Nigeria has rolled out a sweeping value-added tax (VAT) reform that expands the tax net to cover digital services and cross-border transactions. The new rules require foreign companies supplying services to Nigerian consumers to register for tax, charge VAT on their invoices, and remit it to the authorities.
Under the recently enacted Nigeria Tax Act, all non-resident persons making taxable supplies to Nigeria must now comply with VAT obligations at the existing rate of 7.5 per cent. This marks a significant policy shift aimed at taxing previously untapped segments of the digital economy.
Digital Services Now VATable
The legislation applies VAT to all taxable supplies deemed to take place in Nigeria. For goods, this includes instances where items are physically present, imported, assembled, or installed in the country. For services, the law states that any service provided to and consumed by a person in Nigeria will attract VAT, regardless of where the service originates.
This provision brings a wide range of digital services under Nigeria’s tax regime, including video streaming platforms, cloud computing, online advertising, and software subscriptions. Intellectual property and other intangible rights exploited in Nigeria or connected with Nigerian assets are also covered.
Consumers Face Withholding Obligations
To ensure compliance, the law introduces a withholding mechanism for cross-border transactions. Nigerian recipients of services from foreign suppliers must withhold VAT from payments and remit it directly to the Nigeria Revenue Service (NRS), formerly the Federal Inland Revenue Service (FIRS).
However, the NRS may appoint non-resident suppliers or digital platforms as collection agents. In such cases, the consumer’s withholding obligation is waived unless the appointed supplier fails to remit VAT.
According to the Act:
“A non-resident person who makes taxable supplies to Nigeria shall register for tax and include VAT on its invoice for all taxable supplies. Where a non-resident person is making taxable supplies from outside Nigeria to persons in Nigeria, the taxable person to whom the supply is made shall withhold VAT due and remit it to the service.”
Collection Agents and Compliance
The legislation empowers the NRS to designate payment processors, online platforms, and other intermediaries as VAT collection agents. This is expected to streamline tax compliance for cross-border digital transactions.
The law also clarifies when VAT becomes due. For most transactions, VAT liability arises when an invoice is issued, goods are delivered, or payment is received—whichever happens first. For rental agreements and periodic services, VAT applies at each payment interval. Construction projects and installment credit agreements are treated similarly, with VAT obligations spread across the project timeline.
Imported Goods and Non-Monetary Transactions
The Act stipulates that VAT on imported goods includes not only the purchase price but also all associated costs such as taxes, duties, commissions, packing, transportation, and insurance up to the point of entry.
It also addresses non-monetary transactions such as barter deals, gifts, and supplies between related parties, requiring VAT to be calculated based on market value.
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