Nigeria: VAT obligations of non-resident digital service providers

11 October 2021 saw the Federal Inland Revenue Service (FIRS) issue guidelines for VAT compliance for non-resident suppliers who render digital services taxable in Nigeria. These guidelines were made pursuant to Section 10 of the Value Added Tax (VAT) Act Cap V1, LFN 2004 (as amended) and came into effect from 1 January 2022 with respect to supply of services as well as intangibles and 1 January 2024 for supplies of goods.

Section 10 (1) of the VAT Act requires non-resident suppliers (NRS) of services to Nigeria to register and obtain a Taxpayer Identification Number (TIN). Section 10 (3) enables the FIRS to appoint any person to collect VAT on its behalf, and the remittance to the FIRS.

Key takeaways

• The rate of VAT is 7.5% for services rendered by non-resident digital service providers.
• An NRS is required to register as prescribed in the guideline if, within 12 consecutive months immediately before the coming into effect of these guidelines or any 12 consecutive months thereafter, it has made or expects to carry out a single or series of supplies to Nigeria which (in aggregate value) amounts to USD 25,000 (approx. EUR 23,975).
• The NRS is required to remit the amount due, using its name and TIN, to the FIRS through any of the collecting banks in Nigeria in the case of local currency (Naira, NGN) and through electronic payment methods using bank transfer for foreign currency transactions.
• An NRS registered for VAT purposes will be required to file monthly VAT returns even for months where no taxable supply has been made to Nigeria. The returns should be rendered no later than 21 days after the end of the month in which the supplies were made. If the filing deadline cannot be met, the NRS may obtain an approval for an extension from the FIRS which shall not be more than one month.
• The NRS shall remit the whole tax collected without deducting input tax. This is because exports, under the destination principle, are generally zero-rated. As such, the NRS may claim input tax in the jurisdiction of origin of the supply where the domestic VAT rules of that jurisdiction provide for input VAT deduction on exported goods and services.
• All NRS making supplies to Nigeria are required to keep reliable and verifiable records indicating the full and accurate representation of supplies made to Nigeria and these should be submitted to the Service upon request.
   

Failure in VAT obligations by NRS

An NRS will be regarded as having failed to collect VAT on its services where:

1. It does not include the transaction in its return;
2. From the facts of the transaction, it shows that the NRS has not charged VAT or collected the tax on the transaction.
    

Where the NRS fails to account for or to remit VAT or to generally comply with these guidelines, the FIRS may take all necessary steps to enforce the tax laws and collect the taxes due.

Technically, the appointment of NRSs as VAT collectors is not currently supported by the VAT Act. This is because Nigerian customers are required to self-charge or deduct VAT at source and remit to the FIRS. The VAT registration threshold for NRSs included in the circular being USD 25,000 (approx. EUR 23,975), is lower than the NGN 25,000,000 (approx. EUR 57,702) threshold stated in the VAT Act, while the new mode of registration according to the guidelines may create an additional administrative requirement for registered NRSs.

While it is evident that the FIRS intends to adopt a clear and practical approach as can be seen in the guideline, it is pertinent that they align with the provisions of the law.

Read the WTS Global VAT Newsletter here.