Overview
There has been a focus on indirect taxation as a tool for the economic management and development of the country’s resources. This has led to recent judicial and legislative changes to the framework guiding the administration of the VAT system in Nigeria. The VAT rate increased from 5% to 7.5% through the Finance Act. The VAT Modification Order expanded the list of items exempted from VAT and zero-rated, and also included new items. The Federal Inland Revenue Service (FIRS) appointed banks and some telecommunication companies as government agents for VAT deduction at source. Some of these changes have significantly improved the VAT system in Nigeria.
Release date: May 2023
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:
A ‘supply of services’ means ‘any service provided for a consideration’. However, a service is deemed to have been supplied in Nigeria where:
VAT is applicable in respect of an incorporeal where:
Based on a strict interpretation of the VAT Act, all goods and services supplied in Nigeria are taxable supplies unless they are:
The Finance Act 2020 expanded the definition of ‘goods’ and ‘services’. ‘Goods’ is now defined as:
‘Services’ is now defined as
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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:
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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 Businesses with an annual turnover of less than NGN25m may register voluntarily. This is especially where such businesses intend to make claims for input tax. |
Group or branch registration There is no scope for group or branch registration under the Nigerian VAT Act. |
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 Upon registration, the taxable person is issued with a notification of registration bearing the Tax Identification Number (TIN) and the date of registration. The tax registration certificate showing the unique TIN number and date of registration is also subsequently issued by the FIRS. |
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 There is no provision for partial exemption in the Nigerian VAT Act. |
Change-of-use adjustments There is no provision for change-of-use adjustments in the Nigerian VAT Act. |
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:
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Zero-rated supplies The following are zero-rated goods and services:
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Special rated supplies There are no special rated supplies under the Nigerian VAT Act. |
Advertising prices There are no specific provisions under the Nigerian VAT Act relating to advertising. |
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:
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:
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:
Also, the Act provides the time of supply for VAT on periodic payment as follows:
For imported goods, VAT is payable at the time of importation. |
Value of supply The value of a taxable supply is determined as follows:
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:
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:
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Refunds There is scope for claiming VAT refund in certain defined cases including where there has been:
Input tax refund may be claimed in any of the following ways:
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 Statutorily, Nigerian companies are required to keep accounting records for a period of six years. Thus, the period covered by an audit is not expected to exceed a six-year period from the date of the audit. |
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:
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:
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:
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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:
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Procedure Where a taxpayer makes an application for a VAT refund, the application must include the following information/documents:
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:
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 There are no specific provisions of the VAT Act on export documentation. Documentary evidence of the transaction and proof that the goods physically left Nigeria will suffice. |
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:
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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 Land and building is not within the scope of the VAT Act. |
Leasing There are no specific rules under the Nigerian VAT Act on leasing. VAT is applicable on leases. |
Promotional gifts There are no specific rules under the Nigerian VAT Act on promotional gifts. |
Secondhand goods VAT is applicable at the standard rate of 7.5% on the disposal of second-hand goods. |
Tourism industry There are no specific rules under the Nigerian VAT Act applicable to the tourism industry. |
Currency conversion Under the Nigerian VAT Act, VAT is to be remitted in the currency of transaction. |
Transfer of business The Finance Act introduces VAT exemption on group reorganisations, provided that the following conditions are met:
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Warranty repairs There are no specific rules under the Nigerian VAT Act on warranty repairs. |
Other indirect taxes |
Import duties Import duties are payable upon importation prior to or at the port of entry. They apply on various goods based on Harmonised System (HS) Codes at rates ranging between 0% to 35%. |
Excise duties Excise duties are normally charged on applicable products either on the basis of ad valorem, specific or both. Based on the 2022 Fiscal Policy Measures and Tariffs Amendments Order, the tax is chargeable on all services regulated by the Nigerian Communications Commission (NCC) listed as postpaid and prepaid services at the rate of 5% for 2022, 2023 and 2024.
Excise duty is due and payable immediately on manufacture of excisable goods. However, the Nigerian Customs Service may at its discretion deem the duty to become due and payable at a stage not later than the delivery of the goods from the products store. Based on the 2020 Finance Act, goods imported in Nigeria that are specified under the fifth schedule of the Customs and Excise Tariff, Etc. (Consolidation) Act are to be charged with excise duties. Also, telecommunication services provided in Nigeria are now charged to excise duties at a specific rate to be prescribed by the president. The Finance Act 2021 provides that excise duty should be charged on non-alcoholic, carbonated and sweetened beverages at a specific rate of N10 per litre. There are no filing requirements for excise duties. However, manufacturers are required to keep the following records of manufacture and return:
Based on the Finance Act, imported excisable products are now subject to excise duties at the same rates applicable to locally manufactured items. The Finance Act 2020 reduced the duties and levies on the items in the table below:
Additional exemption from excise duty Airlines registered in Nigeria and providing commercial air transport services are entitled to duty-free importation of their aircraft, engines, spare parts and components whether purchased or leased. |
Stamp duty All instruments relating to an act to be performed in Nigeria must be stamped, except those specifically exempted. The 2020 Finance Act included an electronic transfer levy on any form of electronic receipt that acknowledges receipt of money. The levy is a one-off charge of N50 on electronic deposits or transfer into bank accounts from N10,000 and above. The Act is silent on electronic transfers made between accounts of the same account holder. However, in practice the levy has not been charged on the same account holder transfers. Stamp duty is chargeable either at fixed rates or ad valorem (i.e., in proportion to the value of the consideration) depending on the class of instrument. Certain instruments are exempt from stamp duties:
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Products |
2022 rates (NGN) |
2023 rates (NGN) |
Tobacco |
20% + 2.9 |
30% + N4.2 (per cigarette stick) |
Beer and stout |
N40 per litre |
N45 per litre |
Wines |
20% + N50 per litre |
20% + N50 per litre |
Spirit |
20% + N50 per litre |
20% + N65 per litre |
Product |
Old rate (%) |
New rate (%) |
Tractors |
35% |
5% |
Motor vehicles for transport for more than ten persons |
35% |
10% |
Motor vehicles for transport of persons (cars) |
30% |
5% |
Motor vehicles for transport of goods |
35% |
10% |
