Summary
Summary
The Nigerian Government enacted the Finance Act 2020 to improve tax collection from non-resident providers of digital services. The Act introduced new regimes like withholding tax to enhance compliance. However, B2C transactions remained a challenge for tax revenue collection.
Background
The Nigerian Government worked for several years to establish a modern, efficient, and effective tax framework for non-resident providers of digital services and intangibles, as well as for e-commerce merchants. The first notable step to strengthen the initial framework was the adoption of the Finance Act 2020, which came into force on January 1, 2021.
This Act modified provisions of the VAT Act, introducing new regimes (such as withholding tax) to improve tax collection. WIth these norms, in the cases where non-resident providers failed to comply with VAT norms, the resident taxable person became liable for VAT collection and remittance.
However, at that time, the updated provisions covered the withholding regime only for B2B transactions, resulting in limited tax collection and significant revenue loss for B2C transactions (which account for a larger share of tax revenue).
To move forward, the Revenue Authority adopted the Guidelines on Simplified Compliance Regime for Non-Resident Suppliers on October 11, 2021. These Guidelines were, and still are, a core technical component of tax legislation that, in great detail, explain the scope of tax liabilities arising when the provision of digital services or intangibles to local customers is at issue.
VAT Regime for Non-Resident Providers of Digital Services
These Guidelines were specifically designed to strengthen the VAT collection regime for non-resident providers of digital services (regulated primarily under the VAT Act (Section 10)). The principal legislation that regulates the responsibilities of non-resident providers of digital services in Nigeria can be found in the following:
- Corporate Income Tax Act
- VAT Act
- Guidelines on Simplified Compliance Regime for Non-Resident Suppliers
VAT requirements for Non-Resident Providers of Digital Services
There are three distinct VAT collection frameworks for this type of supply, each with different requirements for the parties involved.
In most cases, a non-resident digital service provider should register for VAT when it provides B2C supplies of digital services or digital products to local customers. It could register voluntarily or when it surpasses the specified threshold.
First case scenario→ Non-resident providers of digital services should register (using the simplified online registration procedure) when they exceed the mandatory threshold of USD 25,000, calculated based on turnover for 12 months or less.
Second case scenario→ Was introduced on the basis of the abovementioned Guidelines, as the policy introduced by the Revenue Authority, to strengthen the collection mechanism. The Revenue Authority has the power, on the basis of the VAT Act and Corporate Income Tax Act, to claim a mandatory tax registration from non-resident digital service providers.
When Inland Revenue notices, after careful consideration, that non-resident supplier X has substantial economic presence in the country, based on the revenue, have the power and authority to demand from this supplier mandatory VAT registration, and payment of VAT that should have been collected from the moment when one of the thresholds has been fulfilled.
If the Revenue Authority notifies the appointed non-resident provider of digital services that it has a significant economic presence in the country, the tax responsibilities and tax payable will most likely also include CIT, in addition to VAT.
Having a significant economic presence doesn’t mean the foreign provider has established a permanent establishment in the country or that it is obligated to be incorporated.
Third case scenario→ This mechanism for VAT collection on the provision of digital services by non-resident providers is the VAT withholding regime. Under this regime, when the NRS fails to charge VAT, the resident taxpayer must withhold VAT from the payment and remit it to the tax authorities.
VAT Compliance
Non-resident providers of digital services should register for Nigeria VAT online, following the simplified registration procedure. To streamline the compliance process, the Inland Revenue uses a single portal for VAT filings and remittances.
Registered providers should collect VAT on both B2C and B2B transactions.
Returns should be filed and tax remitted by the 21st day of the month following the reporting period.
How To Stay Compliant
The Nigerian VAT regime for non-resident providers of digital services and products, as well as e-commerce vendors, can be complex due to the different tax frameworks used to determine primary responsibility for tax collection.
We have successfully assisted many non-resident digital service providers and platform operators in registering for VAT in Nigeria, either after exceeding the threshold or upon identifying a significant economic presence in the country. In addition to successfully managing your registration, we offer full VAT compliance services in Nigeria. Such as:
- Monthly VAT reporting and tax remittance
- Tax Advisory and Ongoing Tax Management
- Correspondence with Tax Authorities
Takeaway
The Nigeria Revenue Service has implemented a multilayered tax framework for non-resident digital service providers. This specific VAT regime should assume a higher level of VAT compliance among responsible non-resident providers of digital services and intangibles.
Author: Aleksandar Delic
The Revenue Commissioners’ legitimate right to appoint a non-resident digital service provider as a responsible tax collector officially triggered a higher level of direct VAT registrations by accountable digital service providers once the turnover threshold was surpassed.
Indirect Tax Manager- E-Commerce
Frequently Asked Questions
Yes. A non resident provider supplying digital services or intangibles to Nigerian customers is generally expected to register for VAT using the simplified online procedure once VAT registration is required, for example when the mandatory turnover threshold is exceeded or when the tax authority requires registration due to significant economic presence.
The mandatory threshold referenced in the simplified compliance framework is USD 25,000 turnover over 12 months or less. Once exceeded, the provider should register and charge VAT on taxable supplies to Nigerian customers.
Significant economic presence is a basis for the tax authority to require mandatory registration where it considers a non resident supplier to have substantial participation in the Nigerian market, typically assessed using indicators such as revenue generated from Nigerian customers. This can trigger VAT obligations and may also bring potential corporate income tax exposure.
Where the non resident supplier fails to charge VAT, the VAT withholding mechanism applies. In that scenario, the Nigerian resident payer withholds VAT from the payment and remits it to the tax authority, serving as a backstop for collection.
Yes. Once registered, the provider is expected to charge and remit VAT on taxable supplies to Nigerian customers across both B2C and B2B transactions, following the VAT rules and filing procedures.
VAT returns and payment are due by the 21st day of the month following the reporting period, using the tax authority’s online portal for VAT filings and remittances.
Register for a FREE consultation
We offer a FREE consultation to better understand your needs. This could result in a simple solution to your taxes issues or lead to a more collaborative working relationship. Let’s find out what’s the best solution for you!
Book a Free consultation