Nigeria

Rates and scope

VAT is charged on the supply of goods and services in Nigeria, except those specifically exempted under the VAT Act. VAT is also charged on goods and services imported into the country.

If VAT is to be charged on an activity, that activity must be classified as a ‘supply’. 

A ‘supply of goods’ is defined to be any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods. 

Good are deemed to have been supplied in Nigeria where:

• they are physically present in Nigeria at the time of supply, imported into Nigeria, assembled in Nigeria or installed in Nigeria

• the beneficial owner of the rights over the goods is a taxable person in Nigeria and the goods or rights are situated, registered or exercisable in Nigeria.

A ‘supply of services’ means ‘any service provided for a consideration’. However, a service is deemed to have been supplied in Nigeria where:

• the service is rendered in Nigeria by a person physically present in Nigeria at the time of providing the service

• the service is provided to and consumed by a person in Nigeria, regardless of whether the service is rendered within or outside Nigeria or whether or not the legal or contractual obligation to render such service rests on a person within or outside Nigeria

• the service is connected with existing immovable property (including the services of agents, experts, engineers, architects, valuers, etc), where the property is located in Nigeria.

VAT is applicable in respect of an incorporeal where:

• the exploitation of the right is made by a person in Nigeria

• the right is registered in Nigeria, assigned to or acquired by a person in Nigeria, regardless of whether the payment for its exploitation is made within or outside Nigeria

• the incorporeal is connected with a tangible or immovable asset located in Nigeria.

Based on a strict interpretation of the VAT Act, all goods and services supplied in Nigeria are taxable supplies unless they are:

• specifically classified as exempt supplies

• specifically classified as zero-rated goods and services

• do not qualify as a supply in Nigeria.

The Finance Act 2020 expanded the definition of ‘goods’ and ‘services’.

‘Goods’ is now defined as:

• all forms of tangible properties that are movable or immovable, but does not include land and buildings, money or securities.

 ‘Services’ is now defined as

• anything other than goods or services provided under a contract of employment

• any intangibles or incorporeal (product, asset or property) over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land and building, money or securities.

VAT rates

Vat is charged at a standard rate of 7.5% on the supply of VATable goods and services.

Also, VAT is charged at 0% on the following zero-rated goods and services:

• goods and services purchased by diplomats

• goods purchased for use in humanitarian donor funded projects. ‘Humanitarian donor funded project’ includes projects undertaken by non-governmental organisations and religious and social clubs or societies recognised by law whose activity is not for profit and in the public interest.

VAT registration

Compulsory registration

A taxable person is required to register for VAT immediately on commencement of business.

There is a VAT registration threshold of NGN 25m turnover in a calendar year introduced through the Finance Act of 2019.  Therefore, businesses with annual turnover of less than NGN25m are no longer required to register for VAT. However, companies engaged in upstream petroleum operations are no longer allowed to enjoy the exemption from registration status. They are required to register for VAT, even if their annual turnover is below the NGN 25m threshold. 

A taxable person is defined in the Act as “an individual or body of individuals, family, corporation sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible or intangible property for the purpose of obtaining income by way of trade or business or a person or agency of government acting in that capacity”.

Failure to register for VAT attracts a penalty of NGN50,000 for the first month of default and NGN25,000 for every subsequent month default continues.

Voluntary registration

Group or branch registration

Non-residents

A non-resident company (NRC) that makes a taxable supply of goods and services to Nigeria is also required to register for VAT and obtain a tax identification number. The NRC is required to include the tax on its invoice for all taxable goods or services.

The Nigerian party that transacts with the NRC, or a person appointed by the FIRS, is required to withhold or collect taxes, and remit to the tax authority. 

Where the NRC,or a person appointed by the FIRS, makes a taxable supply to a taxable person in Nigeria, the taxable person will not be required to withhold the tax for the purpose of remitting it to the tax authority, except the NRC or the appointed person fails to include the tax on their invoice. 

The FIRS has appointed non-resident digital companies as agents for the collection of VAT on cross border digital transactions. 

A non-resident person transacting in Nigeria has the obligation to appoint a representative for the purpose of VAT compliance.

Application for registration

Deregistration

The Finance Act introduces the requirement for deregistration. As such, where a taxable person permanently ceases to carry on a trade or business in Nigeria, they are required to notify the tax authorities of their intention to deregister for tax purposes within 90 days of such cessation of the trade or business.

The penalty for failure to notify FIRS of permanent cessation of trade or business is the sum of NGN50,000 for the first month of default and NGN25,000 for each subsequent month of default.

Input tax deduction

Input tax allowed

Recoverable input tax is restricted to goods purchased or imported directly for resale and goods which form the stock-in-trade used for the direct production of any new product on which the output VAT is charged.

The VAT Act does not define ‘stock-in-trade’ for the purpose of determining the extent to which a taxpayer can recover input VAT. In practice, the tax authority restricts the claim of input VAT by taxpayers only on raw materials and inventories. However, in a recently decided case, the Tax Appeal Tribunal expanded the meaning of “goods which form the stock-in-trade…” to include the purchase of gas, short-term spares and consumables.

Input tax expressly denied

VAT on overhead, service and general administration expenses is not allowed as deduction from output tax. It is to be expensed through the income statement.

Also, VAT on fixed assets (capital items) which is to be capitalised along with the cost of the capital item is not allowed as deduction from output tax.

Partial exemption

Change-of-use adjustments

Output tax

Brief description of output VAT

Output tax is charged and collected by a business from its customers on the supply of goods and services.

Based on the VAT Act, a business is obligated to account to the FIRS for the output tax charged to customers. However, the business can recover the input tax incurred on qualifying transactions (i.e. goods purchased for direct resale or goods that form stock-in-trade for goods on which output tax will be charged) by deducting it from the output tax. The VAT paid by the business to the FIRS is the excess of the output tax over the input tax (on qualifying transactions).

Exempt supplies

The following supply of goods and services are exempt from VAT:

• oil exports

• medical and pharmaceutical products

• basic food items

• educational books and materials

• baby products

• fertilisers and locally produced agricultural and locally produced veterinary medicine, farming machinery and farming transportation equipment

• plants, machinery and good imported for use in the export processing zones or free trade zones

• plant, machinery and equipment purchased for utilisation of gas in downstream operations

• tractors, plough and agricultural implements purchased for agricultural purposes

• locally manufactured sanitary towels, pads or tampons

• all exported services

• medical services

• plays and performances by educational institutions as part of learning

• tuition relating to nursery, primary, secondary and tertiary education

• plant, machinery and equipment (including steel structures) for the manufacture of cement and allied products

• vegetable oil

• motorcycle (CKDs)/Bicycle (SKDs) and their spare parts

• corporate bonds and government securities (This exemption is only for a ten-year period commencing 2 January 2012)

• airline tickets sold by commercial airlines registered in Nigeria

• commercial aircraft, commercial aircraft spare parts and commercial aircraft engines

• hire, rental or lease of tractors, ploughs and other agricultural equipment for agricultural purposes

• petroleum products

• renewable energy equipment

• raw materials for the production of baby diapers and sanitary towels

• locally produced animal feeds

• military hardware, arms, ammunitions and locally manufactured uniforms used by the Armed forces, paramilitary, and other security agencies of governments in Nigeria

• gas supplied by gas producing companies to electricity generating companies

• electricity generated by electricity generating companies, transmitted by the Transmission Company of Nigeria and distributed by distribution companies

• agricultural seeds and seedlings

• services rendered by unit micro-finance banks and mortgage institutions

• shared passenger road transport service.

Zero-rated supplies

The following are zero-rated goods and services:

• goods and services purchased by diplomats

• goods purchased for humanitarian donor-funded projects

• imports of commercial aircraft, aircraft spare parts and machinery and equipment used in the solid minerals sector.

Special rated supplies

Advertising prices

International trade

Imports

Goods

VAT is chargeable on goods imported into Nigeria, i.e. goods made outside Nigeria but supplied/ consumed in Nigeria. VAT will apply on all non-exempted goods imported into Nigeria whether or not:

• the goods are liable to customs duties

• the person importing the goods is registered for VAT.

Import VAT is recoverable and can be used to offset any output VAT payable provided the conditions for offset are met.

Basis for calculating VAT on imported goods. 

For the purpose of levying VAT, the value of the imported goods is an amount equal to the price of the imported goods and includes:

• all taxes, duties and other charges levied either outside or by reason of importation into Nigeria

• all costs by way of commission, parking, transport and insurance up to the port or place of importation.

Point of import

The VAT point of imported goods is the relevant port or border post. Where the goods are imported through the post, the point of import will be at the post office or the place in Nigeria where the goods are received. In the case of intangible assets, the VAT point is the place where payment in Nigeria is due.

Services

Imported services are liable to Nigerian VAT. The VAT Act requires an NRC that carries on business in Nigeria to register for VAT, and issue VAT invoices to its Nigerian customers.

NRCs that supply digital services to Nigeria have been appointed as VAT agents by the FIRS. This implies that NRCs that supply digital services to customers resident in Nigeria have an obligation to charge, collect and remit the VAT to the FIRS. 

Where the NRC supplies VATable services and does include VAT, the Nigerian recipient of the service is required to self-charge and remit the VAT. 

VAT applies where the services are provided to a person in Nigeria, regardless of whether the services are rendered within or outside Nigeria. This aligns with the destination principle.

Exports

Goods

Under Nigerian VAT laws, all exports are VAT exempt.

Services

Under the Nigerian VAT Act, exported services are specifically exempted from Nigerian VAT.

Definition of exported services

‘Exported service’ is defined as “services provided within or outside Nigeria by a person resident in Nigeria to a non-resident person provided that the non-resident person is neither a fixed base nor a permanent establishment in Nigeria”.

Place, time and value of supplies

Place of supply

Goods that are situated in Nigeria at the time of supply are deemed to be supplied in Nigeria.

Services which are performed by a Nigerian resident to a person within Nigeria are clearly supplied in Nigeria and are within the scope of Nigerian VAT.

There are some technicalities involved in the determination of the place of supply of services when cross-border transactions are involved. Please refer to the explanation of imported services and exported services.

Imported services

Services provided to a person in Nigeria are now considered to have been supplied in Nigeria regardless of whether the services are rendered within or outside Nigeria.

Time of supply

The time of supply for related and unrelated parties are as follows:

Unrelated parties: In line with the Act, supply is said to have been made at the point where a receipt or invoice is issued or payment is due or received by the supplier whichever occurs first.

Related parties: Certain transactions may attract VAT where a supply is deemed to have occurred whether an invoice is issued or not. A supply would be deemed to have occurred in the following instances:

• for goods which are to be removed: the time of removal

• for goods which are not to be removed: the time it is made available to the recipient

• furnishing of a service: upon furnishing of the service

• incorporeal: when the incorporeal becomes available to the recipient.

Also, the Act provides the time of supply for VAT on periodic payment as follows:

• goods supplied under any rental agreement or services furnished under any agreement which provides for periodic payment: time of supply will be earlier of when payment is due or is received or the invoice relating to payment is issued

• goods supplied under an instalment credit agreement: supply takes place at the earlier of when goods are delivered, or payment is received. 

For imported goods, VAT is payable at the time of importation.

Value of supply

The value of a taxable supply is determined as follows:

• where the supply is for a money consideration, the value is deemed to be an amount which with the addition of the tax chargeable is equal to the consideration

• where the supply is for a non-monetary consideration, the value of the supply is deemed to be its market value

• where the supply of taxable goods or services forms part of a matter to which consideration in money relates, the supply is to be the part of the consideration properly attributed to it.

Please refer to International trade on the determination of the value of imported goods.

VAT compliance

Accounting basis and tax period

Based on the Act, VAT is accounted for and remitted on a cash basis.

In arriving at the VAT payable for each month, the output tax collected by a taxpayer in the previous month is matched with the input tax paid to the vendors during the period. The difference between output tax collected and input tax paid in the preceding month is then remitted or treated as future credit.

The tax period for Nigerian VAT is on a monthly basis and the due date for rendering VAT returns is the 21st day of the month following the month of transaction.

Returns and payment of VAT

VAT returns are due on the 21st day of the month following the month of transaction. Every taxable person is to remit the monthly net VAT payable (i.e., the excess of output tax over input tax), together with the VAT returns and the payment is to be made in the currency of the transaction.

The following should be submitted to the tax authority:

• a completed VAT returns form

• VAT schedule showing Tax Identification Number (TIN) name and address, date of transaction, invoice number, contract sum, rate applied, tax paid and month of return

• evidence of payment of any tax due.

Where there was no activity carried out for a specific month, the taxable person is required to file a ‘Nil’ return with the tax authorities.

Interest and penalties

The Nigerian VAT Act creates the following offences for which interest and penalties will apply, upon commission:

• failure to register for VAT: NGN50,000 for the first month and NGN25,000 for every subsequent month

• failure to remit VAT: 10% per annum of the amount of tax not remitted plus interest at the prevailing Central Bank of Nigeria minimum rediscount rate

• failure to issue tax invoice: Fine of 50% of the cost of the goods or services for which tax invoice was not issued

• failure to keep proper records: Fine of NGN2,000 for every month in which failure continues

• failure to collect VAT: Penalty of 150% of the amount not collected plus 5% interest above the Central Bank of Nigeria (CBN) Monetary Policy Rate

• failure to submit returns: Fine of NGN50,000 for the first month of default and NGN25,000 for each subsequent month default continues.

Refunds

There is scope for claiming VAT refund in certain defined cases including where there has been:

• outright overpayment done in error

• deduction of VAT at source without corresponding adjustment for input tax

• input tax claims by zero-rated taxable persons

• input tax in excess of output tax; etc.

Input tax refund may be claimed in any of the following ways:

• credit method

• direct cash refund

• a combination of the above.

The most common practice is the credit method whereby a taxable person may offset the excess input tax against the output tax in subsequent periods.

Objections and appeals

The tax authority is empowered to carry out tax audits, investigations to determine a taxpayer’s VAT compliance level. The tax authority may also conduct desk compliance reviews over a period in order to evaluate the VAT returns filed by the company for the relevant period.

Where a taxpayer is aggrieved by an assessment made by the tax authorities, they may file an objection with the tax authority. The tax authority may revise the assessment or issue a notice of refusal to amend.

Thereafter, a taxpayer may further appeal to the Tax Appeal Tribunal (TAT) from the decision of the tax authority. Proceedings at the TAT can be instituted at the insistence of the tax authority or the taxpayer.

An appeal from the TAT may further lie to the Federal High Court.

Time limits

Withholding VAT obligation

Appointment of withholding VAT agents

Based on the VAT Act the following categories of taxable persons have been appointed as VAT agents:

• all government ministries, parastatals and agencies

• companies operating in the oil and gas sector

• resident entities transacting with non-resident companies carrying on business in Nigeria, where the non-resident companies fail to collect the tax.

The tax authorities also appointed deposit money banks, and two telecommunication companies - MTN and Airtel. 

These agents are required to withhold the VAT at source on transactions and remit the tax to the tax authority.

Withholding VAT exemption

The obligation to withhold VAT at source will not apply in the following circumstances:

• where goods are purchased off the shelf and there is no contract signed between the parties, e.g. purchase of airline tickets at the office of the airline company, purchase of stationery at a shop, etc

• where the party supplying the good or service is a government agent (since all government agencies are also empowered to deduct VAT at source)

• invoices for goods and services specifically exempted from VAT under the VAT Act

• where a non-resident company that makes a supply of digital services to a Nigerian customer, includes VAT on its invoice.

These exemptions are specific to companies operating in the oil and gas sector but (i) and (ii) will necessarily apply to all withholding VAT agents.

Withholding compliance

All government ministries, parastatals and agencies are required to withhold the VAT on payments made to their vendors/contractors and remit the tax to the relevant tax office. The remission is to be accompanied with a schedule showing the name and address of the contractor, invoice number, gross amount of invoice, amount of tax and month of return.

Further, taxable persons transacting with non-resident companies are required to remit the VAT withheld at source in the currency of the transaction.

The notable duties and obligations of companies in the oil and gas sector include:

• separating the returns on normal trading activities from those of its own consumption / contract awards. The input and output credit mechanism will apply only to its sales activities but not to contract awards

• paying VAT on VATable transactions, whether or not the contractors have duly reflected VAT charges on such contracts

• preparing and forwarding to the tax authorities relevant schedules on all VAT payments indicating the name and address of each contractor, TIN, invoice number, contract value, dates of contract award and payment as well as VAT amount.

Refunds

The procedure / guidelines for claiming VAT refunds are specified in the FIRS Information Circular No. 2007/02 of 1 August 2007.

Based on the circular, VAT refund cases may arise under any of the following circumstances:

• outright overpayment done in error

• double remittance by banks

• double payment for the same tax liability by the taxpayers

• deduction of VAT at source without corresponding adjustment for input tax

• input tax claims by zero-rated VATable persons

• input tax in excess of output tax

• error in tax computation.

Procedure

Where a taxpayer makes an application for a VAT refund, the application must include the following information/documents:

• the precise grounds for the refund

• that the application is a VAT refund application

• the period in which the transaction that gave rise to the refund occurred

• treasury receipts and bank deposit slips evidencing payment of the excess amount.

The application must be made to the relevant tax office where the taxpayer’s records are domiciled. This application will be subject to verification and thereafter an audit or a mere spot check. Typically, refund applications that are less than NGN300,000 are recommended for payment while refund claims over this threshold will be subject to an audit or a spot check before approval.

In most cases an application for refund will trigger a complete tax audit before the refund is approved. Where the audit is conducted and the refund is approved, the refund is to be made within 90 days from the date of the approval.

VAT record-keeping

Tax invoices

Every taxable person who makes a taxable supply is required to furnish the purchaser with a tax invoice containing the following information:

• taxpayer identification number (TIN)

• name and address

• VAT registration number

• the date of supply

• name of purchaser or client

• gross amount of transaction

• tax charged and rate applied.

Failure to issue a tax invoice attracts a fine of 50% of the cost of the goods or services for which the tax invoice was not issued.

The tax invoice is also required where the purchaser chooses to pursue a claim for input tax.

Credit notes and debit notes

There are no express provisions in the Nigerian VAT Act for credit notes and debit notes. However, credit notes are utilised in practice where the VAT payable on a supply is reduced or reversed as a result of a subsequent discount or an error. Conversely, debit notes are utilised where VAT payable on a supply is increased as a result of a subsequent error or adjustment to the initial tax invoice.

The information in the credit notes and debit notes is essentially the same as the tax invoice. However, it will also include a description of the initial invoice for ease of reference.

Additional export documentation

Record-keeping

Every taxable person is required to keep proper records and books of all transactions, operations, imports and activities enough to determine the correct amount of VAT payable. These records include:

• VAT account

• original tax invoices received

• copies of tax invoices issued

• credit and debit notes issued and received

• import and export documents.

Specific VAT rules

Bad debts

The VAT Act does not provide relief for VAT on bad debts. However, in practice, most taxpayers adjust for the VAT remitted on the debt amount by taking a deduction against output VAT payable in the next period after the debt has been written off.

The tax authority does not challenge this approach where the taxpayer can prove that the debt is truly bad.

Digital economy

The Nigerian VAT Act does not contain express provision on the digital economy. However, the Act provides that NRCs carrying on business in Nigeria are required to register for VAT and include VAT in their invoice. Also, NRCs providing service to customers in Nigeria (whether or not the NRC physically provides the service in Nigeria) are required to register for and charge VAT.

In addition, VAT reverse charge on imported services means that even where the NRC does not include VAT on its invoice, the Nigerian company is expected to now self-charge the VAT and remit.

Land and buildings

Leasing

Promotional gifts

Secondhand goods

Tourism industry

Currency conversion

Transfer of business

The Finance Act introduces VAT exemption on group reorganisations, provided that the following conditions are met:

• the sale is to a Nigerian company and it is for the better organisation of the trade or business

• the entities involved are part of a recognised group of companies a year before the transaction, and the relevant assets are not disposed of earlier than a year after the transaction.

Warranty repairs