Value added tax (VAT) was introduced in Nigeria in 1993 but became effective on 1 January 1994. VAT replaced sales tax.
VAT is governed by the Value added tax Act, Chapter V1, Laws of the Federation of Nigeria (LFN), 2004. The tax is administered by the Federal Inland Revenue Service (FIRS).
Rates and scope
The standard VAT rate on goods and services is 5%. Value for VAT purposes includes customs duties, taxes, commission, transport, insurance and other charges, where applicable. Other than the standard rated goods and services, some goods and services have been classified as VAT exempt, while others are zero-rated.
The standard rate applies to all goods imported, supplied or manufactured in Nigeria. The scope of VAT in Nigeria is broad and applies to almost all transactions. VAT, which is based on general consumption, is applicable to all business supplies of goods and services made (i.e. consumed) in Nigeria, except where the supply is specifically exempted or zero-rated.
of the production of such a company is for export; otherwise, the tax shall accrue proportionally on the item.
All resident and nonresident businesses doing business in Nigeria are required to register with the FIRS within six months of commencement of business. There is currently no registration threshold. The tax authorities will allocate a VAT registration number to every registered person. This number must be stated on all invoices issued by the registered person. Such invoices are referred to as VAT or tax invoices.
A nonresident company doing business in Nigeria is required to register for VAT using the address of the person with whom it has a subsisting contract as its address for purposes of correspondence relating to VAT.
Where a registered person changes his name or trading name or the address of any of his business premises or opens any new business premises, he must immediately notify the FIRS in writing, and all existing registration documents should be returned to the tax authorities for amendment or re- issue.
Group or branch registration
charged by a nonresident company is to be withheld and remitted directly to the tax authorities on behalf of the nonresident by the resident recipient. If VAT is not charged, the resident should still withhold VAT at 5%. However, the nonresident company must file monthly returns, including nil returns where appropriate.
Application for registration
Businesses must register with the tax authorities using VAT Form 001, within six months of commencement of business. Upon registration, the business will be issued a ‘Certificate of Registration’ and a VAT registration number. The number serves as an authority to charge and collect VAT on behalf of the FIRS.
The tax authorities must be notified in writing of the winding up of a company. There are no specific provisions for VAT deregistration in Nigeria.
Advertising and prices
Advertised prices for taxable goods and services are deemed to be inclusive of VAT. Where prices are not inclusive of VAT, this should be clearly stated. When invoicing, VAT must be clearly stated, where applicable.
VAT is applicable in all Nigerian states, including the Federal Capital Territory, the territorial waters and the continental shelf of Nigeria. For VAT purposes, the Export Processing Zones (EPZ) or Freeport Zones are not treated as part of Nigeria. VAT is therefore not payable on the importation of any goods or services into an EPZ or a Freeport Zone.
Where branches exist, each branch of a company is required to register separately. However, the FIRS now permits taxpayers to register centrally where their administrative offices are located. There is no group registration in Nigeria.
In addition, plant and machinery imported for use in an EPZ or Freeport Zone are exempt, provided that 100%
A nonresident company that carries on business in Nigeria is required to register and charge VAT on all its taxable supplies. However, VAT
Calculation of output tax
Output VAT is calculated at the standard rate of 5% on gross sales, including customs duties, taxes, commission, transport, insurance, other charges, etc. incurred on the goods or services supplied.
Output tax is due when a taxable supply is made or in certain other circumstances, such as: