On 11th October 2021, the Federal Inland Revenue Service (FIRS) issued Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers (“the Guidelines”). These Guidelines were issued pursuant to the provisions of section 10 of the VAT Act which obligates NRSs to register for VAT with the FIRS and obtain a Tax Identification Number (TIN). The Guidelines usher in an era regarded as the “Simplified Compliance Regime for VAT for Non-Resident Suppliers” (“SCR”).
As a background, between 1st December 1993 and 31st December 2020, Non-Resident Companies (NRCs) carrying on business in Nigeria were duty-bound to register for VAT with the FIRS using the address of the person with whom they had subsisting contracts as their address for purposes of correspondences with the FIRS. Apart from the seeming statutory restriction of the non-resident VAT net to only companies, enforcement by the FIRS of this duty placed on NRCs was palpably complicated and impacted negatively on Nigeria’s Ease of Doing Business and Ease of Paying Taxes.
The FA20 introduced an interesting statutory twist to this obligation by broadening the net to cover not just NRCs but (also) NRSs generally (natural persons, trusts, partnerships, corporations, companies or any other person) engaging in the supply of goods, services, or intangibles to persons in Nigeria through electronic, digital, or similar platforms. Furthermore, the FA20 discards the need for NRSs to use the address of the person to whom they make supplies as their respective mailing address in Nigeria. It empowers an NRS to appoint a representative in Nigeria to ensure compliance with its tax obligations, while it watches out for and complies with every legitimate guideline issued by the FIRS.
This article provides key highlights on the clarifications made by the Guidelines on obligations, processes and procedures required for the new SCR system.
Highlights of the Guidelines
NRSs engage in the supply of goods, services and/or intangibles. Accordingly, the Guidelines take effect from 1st January 2022 for NRSs of services and intangibles. As for NRSs of goods, the Guidelines will take effect from 1st January 2024.
Scope of the Guidelines
The Guidelines were issued to cover VAT obligations from supplies (of goods, services, intangibles and/or other digital products) made through digital means by NRSs to either Business-to-Business (B2B) businesses or Business-to-Consumer (B2C) consumers. The Guidelines are also aimed at providing simplification and guidance to NRSs appointed by the FIRS.
Non-Resident Suppliers (NRS) may be ascribed either of the following definitions:
- Where the supply is not made through intermediaries, the person making the supply. This NRS is called the actual NRS.
- Where the supply is made or facilitated through an intermediary or intermediaries, the intermediary through which the supply was made to Nigeria. This intermediary is referred to as the deemed NRS.
Appointment of VAT Collectors and Mode of Collection
The FIRS has appointed NRS as VAT collecting agents for supplies made or facilitated via electronic/digital means. Both actual and deemed NRS have an obligation to register for VAT in their respective names, issue VAT invoices, duly collect and remit VAT. For a deemed NRS, it deducts and remits VAT due on supplies made to Nigeria through its platform using its own TIN. A deemed NRS has the primary responsibility to comply with such obligations saddled on it by the FIRS as charging, collecting, and remitting VAT as well as filing VAT returns and record keeping.
A deemed NRS is expected to collect the applicable VAT when receiving payment from the customer. Where a deemed NRS uses a platform but does not receive payment directly or indirectly from the customer but are nonetheless entitled to commission on sales, VAT is expected to be collected alongside the commission and remitted accordingly to the FIRS.
According to the Guidelines, an (underlying) supplier is exempted from further VAT obligations ONLY where VAT on a supply has been duly accounted for by the deemed NRS. As explained in the final segment of this discourse, this provision appears unfair and unlawful.
Online VAT Registration and Deregistration (SCR)
An NRS (actual or deemed) that makes a taxable supply of goods and services to Nigeria (especially in line with the definition above) is obligated to register for VAT with the FIRS and obtain a TIN. For this purpose, we expect the FIRS to provide a dedicated link on its website in a few days.
When the online VAT registration regime (SCR) commences, already-registered NRS are required to migrate by using the said link.
Conversely, an NRS which, having previously met the qualification requirements (see the segment immediately-below) and registered, but (subsequently) fails to meet the qualification requirements for 3 consecutive years, may communicate to the FIRS its intention to be deregistered from the SCR. In turn, the FIRS may deregister such applicant upon due verification that the NRS no longer meets the qualification requirements.
Interestingly, a deregistered NRS which subsequently meets the qualification requirements is required to apply to the FIRS for re-registration.
What Qualifies an NRS to Register for VAT?
The Guidelines prescribe that an NRS must register online for VAT if within 12 consecutive months immediately before the Guidelines come into effect or any 12 consecutive months after, it (the NRS) has made or expects to make a single or series of supplies to Nigeria which (in aggregate value) amounts to $25,000 (Twenty-Five Thousand United States Dollars [USD]) or its equivalent in other currencies. The following conditions must also be met:
- The supplies are made through digital means to a person in Nigeria from a location outside Nigeria, and.
- The supplies are delivered to, consumed, or otherwise utilised in Nigeria.
Taxation of Internationally Traded Services and Intangibles
The basic condition for determining VAT liability under this heading is the “Place of Consumption Rule”. By this rule, internationally traded services and intangibles which are digitally supplied are subject to taxation if such intangibles or services are consumed or utilized in Nigeria. Digitally supplied services are deemed to have been consumed or utilised in Nigeria where some of these factors occur:
- The recipient of the supplies resides in Nigeria.
- It can be inferred that the consumer’s usual place of residence is Nigeria.
- The customer is a company incorporated under any extant Nigerian law.
- The customer’s URL, geo-location or IP address is in Nigeria.
- Payment for the supplies is initiated from a bank in Nigeria.
It should be noted that these factors are not mutually exclusive.
Penalty for Non-Compliance
An NRS will be regarded as having failed in its obligation to collect VAT where it fails to include the transaction in its VAT returns and/or where from the facts of the transaction, the NRS has neither charged nor collected the applicable VAT on the transaction.
For now, there is no penalty in the Guidelines for non-compliance with the obligation placed by the FIRS on NRS. Meanwhile, the FIRS may take “necessary steps” afforded by the law and the Guidelines, including the Mutual Administrative Assistance in tax collection, to collect the applicable VAT. What may be considered as “necessary steps or necessary acts” of enforcement of the Guidelines are not clearly defined, making the means of enforcement by the FIRS purely discretionary and subjective.
Appointment as NRS versus Income Taxability: Clarification Provided
Appointment and registration for VAT by an NRS cannot be construed as taxable presence (for the NRS) for the purpose of income tax compliance obligations. The provisions of relevant income tax statutes will continue to apply in such situations.
Scope of Services Covered by the Guidelines
The Guidelines cover a wide range of intangibles/services supplied via electronic, digital, or allied means or networks and whose supply is essentially automated, involving minimal human intervention, and impossible to complete (supply transaction) in the absence of the application of some form of information technology. In essence, the Guidelines cover (goods, services, or intangibles) supply transactions wherein information /digital technology is fundamental to its completion, including live streaming (sporting events, music, games, etc.), online gaming, online advertising services, payment platforms, ride hailing, accommodation booking, cloud computing and storage services, etc.
The Guidelines does not cover unautomated professional and consultancy services that are delivered through the internet, broadcasting services, telecommunication services, and other VAT-exempt services pursuant to the enabling statute.
Transitory Provision for Phased Compliance
An NRS may apply to the FIRS for phased compliance with the obligation to issue an electronic tax invoice in line with the requirements in the Guidelines to a purchaser of goods, services, or intangibles and to agree a time for full compliance. An approval by the FIRS of this application does not discount the obligation to file VAT returns and pay VAT accordingly for supplies made in Nigeria.
It should be noted that this provision is only transitory and may be eventually phased out by the FIRS.
Provision for Application for Extension of Time to File Returns
To account for VAT, an NRS has the duty to file returns on every transaction for which the service or good supplied is consumed in Nigeria not later than 21 days after the end of the month in which the supplies were made. An NRS must also file VAT returns covering months in which no taxable supply has been made to Nigeria.
Meanwhile, an NRS which reasonably believes that it may be unable to meet the filing deadline is permitted to apply before the end of the initial deadline for extension of time to file returns. The extension shall be granted for a time frame not later than one month.
Input VAT Treatment
An NRS is expected to remit the whole VAT value collected without deducting input VAT. As such, input VAT is claimable only in the jurisdiction from which the relevant supply originates, provided that the domestic VAT laws of such derivative jurisdiction provide for input VAT deduction on exported supplies.
Record Keeping Obligations
Consequent to the obligation of NRS to make records of supplies made to Nigeria available to the FIRS upon request, all NRS must keep reliable, verifiable, full, and accurate records of supplies made. Basic information required to be safekept include type of supply, date of supply, payable VAT, etc.
Appointment by NRS of Third-Party Representatives
An NRS may appoint a representative to act on its behalf in carrying out certain procedures such as submission of VAT returns. Where this happens, the appointed representative is deemed to be the lawful agent of the NRS and the NRS will be bound by the acts of such representative.
Importantly, where an NRS terminates the appointment of a representative whose function involves direct correspondence with the FIRS, the NRS has an obligation to immediately inform the FIRS of such development.
The Guidelines are worthy of commendation to a large extent and show the determination of the FIRS to contend with the ripple effects of continuing improvements in digital technology. The appointment of NRS as VAT collecting agents, the recognition of B2B and B2C supplies, intangibles and transactions executed through digital means are all novel provisions that indicate real improvement in tax administration.
However, some points of criticism are unavoidable. Section (10)(3) of VAT Act (as amended) places the duty of withholding/collecting VAT in the currency of the transaction on the resident taxpayer (RTP – to whom the supply of taxable goods or services in Nigeria are made) or such other person as may be appointed by the FIRS. With the issuance of the Guidelines, the FIRS has appointed NRS as its collecting agent to withhold and remit VAT. This creates two categories of persons required to collect and remit VAT on supply of goods and services to consumers in Nigeria by NRS. Which of the collecting and remitting entities takes precedence?
According to the Guidelines, an NRS has the precedent obligation to collect VAT. Where an NRS fails, for any reason, to collect VAT, or where it is not required to collect VAT, the obligation apparently trickles down to an RTP. This appears to be a serious administrative blunder from the FIRS. The Guidelines admits that the FIRS is rightly (statutorily) positioned to account for non-remittance of VAT, even by an NRS. Further, the relevant facts which stand as evidence of failure to account for VAT are exclusively available to the FIRS rather than to an RTP, and as such, expecting an RTP to assume the role of a tax compliance parastatal is alien to the Nigerian tax jurisprudence.
More so, for a completed transaction involving an NRS which fails to remit the applicable VAT, the power of the RTP is practically limited in that such RTP has no legal authority to prosecute the relevant NRS for its crime of VAT non-compliance.
Section 15 of the VAT Act creates a threshold for the remittance of Value-Added Tax (VAT) and other related tax obligations for all taxable persons. By this change, a vatable person whose taxable supplies within a calendar year have a value below 25 million Naira enjoys exemption from specific VAT liabilities, including filing of returns. Conversely, the Guidelines not only mandate NRS to file VAT returns regardless of their meeting the statutory threshold, but also prescribes a new threshold of $25,000. These provisions of the Guidelines are clearly in conflict with those of the VAT Act and may create an uneven turf if allowed to fly. The earlier these conflicts are resolved through the incoming Finance Act 2021, the better for the Nigerian tax landscape.
With the dynamics of digital technology and the constantly modified Nigerian tax legal requirements, it is highly recommended that NRS, and related entities enlist the constant legal support of competent tax advisors. Issues such as information required for VAT registration for NRS, updates on developments, guidance on reduction of exposures are just a few points of evidence on the indispensability of tax legal support for NRS.
Get the PDF version here.
For further information on this article and area of law, please contact
(Olukolade O. Ehinmosan and Iyanuoluwa Eludire) at:
S.P.A. Ajibade & Co., Lagos
By telephone (+234 1 472 9890), fax (+234 1 4605092)
Mobile (+234 815 0865 646 +234 810 3708 623)
Emails: (firstname.lastname@example.org) or (email@example.com)
 Olukolade O. Ehinmosan and Iyanuoluwa Eludire, Associates, Tax, Real Estate and Succession, SPA Ajibade & Co, Lagos, Nigeria.
 “NRSs”. These are Non-resident persons (natural or artificial) that make taxable supplies of goods and services to Nigerian customers.
 No. 2021/19, accessible here: <https://www.firs.gov.ng/wp-content/uploads/2021/10/Guidelines-on-Simplified Compliance-Regime-of-VAT-for-Non-Resident-Suppliers-15102021.pdf>, last accessed 28th October 2021 at 4:25 pm.
 As amended by section 43 of the Finance Act 2020.
 The Finance Act 2020 (“FA20”) took effect from 1st January 2021.
 PwC noted in December 2013 that the time required to comply with tax obligations accounts for Nigeria’s very low overall ranking. See “Nigeria and the Ease of Paying Taxes – A Country in Need of a Coordinated Approach to Tax Reform”, December 2013, accessible here: <https://www.pwc.com/ng/en/pdf/tax-bites-december-2013.pdf> accessed 2nd November 2021 at 10:45 am.
 See paragraphs 1.4 and 4.3 of the Guidelines.
 Section 10(4) & (5) of the VAT Act (as amended by section 43 of the FA20).
 Paragraph 2.1 of the Guidelines.
 B2B are persons that supply goods, services, intangibles, or other taxable supplies to other businesspersons /entities to resell or resupply.
 B2C are persons that supply goods and services, intangibles, or other taxable supplies directly to the end consumer.
 The Guidelines use “collect” for an actual NRS while it uses “deduct” for a deemed NRS.
 Page 7, infra.
 Section 10 of the VAT Act (as amended).
 Paragraph 8.0 of the Guidelines.
 Paragraph 15.0 of the Guidelines.
 Paragraph 20.0 of the Guidelines.
 The Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) jointly developed by the Organisation for Economic Cooperation and Development (OECD) and the Council of Europe in 1988, amended by a Protocol in 2010. The original Convention was opened for signature on 25th January 1988 while the Protocol was opened for signature on 27th May 2010. Nigeria was not a party to the original Convention but signed and ratified the Protocol on 29th May 2013. The Protocol entered into force generally on 1st June 2011 and particularly in Nigeria on 1st September 2015 with 144 States being parties as of 20th September 2021. Available at <https://www.oecd.org/tax/exchange-of-tax-information/Status_of_ convention.pdf> accessed 6th December 2021 at 01:52 pm. This formed the basis for the development of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports for the automatic exchange of Country-by-Country Reports.
 Paragraph. 21.0 of the Guidelines.
 First Schedule to the VAT Act (as amended).
 Paragraph 17.0 of the Guidelines.
 Paragraph. 18.1 of the Guidelines.
 Paragraph 23.0 of the Guidelines.
 Paragraph 6.3 & 6.4 of the Guidelines.
 Paragraph 21 makes this crucial admission. Meanwhile, by Paragraph 20.1 of the Guidelines, acts of failure to account are include failure to include the transaction in its return; and where the facts of the transaction show that an NRS has not charged VAT or collected the tax on the transaction from the taxable person.
 Amended by section 38 of the FA 2019.
 Simply, a person who trades in vatable goods and services for a consideration, usually money or money’s worth – section 46, VATA.
 Transaction in goods and/or services for a consideration, money, or money’s worth.
 See Olukolade O. Ehinmosan, Nigeria Tax Issues: Examining the N25 Million Threshold for VAT Exemption, 6th October 2021, accessible at <https://www.mondaq.com/nigeria/tax-authorities/1118636/nigeria-tax-issues-examining-the-n25-million-threshold-for-vat-exemption> accessed 7th December 2021 at 10:24 am.