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Nigeria - Indirect Tax Guide

Nigeria - Indirect Tax Guide

Explore the requirements and rules that apply to indirect taxes in Nigeria.

Explore the requirements and rules that apply to indirect taxes in Nigeria.

Abuja mosque

General

Types of indirect taxes (VAT/GST)

VAT.

What is standard VAT/GST rate?

5 percent.

Are there any reduced rates, zero rates or exemptions?

Zero-rated supplies include:

  • non-oil exports
  • goods and services purchased by diplomats
  • goods purchased for use in humanitarian donor- funded projects, these include projects undertaken by non-governmental organizations and religious and social clubs or societies recognized by law whose activity is not for profit and in the public interest.

Exempt supplies include:

  • exported services
  • basic food items
  • medical, pharmaceutical products and medical services
  • books and educational material
  • plant, machinery and goods imported for use in the export processing zones or free trade zone
  • plant, machinery and equipment for use of gas in downstream petroleum operations
  • fertilizers, tractors, ploughs, farming equipment and implements purchased for farming purposes
  • services by community banks, people’s banks and mortgage institutions
  • proceeds from disposal of short-term Nigerian federal government securities and bonds
  • proceeds from disposal of short term, local government and corporate bonds (including supranational bonds) for a period of 10 years from the date of the order
  • baby products
  • plays and performances by educational institutions as part of a learning program.

What are the general and specific place of supply rules, if applicable?

Place of supply rules are not clearly defined in the VAT Act. However, there are general rules contained in the VAT Act (and court rulings) that guide the application of VAT to goods and services in Nigeria.

In relation to goods, goods sold within and imported into Nigeria will be deemed to be supplied in Nigeria and therefore liable to Nigerian VAT.

In relation to services, services provided within Nigeria i.e. from a Nigeria-resident taxpayer to another Nigeria-based customer, will be deemed to be supplied in Nigeria and therefore liable to Nigerian VAT.

Services provided outside Nigeria but enjoyed by a Nigerian-based customer should, based on the recent rulings of the Federal High Court, be deemed to be supplied in Nigeria and therefore liable to Nigerian VAT.

VAT/GST registration

Who is required to register for VAT/GST?

Every person that qualifies as a taxable person under the VAT Act is required to register with the Federal Inland Revenue Service (FIRS). A taxable person is defined by the VAT Act as any person who carries out economic activity in a place for the purpose of obtaining income by way of trade or business. This would include resident and non-resident companies, partnerships, sole proprietorships, etc. The registration should be completed upon registration of a business entity in Nigeria.

Is voluntary VAT/GST registration possible for an overseas company?

No, however, registration for VAT by an overseas company will only be required if the overseas company has a subsisting contract with a Nigerian customer. The registration should be done using the address of the Nigerian customer.

Does an overseas company need to appoint a fiscal representative?

No, there is no statutory requirement to do so. It may, however, be necessary to do so for administrative purposes.

Is VAT/GST grouping* possible?

No.

VAT/GST compliance

How frequently are VAT/GST and other indirect tax returns submitted?

Monthly, on or before the twenty-first day of the month following the tax period.

Can returns be filed and payments be made electronically?

Yes.

What are the exchange rate rules?

In general terms, the exchange rate to be applied at the time of making a payment should be the current rate applicable in the Inter-Bank Foreign Exchange Market. Notwithstanding, VAT should statutorily be paid in the currency of transaction, i.e. remittances should be made in foreign currency if the transaction is denominated in foreign currency.

VAT/GST recovery

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

No.

Is it a prerequisite that output tax be charged before input tax can be claimed?

Yes.

Are there any exemptions with the right to recover or deduct input VAT?

VAT paid in respect of the following cannot be deducted as input tax:

  • overheads, service and general administrative business costs
  • purchase of capital items/assets.

Where VAT incurred relates to the making of both exempt and taxable supplies, input VAT should be apportioned appropriately.

For what period of time may input tax not previously claimed be claimed (i.e. prescription)?

There is currently no time limit for claiming input VAT.

Where a VAT return reflects a refund due to the taxpayer, is the refund paid to the taxpayer or is the taxpayer required to utilize the refund as a credit against future payments?

In strict terms, the taxpayer should be entitled to a tax refund. However, the practice has evolved such that a taxpayer may elect to obtain a refund or apply the amount as a credit against future payments.

Invoices

Is a business required to issue tax invoices?

Yes.

Is it possible/mandatory to issue invoices electronically?

Yes, it is possible but not mandatory.

Is it possible to issue recipient-created tax invoices?

The VAT Act does not speak specifically to this scenario. Notwithstanding, it should be possible to do so. This is because the key condition imposed by the VAT Act, in relation to invoices, is that it must be a tax invoice i.e. it must contain the tax charged, rate applied, etc. Thus, to the extent that the recipient-created invoice is a tax invoice, it should suffice.

Audits

Do tax audits take place on a regular basis?

Tax audits usually take place at the discretion of the tax authority. This could be once a year or once in two years, depending on the compliance level of the company.

Are audits done electronically in your country/territory (e-audit)? If so, what system is in use?

No.

What penalties can arise from non-compliance?

In the event of non-compliance, the following penalties are charged:

  • NGN10,000 for non-registration the first month and NGN5,000 for each subsequent month not registered
  • NGN5,000 per month for late submission and outstanding returns
  • 5 percent and interest at the prevailing commercial lending rate (currently about 21 percent per annum) for non-payment of VAT
  • 50 percent of the cost of the goods or services for which tax invoices were not issued
  • 150 percent of VAT not collected by a registered person and 5 percent interest above the Central Bank rate.

Special indirect tax rules

Are there unique country/territory-specific indirect tax rules that differ from 'standard' indirect tax rules in other jurisdictions?

Yes, there are rules that somewhat deviate from the standard rule. E.g. the claim of input VAT is limited to goods purchased for resale or those which form the stock-in-trade used for the manufacture of a new product on which VAT is charged.

Does a reverse charge mechanism apply?

Yes. Reverse charge mechanism applies to transactions with the following entities:

  • an overseas company in a cross border service transaction
  • oil and gas companies 
  • government ministries, agencies and statutory body. 

Can VAT on reverse charges be claimed as input tax, to the extent that the expense on which the reverse charge VAT is accounted for, is used for taxable purposes?

Yes. To the extent that the VAT deducted under the reverse charge mechanism qualifies as allowable input VAT. The claim of input VAT is restricted to VAT on goods purchased for resale or those which form part of raw materials required to produce a final product on which output VAT is charged (i.e. the making of taxable supplies).

Can non-residents appoint local agents in order to avoid reverse charge VAT by virtue of charging standard rate VAT and accounting for such VAT through the agent?

No.

Are there indirect tax incentives available (e.g. reduced tax, tax holidays)?

Other than exempt and zero-rated items, VAT is not applicable on sales carried out within free/export trade zones.

 

Rulings

Is it possible to apply for formal or informal advance rulings from the tax authority?

Yes.

Are rulings and decisions issued by the tax authorities publically available?

General rulings and court cases are available to the public. These can be accessed on http://www.firs.gov.ng/ and in available law reports.

Other indirect taxes

Are there other indirect taxes not commented on above?

Yes, other indirect taxes include:

  • Import duties
  • Excise duties
  • Stamp duties.

For further information please contact:

Wole Obayomi
Head, Tax, Regulatory and People Services
KPMG in Nigeria
T: +234 803 402 0946
E: wole.obayomi@ng.kpmg.com

Ajibola Olomola
Partner, Tax, Regulatory and People Services
KPMG in Nigeria
T: +234 803 402 1039
E: ajibola.olomola@ng.kpmg.com

Tozaye Balogun
Manager, Tax, Regulatory and People Services
KPMG in Nigeria
T: +2348167633417
E: tozaye.balogun@ng.kpmg.com

Footnote

*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).

Disclaimer

All information contained in this document is summarized by KPMG in Nigeria, a member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

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