Introduction to Value Added Tax (VAT) in Nigeria
Introduction to Value Added Tax (VAT) in Nigeria
Value Added Tax (VAT) in Nigeria is a consumption tax that was instated by the Value Added Tax Act of 1993. It is a Federal Tax which is managed by the Federal Inland Revenue Service (FIRS). VAT is charged on most goods and services provides in Nigeria and also on goods imported into Nigeria.
Businesses add VAT to the sales price of the goods or services they offer in Nigeria. They also pay VAT, just like consumers, on goods and services that they consume. Some VAT paid by businesses can be used to offset VAT collected before remittance to the FIRS. VAT is calculated at a flat rate of 5% of the cost of service and products and is charged on a wide array of goods and services in Nigeria.
Registering with VAT Offices
Businesses are expected to register for VAT with the fist six months of the start of the business. Businesses that want to do business with state, federal or local government agencies are also required to show evidence of registration with VAT and past remittances. Addresses of FIRS offices
VAT for Non-resident Companies
Non-resident companies are expected to register with the VAT office using the address of the person or business that it is doing business with in Nigeria. Correspondence related to VAT for this business will be sent to this address.
Non-resident companies are also required to include VAT in their invoices to the person or business it is doing business with in Nigeria and the VAT is to be remitted in the currency of the contract.
Calculating and Collecting VAT
VAT is calculated at a flat rate of 5% on all goods and services sold in Nigeria, except items that are on the VAT exempt list. Businesses are required to calculate the amount of VAT they received from customers in a month and offset that with the VAT they paid to suppliers for goods and services. If the amount of VAT paid is more than the VAT the business collected, then the business is owed a refund. If the amount paid is less than the VAT the business collected, the business must remit the difference.
.Note: Only goods purchased or imported directly for resale and goods used for the direct production of any new product on which the output tax is charged can be used to calculate the offsetting tax. VAT on overhead, services, admin and general expenses cannot be used to calculate the offsetting VAT. These expenses are expected to deducted before arriving at taxable profits and so do not qualify.
Remitting VAT
A business is expected to remit VAT it has collected by the 30th day of the month following the month the goods or services were sold. For example, if a business sells a product on March 15th, VAT on the sale must be submitted by April 30th of the same year to avoid any penalties.
Penalties for non-registration or non-remittance of VAT
The penalty for non-remittance of VAT to the FIRS is N5,000 per month for every month that the amount is past due.
Some items exempt from VAT (Note: The list of items is not complete and is subject to review at any time
Some items are exempt from VAT. Exports are generally exempt from VAT and other products like:
- Medical, Veterinary And Pharmaceutical Raw Materials And Products
- Basic Food Items (Any unprocessed staple food item. Packaged or not packaged)
- Infant Food
- Books, Newspapers And Magazines
- Agricultural Equipment & Products
- Some Diplomatic Goods (Based On Federal Government Duty Free Concessions)
This guide explains the basics of how VAT works and is provided for information purposes only. Ensure that you consult with a tax professional about your particular situation. Find •Accountants, Auditors & Tax Consultants here. Contact us if you need further assistance.
Value Added Tax (VAT) in Nigeria is a consumption tax that was instated by the Value Added Tax Act of 1993. It is a Federal Tax which is managed by the Federal Inland Revenue Service (FIRS). VAT is charged on most goods and services provides in Nigeria and also on goods imported into Nigeria.
Businesses add VAT to the sales price of the goods or services they offer in Nigeria. They also pay VAT, just like consumers, on goods and services that they consume. Some VAT paid by businesses can be used to offset VAT collected before remittance to the FIRS. VAT is calculated at a flat rate of 5% of the cost of service and products and is charged on a wide array of goods and services in Nigeria.
Registering with VAT Offices
Businesses are expected to register for VAT with the fist six months of the start of the business. Businesses that want to do business with state, federal or local government agencies are also required to show evidence of registration with VAT and past remittances. Addresses of FIRS offices
VAT for Non-resident Companies
Non-resident companies are expected to register with the VAT office using the address of the person or business that it is doing business with in Nigeria. Correspondence related to VAT for this business will be sent to this address.
Non-resident companies are also required to include VAT in their invoices to the person or business it is doing business with in Nigeria and the VAT is to be remitted in the currency of the contract.
Calculating and Collecting VAT
VAT is calculated at a flat rate of 5% on all goods and services sold in Nigeria, except items that are on the VAT exempt list. Businesses are required to calculate the amount of VAT they received from customers in a month and offset that with the VAT they paid to suppliers for goods and services. If the amount of VAT paid is more than the VAT the business collected, then the business is owed a refund. If the amount paid is less than the VAT the business collected, the business must remit the difference.
.Note: Only goods purchased or imported directly for resale and goods used for the direct production of any new product on which the output tax is charged can be used to calculate the offsetting tax. VAT on overhead, services, admin and general expenses cannot be used to calculate the offsetting VAT. These expenses are expected to deducted before arriving at taxable profits and so do not qualify.
Remitting VAT
A business is expected to remit VAT it has collected by the 30th day of the month following the month the goods or services were sold. For example, if a business sells a product on March 15th, VAT on the sale must be submitted by April 30th of the same year to avoid any penalties.
Penalties for non-registration or non-remittance of VAT
The penalty for non-remittance of VAT to the FIRS is N5,000 per month for every month that the amount is past due.
Some items exempt from VAT (Note: The list of items is not complete and is subject to review at any time
Some items are exempt from VAT. Exports are generally exempt from VAT and other products like:
- Medical, Veterinary And Pharmaceutical Raw Materials And Products
- Basic Food Items (Any unprocessed staple food item. Packaged or not packaged)
- Infant Food
- Books, Newspapers And Magazines
- Agricultural Equipment & Products
- Some Diplomatic Goods (Based On Federal Government Duty Free Concessions)
This guide explains the basics of how VAT works and is provided for information purposes only. Ensure that you consult with a tax professional about your particular situation. Find •Accountants, Auditors & Tax Consultants here. Contact us if you need further assistance.
Value Added Tax (VAT) in Nigeria is a consumption tax that was instated by the Value Added Tax Act of 1993. It is a Federal Tax which is managed by the Federal Inland Revenue Service (FIRS). VAT is charged on most goods and services provides in Nigeria and also on goods imported into Nigeria.
Businesses add VAT to the sales price of the goods or services they offer in Nigeria. They also pay VAT, just like consumers, on goods and services that they consume. Some VAT paid by businesses can be used to offset VAT collected before remittance to the FIRS. VAT is calculated at a flat rate of 5% of the cost of service and products and is charged on a wide array of goods and services in Nigeria.
Registering with VAT Offices
Businesses are expected to register for VAT with the fist six months of the start of the business. Businesses that want to do business with state, federal or local government agencies are also required to show evidence of registration with VAT and past remittances. Addresses of FIRS offices
VAT for Non-resident Companies
Non-resident companies are expected to register with the VAT office using the address of the person or business that it is doing business with in Nigeria. Correspondence related to VAT for this business will be sent to this address.
Non-resident companies are also required to include VAT in their invoices to the person or business it is doing business with in Nigeria and the VAT is to be remitted in the currency of the contract.
Calculating and Collecting VAT
VAT is calculated at a flat rate of 5% on all goods and services sold in Nigeria, except items that are on the VAT exempt list. Businesses are required to calculate the amount of VAT they received from customers in a month and offset that with the VAT they paid to suppliers for goods and services. If the amount of VAT paid is more than the VAT the business collected, then the business is owed a refund. If the amount paid is less than the VAT the business collected, the business must remit the difference.
.Note: Only goods purchased or imported directly for resale and goods used for the direct production of any new product on which the output tax is charged can be used to calculate the offsetting tax. VAT on overhead, services, admin and general expenses cannot be used to calculate the offsetting VAT. These expenses are expected to deducted before arriving at taxable profits and so do not qualify.
Remitting VAT
A business is expected to remit VAT it has collected by the 30th day of the month following the month the goods or services were sold. For example, if a business sells a product on March 15th, VAT on the sale must be submitted by April 30th of the same year to avoid any penalties.
Penalties for non-registration or non-remittance of VAT
The penalty for non-remittance of VAT to the FIRS is N5,000 per month for every month that the amount is past due.
Some items exempt from VAT (Note: The list of items is not complete and is subject to review at any time
Some items are exempt from VAT. Exports are generally exempt from VAT and other products like:
- Medical, Veterinary And Pharmaceutical Raw Materials And Products
- Basic Food Items (Any unprocessed staple food item. Packaged or not packaged)
- Infant Food
- Books, Newspapers And Magazines
- Agricultural Equipment & Products
- Some Diplomatic Goods (Based On Federal Government Duty Free Concessions)
This guide explains the basics of how VAT works and is provided for information purposes only. Ensure that you consult with a tax professional about your particular situation. Find •Accountants, Auditors & Tax Consultants here. Contact us if you need further assistance.