FIRS Value Added Tax Act

CLARIFICATION ON THE IMPLEMENTATION OF THE VALUE ADDED TAX (VAT) ACT
This circular is issued for the information and guidance of the general public,
taxpayers and tax practitioners in line with the provisions of the Value Added Tax
Act. The circular amends/replaces FIRS Information Circular 2020/02 of 29th April
2020.
1.0 Introduction
The Finance Act, 2020 further amended some provisions of the Value Added Tax
Act, Cap. V1, LFN 2004 (as amended). This Information Circular is issued to
provide guidance to all stakeholders for appropriate implementation of relevant
provisions of the VAT Act.
2.0 Taxable Goods and Services
The provisions of Section 2 of the VAT Act (as amended) are explained as follows:
All goods and services supplied in Nigeria are liable to VAT in Nigeria except goods
and services specifically listed in the First Schedule to the Act. To this end, all
goods and services consumed or otherwise utilised in Nigeria are subject to VAT
in Nigeria. This is in line with the “destination principle” of VAT.
3.0 Place of Supply
Goods are supplied in Nigeria if:
i. the goods are physically present in Nigeria at the time of supply;
ii. imported into Nigeria;
iii. assembled in Nigeria;
iv. installed in Nigeria;
v. the beneficial owner of the rights in or over the goods is a taxable person
in Nigeria; and
vi. the goods or right is situated, registered or exercisable in Nigeria.
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Service is supplied in Nigeria if:
(i) the service is render to or consumed by a person in Nigeria, irrespective of
whether the service is rendered within or outside Nigeria.
(ii) the service relates to an immovable property in Nigeria, regardless of the
location of the service provider.
Service, in this regard, includes but not limited to the services of agents
relating to the management or marketing of immovable property, services
of all forms of experts and professionals relating to immovable property
including analysis of samples drawn from the immovable property, services
of engineers, architects, valuers, researchers, testers, etc. relating to the
immovable property.
Incorporeal is supplied in Nigeria, irrespective of where the payment for its
exploitation is made, if:
i. the exploitation of the right is made by a person in Nigeria whether or not
the right is registered in Nigeria;
ii. assigned to or acquired by a person in Nigeria; and
iii. the incorporeal is connected with a tangible or immovable asset located in
Nigeria.
NOTE:
i Services rendered to and consumed by a Nigerian resident while physically
outside Nigeria, are not liable to VAT in Nigeria.
ii Services provided under a contract of employment are not liable to VAT.
iii Land and building, money, and securities are not liable to VAT.
iv Although the definition of goods and services (as contained in Section 46 of
the VAT Act) exclude land and building, this does not in any way preclude
the charge of VAT on the supply of chargeable goods and services relating
to such land and building.
4.0 Time of Supply
Generally, the time of supply for VAT purposes is the earlier of when an invoice
or receipt is issued, or payment of consideration is due, or received by the
supplier in respect of that supply.
However, where invoices are not issued as in the case of connected persons, time
of supplies is the earlier of any of the following periods and as may be applicable:
a) The time of removal of the goods from the supplier’s premises;
b) The time when the goods or incorporeal are available for the use of the
recipients; or
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c) Upon rendering the service.
In cases where goods or services are supplied under a law or an agreement that
provides for periodic payments, then the time of supply of each successive part
of the supply shall be the earlier of:
i. when payment for that part becomes due;
ii. invoice relating to that part is issued; or
iii. when payment for that part is received.
This treatment also applies in the case of instalment, progressive, or periodic
payment of rent, or any construction, improvement, repair, assembly,
manufacturing, and similar activities or works.
Where goods are supplied under an instalment credit agreement, the time of
supply is the earlier of when the goods are delivered and when payment is
received by the supplier.
5.0 Rate of Tax
Section 4 of the VAT Act is amended by changing the VAT rate from 5% to 7.5%.
VAT rate was changed to 7.5% with effect from the 1st of February, 2020.
Consequently, all taxable supply of goods and services from the 1st of February,
2020 is chargeable at the new rate of 7.5%.
Transitional Issues
The change in rate from 5% to 7.5%, takes effect from the 1st of February 2020.
Section 13A (2) of the Value Added Tax (VAT) Act, Cap V1, LFN 2004 (as
amended) states that:
’’A tax invoice shall be issued on supply whether or not payment is made
at the time of supply’’ For the purposes of VAT:
i. A service is supplied when it is performed, or an agreed milestone is
reached.
ii. Goods are supplied upon delivery or transfer of risk, whichever occurs first.
Provided that, where it is not practicable to determine the time of supply as
aforesaid, the Service may rely on the dates indicated on the relevant
invoices, bills, debit notes, goods-received notes, waybills, journal entries,
etc.
In view of the foregoing, the general public is invited to take note of the following
transitional arrangements:
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i. The VAT rate for taxable supplies made prior to the 1st of February 2020,
is 5%;
ii. For a contract of taxable supplies signed prior to 1st of February 2020 and
supplies or performance occurred on or after the 1st of February 2020,
applicable VAT is 7.5%;
iii. For continuing contracts for which supplies or performance is measured on
the basis of milestone achieved, VAT rate for milestones achieved on or
after the 1st of February 2020, is 7.5%; and
iv. For all taxable supplies made from 1st of February 2020, VAT rate is 7.5%.
6.0 Registration and Deregistration Requirements
6.1 Domestic Businesses and Companies with Fixed Base or Permanent
Establishments
a. Section 8 of the VAT Act was amended to mandate all taxable persons to
immediately register for the tax upon the commencement of business as
defined in Section 46 of the VAT Act.
b. The penalty for failure to register is as follows:
i. First month of default is N50,000
ii. Subsequent months in which failure continues is N25,000;
c. A taxable person who permanently ceases to carry on trade or business in
Nigeria shall notify the Service within 90 days of cessation.
d. Penalties for failure to file returns will continue to apply where the taxpayer
fails to notify the Service of cessation of business.
6.2 Non-Resident Companies
Section 10 of the VAT Act provides that:
a. a non-resident person who makes taxable supplies to a person in Nigeria,
is required to register for the tax with the FIRS and obtain a Taxpayer
Identification Number (TIN);
b. the non-resident person shall include VAT on its invoice for the supply of
goods or services made;
c. a non-resident person may appoint a representative in Nigeria for the
purpose of its tax obligations in Nigeria;
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d. where a person has been appointed by the Service, the agent shall withhold
and remit the VAT due on the transaction.
e. Where the non-resident did not collect the tax, the resident person to whom
the supply was made is required to withhold and remit the VAT due to the
Service in the currency of the transaction.
NOTE:
A non-resident company which has a fixed base or a permanent establishment in
Nigeria is required to comply with the provisions of the VAT Act.
The Service will issue detailed Guidelines to provide clarifications on the
operations of VAT as it relates to non-residents in line with the provisions
of Section 10(5) of the VAT Act.
7.0 Collection and Remission of Tax
7.1 General Rule
In accordance with Section 4 of the VAT Act, every taxable person is to collect
tax at the rate of 7.5% of the value of the goods and services supplied and the
tax so collected is the output VAT. Monthly remission of the net VAT payable
(which is the excess of the output VAT over the input VAT) is to be made in the
currency of transaction on or before the 21st day of the preceding month of such
transaction and returns must be rendered to the Service in the appropriate form
as discussed in paragraph 9 below.
7.2 Withholding of VAT and Self-Account
Section 14(3) & (4) of the VAT Act introduced a Self-Account provision for all
supplies for which VAT was not charged.
The Self-Account provision imposed a duty to withhold and remit VAT on a taxable
person to whom a supply is made in Nigeria where:
i. the supplier is a person exempt from charging VAT under the Act;
ii. the supplier failed to charge VAT;
iii. the supplier is a foreign company that makes taxable supply of goods or
services without a fixed base or permanent establishment in Nigeria, whether
or not VAT is included in the invoice.
The taxable person shall prepare a self-account and remit the tax due in the
currency of the transaction on or before the 21st day of the month immediately
following the month of the transaction. Read More…