Guidance issued on simplified VAT compliance regime for nonresident suppliers
Nigeria’s Federal Inland Revenue Service (FIRS) issued Information Circular No. 2021/19 dated 11 October 2021 that explains the simplified VAT compliance regime for nonresident suppliers. The circular replaces and supersedes other notices and publications issued by the FIRS in this area, and is effective as from 1 January 2022 with respect to the supply of services and intangibles and 1 January 2024 for the supply of goods.
The circular—which was issued pursuant to the provisions in section 10 of the VAT Act (which requires nonresident suppliers to register for VAT purposes and obtain a tax identification number (TIN))—covers the following:
- VAT registration requirements and procedure;
- Taxable supplies;
- Nonresident suppliers as VAT collection agents;
- Procedure for remittance of tax collected;
- Procedure for deregistration; and
- General obligations of nonresident suppliers.
Scope of the guidance
The circular applies to the digital supply of goods, services, intangibles and other digital products by persons that are not physically present, located or represented in Nigeria to businesses or consumers in the country, where the supply is consumed or otherwise used in Nigeria. Supplies covered under the guidance do not include items expressly excluded from tax under the VAT Act.
The circular requires nonresident suppliers making covered supplies to register for VAT via a dedicated link on the FIRS website (the link is not yet available) if the conditions for registration (see below) are satisfied. Nonresident suppliers that already have registered with the FIRS and obtained TINs should migrate to the simplified compliance regime by using the link once it is available.
Registration is required for nonresident suppliers that, within the 12-consecutive month period immediately before the circular becomes effective or any 12 consecutive months thereafter, has made or expects to make a single or series of supplies to Nigeria that (in aggregate value) amount to USD 25,000 or its equivalent in other currencies. The Nigerian currency (i.e., Naira or NGN) equivalent of USD 25,000 is not up to NGN 25 million, which is the threshold for charging VAT on goods and services as provided in the VAT Act. The FIRS has to look into this and make the necessary changes to comply with the provisions of the VAT Act.
A nonresident supplier must furnish the following information for VAT registration:
- Name of the business, including the trading name;
- Whether the nonresident is a primary supplier or an intermediary or both;
- Nature of the supply;
- Name of the contact person or agent responsible for dealing with the FIRS;
- Registered address of the business and a contact person (if different from above), including the telephone number and email of the contact;
- Website URL of the nonresident supplier through which it conducts business in Nigeria;
- TIN of the nonresident in its jurisdiction of residence if that number is issued to the supplier to conduct business in its jurisdiction and the Nigerian TIN if the nonresident is already registered for VAT in Nigeria; and
- Any other information the nonresident supplier may deem relevant.
This data will enable the FIRS to have reasonable information about the nonresident for purposes of monitoring compliance. A nonresident supplier that fails to comply with the registration requirement for three consecutive years may notify the FIRS of its intention to be deregistered from the simplified compliance regime.
The circular specifically states that simply because a nonresident supplier is VAT-registered with the FIRS does not mean the nonresident is liable to income tax in Nigeria unless it fulfills the conditions to bring the nonresident within the scope of the Nigerian income tax net.
The circular covers the supply of intangibles or services delivered via electronic or digital means or similar networks where the supply is essentially automated, involves minimal human intervention and is impossible to ensure in the absence of information technology. Services covered by the circular include:
Streaming, downloading or providing access to digital content such as films, music, e-books, magazines, news, applications, games, library services or similar services;
- Online gaming;
- Online ticketing, excluding international air travel and freight charges;
- Online betting services;
- Online intermediation platform services, including online marketplaces, payment platforms, ride hailing, travel and accommodation booking, rental services, etc.;
- Online advertising services;
- Subscription-based social media platforms, such as video conferencing applications, instant messaging, chat, dating, image/video sharing or like services;
- Standardised online education services, such as e-learning, webinars, etc.;
- Cloud computing services, including cloud storage services;
- Auction services;
- Automated online professional and consultancy services; and
Services that are not covered are:
- Professional and consultancy services that are not automated but are delivered via the internet (e.g., via email);
- Broadcasting services;
- Telecommunications services; and
- Services that are exempt from tax under the First Schedule to the VAT Act.
It should be noted that the circular does not exempt nonresident suppliers that are not within the scope of the guidelines from obligations under the VAT Act, including registration and the inclusion of VAT on their invoices.
Responsibilities of nonresident suppliers, intermediaries and third-party service providers
The circular sets out various responsibilities of a nonresident supplier, an intermediary or third-party service provider, if an intermediary or third party is used.
In addition to VAT registration, a nonresident making digital supplies that are delivered, consumed or used in Nigeria must issue VAT invoices in its own name, and collect and remit VAT to the FIRS.
Different rules apply where the nonresident uses an intermediary or a third-party service provider. The circular defines an intermediary as a person, digital interface or platform that facilitates the supply of goods, services or intangibles through electronic or digital means or that is responsible for issuing invoices and collecting payment for the supply on behalf of the underlying supplier.
If the intermediary receives payments from customers, it must register for VAT and remit VAT due on amounts received from customers. However, if the intermediary does not receive payment directly or indirectly from the customers but is entitled to a commission on sales, it should charge VAT on the commission and remit the VAT due to the FIRS. Where the intermediary remits VAT to the FIRS on payments received from customers, the nonresident supplier is not required to remit the same VAT due on the supplies.
As an alternative to an intermediary, a nonresident supplier could use a representative or third-party service provider to act on its behalf in carrying out certain procedures or auxiliary functions, such as submitting returns, etc. In such a case, the nonresident should ensure that actions of a representative or third-party service provider are in compliance with the circular and that any action taken by these parties on behalf of the nonresident are deemed to be taken by the nonresident supplier.
The representative/third party must register with the FIRS in the name of the principal, and the name and TIN of the nonresident must be included on all correspondence with the FIRS. The nonresident should inform the FIRS immediately if the services of its representative/third-party service provider are terminated or a new representative/third-party service provider is appointed.
Section 10(3) of the VAT Act (as amended) provides that a nonresident company must include the VAT on its invoice for the supply of taxable services and Section 10(4) provides that the person to whom the services are supplied in Nigeria must withhold and remit the tax directly to the FIRS in the currency of the payment. The FIRS may need to review the circular to ensure it is in compliance with the VAT Act, which requires the Nigerian recipient of services to withhold and remit the VAT directly to the FIRS in the currency of payment.
A nonresident supplier registered with the FIRS must issue an electronic tax invoice to a purchaser of the goods, services or intangibles in the format used in the nonresident’s jurisdiction. The invoice must contain information, such as the name and TIN of the nonresident supplier, a description of the supply and its value and the VAT charged.
A nonresident supplier may request phased compliance with the invoicing requirement, provided it files a return and pays VAT on all supplies made to persons in Nigeria as from the effective date of the circular.
Filing of returns and input VAT recovery
A registered nonresident supplier must file a monthly VAT return within 21 days after the end of the month in which the supplies were made, even if no taxable supplies were made to Nigeria in that month (a nil return should be filed in the latter case). The return must be in a prescribed template issued by the FIRS and filed electronically. If the nonresident is unable to file the return in a timely manner, it may request a filing extension from the FIRS.
Input VAT on goods supplied by a nonresident may not be used to offset output VAT in calculating VAT payable to the FIRS. The reason is that nonresident supplier may only claim input tax in the jurisdiction of origin of the supply provided the VAT rules of that jurisdiction allow for the recovery of input VAT on exported goods and services.
Procedure for remittance of tax
Using its name and TIN, a nonresident supplier is required to remit the VAT due to the FIRS through any collecting bank in Nigeria where the transaction is paid in NGN and electronically in the case of foreign currency.
Payment instructions should clearly spell out the following:
- Name and address of the bank;
- Bank code number;
- Value date;
- Account name and number;
- Currency in which payment will be made;
- IBAN number (where applicable);
- Name and address of the company; and
- Type of tax and related period.
Record-keeping requirements and consequences of noncompliance
Nonresident suppliers are required to keep reliable and verifiable records that provide a full and accurate description of supplies made to Nigeria, which must be made available to the FIRS, if requested. The information should indicate the type and date of a supply, the VAT due and any other information that may be needed to demonstrate that the VAT for each supply has been charged and accounted for correctly.
According to the circular, if the nonresident supplier has information that is required by the FIRS, but was not otherwise provided or included in a VAT return, that information must be made available to the FIRS within three months of a request. If the supplier is unable to provide the information due to legal or other requirements in its country of residence, the nonresident supplier should notify the FIRS immediately, citing the reason.
If a nonresident supplier fails to account for or remit VAT or otherwise comply with the circular, the FIRS will take all steps necessary to recover the amount due and obtain restitution. The FIRS also may resort to the mutual administrative assistance in tax collection instrument, as appropriate, to collect the tax and take any other steps needed to enforce the tax law and collect the tax due.
The circular is based on the provisions of Section 10(5) of the VAT Act (as amended) and provides clarifications on the obligations of nonresident suppliers. The circular aims to boost the collection of tax and bring more persons within the scope of the Nigerian VAT net. However, the FIRS should ensure that the guidance is in line with the provisions of the VAT Act to minimize disputes with taxpayers and put in place the necessary systems to ensure that nonresident suppliers remit the correct VAT on taxable supplies to persons in Nigeria.