Nigeria: VAT treatment of services provided by financial institutions

What constitutes a supply of taxable services by financial institutions for purposes of the VAT law

What constitutes a supply of taxable services by financial institutions

Guidance issued by the Federal Inland Revenue Service is intended to clarify what constitutes a supply of taxable services by financial institutions for purposes of the value added tax (VAT) law.

The guidance provided by Circular 2021/04 includes:

  • Definitions of financial institutions including banks, insurance companies, pension fund administrators, discount houses, and brokerage firms
  • Rules that only income from certain services (such as commissions and fees) provided by financial institutions to customers will be subject to VAT but that income from activities that constitute return on investments or consideration for risks (such as dividends, gains on the disposal of securities, interest on loans, advances, savings accounts, bank deposits, interbank placements, and premiums on insurance policies) are exempt from VAT
  • Requirements for financial institutions to register, obtain a tax identification numbers for VAT purposes, and file monthly VAT returns
  • Procedures for claiming input VAT by financial institutions (generally input VAT on fixed assets is to be capitalised with the cost of the assets, while input VAT on overhead, general administrative expenses, and services are to be expensed in the statement of profit or loss account)

Read an April 2021 report [PDF 153 KB] prepared by the KPMG member firm in Nigeria

 

 

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