating across Kenya’s supply chains. The destination principle, long advocated by practitioners and now enshrined in binding appellate precedent, ensures that VAT follows the economic substance of cross-border transactions.

Businesses with outstanding or potential refund claims should move quickly. The 90-day window creates urgency, and the strength of the binding precedent reduces the legal risk of filing. At the same time, the judgment demands rigorous documentation and proactive compliance measures to prevent future disputes. For exporters and logistics companies seeking to recover overpaid VAT, restructure their tax positions, or enforce court-ordered refunds, access to experienced Kenyan tax litigation counsel is critical. Connect with a Kenya-based tax lawyer through Global Law Experts or contact us directly for tailored guidance on your refund claims and compliance strategy.

Sources

1. Court of Appeal judgment, Airflo Limited v Commissioner of Domestic Taxes (Kenyalaw.org)
2. Kenya Revenue Authority, Items in First & Second Schedule of the VAT Act
3. Business Daily Africa, Court: Export-logistics services qualify for zero-rated VAT
4. The Kenya Times, Court of Appeal JKIA KRA ruling
5. KPMG Kenya, Tax Alert: VAT on Exported Services
6. PwC Kenya, Tax Alert: VAT on Exported Services
7. Andersen Kenya, Export of Services in Kenya: Case Breakdown
8. Dentons Hamilton Harrison & Mathews, VAT on Exported Services
9. KRA Press Release, Mars Logistics Limited
10. AgrosocialServices, Kenya Cut-Flower Export Process