Pursuant to the provisions of section 10 of the Value Added Tax (VAT) Act (as amended), which bothers on VAT obligations for Non-Resident Suppliers (NRS), the Federal Inland Revenue Service (FIRS) developed a simplified Value Added Tax (Tax) compliance regime for the guidance of NRS supplying goods, services or intangibles to persons in Nigeria through electronic, digital or similar platforms for ease of compliance.
The simplified VAT compliance regime has already taken effect (from 1 January 2022) for such non-resident suppliers of services and intangibles, but is scheduled to take effect from 1 January 2024 for non-resident suppliers of goods.
The simplified VAT compliance regime was issued by the FIRS through its Information Circular of 11 October 2021. This Information Circular is a highly recommended read and can be downloaded here or from the FIRS’ website – www.firs.gov.ng.
Below are highlights of the Circular / simplified VAT compliance regime:
Understanding VAT in Nigeria
Nigeria’s VAT rate stands at 7.5%, and it is essential for businesses, particularly Non-Resident Suppliers (NRS), to comprehend their roles and obligations in this context.
Scope of the Guideline
The Guidelines under the simplified VAT compliance regime apply to supplies, through digital means, of goods, services, intangibles and other digital products by persons not physically present, located or represented in Nigeria to businesses (“Business-to- Business” -B2B) or consumers (“Business-to-Consumers” – B2C) in Nigeria. Please note that this Guideline does not preclude the requirement under the VAT Act section 14(4) for taxable persons to whom taxable supplies are made in Nigeria in a cross-border transaction to self account and remit the VAT (i.e. withholding mechanism) where the invoice issued to them has no VAT charge.
Appointment of NRS Making or Facilitating Cross Border Suppliers via Digital Platforms as VAT Collectors
Pursuant to the provisions of section 10(3) of the VAT Act, the FIRS, via this Information Circular, has now officially appointed NRS (where the supply is made or facilitated via electronic or digital means), to collect VAT and remit same to the Service. ‘Non-Resident Suppliers’ that are obligated under this regime include:
- Where the supply is not made through intermediaries, the person making the supply
- Where the supply is made or facilitated through an intermediary or intermediaries, the intermediary through which the supply was made to Nigeria
Requirement for Registration
NRS as defined by this Circular must register for tax with the FIRS in their own name and obtain Tax Identification Numbers (TIN).
Qualification for Registration
To qualify for registration however, NRS must meet certain criteria. These include making or expecting to make supplies to Nigeria amounting to $25,000 or its equivalent in other currencies within 12 consecutive months.
Registration Does Not Constitute Taxable Presence for Income Tax
Registration under the guidelines does not constitute taxable presence for an NRS for the purposes of income tax, except where such NRS has a taxable presence pursuant to the relevant provisions of the Income Tax Act and tax treaty.
Information Required for Registration
When registering, NRS should provide essential information such as business names, nature of supplies, contact details, and TIN. They are also encouraged to include any additional relevant data. Other procedures for registration are detailed in the Information Circular.
Taxation of Services and Intangibles
The guidelines clearly define when internationally traded services and intangibles become taxable in Nigeria. This is primarily based on the place of consumption, which can be inferred from various factors, including the recipient’s residence, location, or other indicators like billing information. Services covered are enumerated in the Information Circular.
Taxation of Goods
Taxable goods supplied to individuals or businesses in Nigeria via electronic or digital means are subject to VAT. Goods are considered taxable when the delivery address is in Nigeria. Goods that have already been charged VAT under these guidelines are not subject to further VAT upon entry into Nigeria.
Compliance, Returns, and Payment
NRS are expected to comply with these guidelines fully. This includes issuing electronic tax invoices (which contains specified minimum information), filing monthly VAT returns even when no taxable supply is made, remitting VAT amounts promptly and de-registration with the FIRS when the NRS has ceased to meet the registration criteria for 3 consecutive years. According to this Circular, returns are due no later than 21 days after the end of each month. However, pursuant to the Finance Act 2023, VAT filing due date for persons appointed by the FIRS to collect VAT is now 14 days after the end of each month (instead of 21 days). Account numbers and procedures for VAT payment by NRS under this regime is detailed in the Circular.
Recovery of Input VAT
The NRS should remit tax collected without deducting input tax. According to the FIRS, 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 provides for input VAT deduction on exported goods and services.
Record Keeping and Retention
Proper record-keeping is crucial for NRS. They should maintain records that accurately represent supplies made to Nigeria, including types of supply, dates, VAT payable, and other relevant information. These records should be available to the FIRS upon request.
Using Third-Party Service Providers
NRS can enlist third-party service providers to help with compliance, but the ultimate responsibility lies with the NRS to ensure due diligence and adherence to these guidelines.
Consequences of Non-Compliance
Failure to account for VAT, remit VAT, or comply with the guidelines may lead to actions by the FIRS to recover outstanding amounts, including the use of the Mutual Administrative Assistance in tax collection instrument where applicable.
These guidelines have been designed to foster transparency, efficiency, and compliance for all stakeholders involved. Staying informed about these regulations is crucial to navigate Nigeria’s evolving business landscape effectively.
For in-depth insights, we recommend reviewing the complete VAT guidelines (Information Circular on Simplified VAT Compliance Regime) for Non-Resident Suppliers as issued by the FIRS (see download link above).
For personalised consultation or enquiries on how these Guidelines or VAT regime would impact your business as an NRS or as an aggregator platform for NRS supplies into Nigeria, please do not hesitate to contact us via clients@vi-m.com.