On Monday 11th October 2021, the Federal Inland Revenue Service (FIRS), published guidelines on simplified compliance regime for VAT for non- resident suppliers. In its latest publication, the FIRS stated that these guidelines serve to act as a point of reference and guidance for the public, tax practitioners and taxpayers, particularly, non-resident suppliers of goods and services to Nigeria.
Furthermore, the FIRS also clarifies the obligations, processes, and procedures for compliance with the simplified compliance regime. These guidelines amend, modify, update, or replace contents of any other previously stated guideline, circular, notice or publication previously issued by the Service in this regard.
Following the amendments to the Value Added Tax (VAT) Act by the 2020 Finance Act, non-residents that make taxable supplies of goods and services to Nigerian customers are now required to register for VAT, include VAT on their invoices and file returns. This amendment created Nigerian VAT obligations for all non-residents, as long as they have business transactions with a Nigerian company, regardless of whether or not they have any fixed connection with Nigeria.
Consequently, the FIRS has published a circular to simplify the VAT regime for Non-Resident Suppliers (NRSs) in order to ensure the seamless adoption of the new VAT requirements for non-resident companies. The circular would be effective from January 2022 for the supply of services and intangibles by NRSs to Nigerian customers, and from January 2024 for the supply of goods.
The Service further stated that it will review these guidelines on an on-going basis and make changes that are considered desirable and suitable, in which case the respective non-resident suppliers shall be notified accordingly.
Highlights of the FIRS’ Guidelines Include:
- Appointment of Non-resident Suppliers as VAT agents
Non-resident suppliers are now obligated to collect and remit VAT on all supplies of transactions facilitated digitally or electronically. Respective owners of intermediary platforms are required to fulfil VAT obligations by duly carrying out registration, invoicing and filing requirements in respect of sales completed via their platforms, as if they were the actual suppliers. Furthermore, such platform owners are also required to maintain relevant records of transactions with Nigerian customers completed through their platforms.
2. New means of registration
The FIRS in its circular stated that a dedicated link will be subsequently made available, which non-residents are expected to use for tax registration. NRSs that have already registered for tax in Nigeria are also required to migrate to the simplified compliance regime using this link.
3. Introduction of a new VAT threshold
The FIRS’ introduced a new VAT threshold of $25,000 (or its equivalent in other currencies) for Non-resident suppliers. Consequently, they are only required to register if they expect to make total annual supplies of at least $25,000.
In addition, the FIRS stated that companies that have not met the $25,000 VAT threshold for 3 consecutive years can write to the FIRS to be deregistered from the regime and can reactivate their registration if they meet the threshold subsequently.
4. Excluded services
The FIRS states that the guidelines cover services delivered via electronic or digital means. It excludes professional and consultancy services that are not automated (but may be delivered via email), broadcasting services, telecommunication services and services exempt from tax based on the first schedule of the VAT Act.
5. Rules for determining the place of consumption
Based on the circular, digital services would be considered to be consumed or utilised in Nigeria if the recipient dwells in Nigeria, is a company incorporated in Nigeria, or if the customer’s IP address is in Nigeria. The FIRS would also consider any other evidence suggesting that the supply was consumed or utilised in Nigeria. If for any reason, the residence of the customer cannot be ascertained, the FIRS will consider whether payments for the supplies originate from a bank licensed or incorporated in Nigeria.
We commend the FIRS efforts in its bid to provide guidance to non-resident suppliers, taxpayers, and the public. However, there some issues that stand out and are worthy of note:
- A closer review of the VAT registration threshold for non-resident suppliers included in the circular ($25,000), clearly shows inconsistency, as it is lower than the N25million threshold stated in the VAT Act. This translates to an unbalanced tax landscape, compared to local businesses, and it contradicts the provisions of the VAT Act.
- The appointment of non-resident suppliers as collectors or agents is not supported by the VAT Act. The Act clearly states that Nigerian companies are required to self-charge VAT or deduct VAT at source and remit same to the FIRS accordingly for transactions with NRSs. We note that the FIRS has relied upon section 10(3) of the VAT ACT, which grants the FIRS the power to appoint a person to withhold and remit VAT. Nevertheless, this can be challenged on the basis that the non-resident suppliers are not being asked to withhold VAT by the FIRS under these guidelines but are being asked to collect VAT from their customers. The appointment therefore contradicts the provision of VATA.
Although these guidelines provide a degree of clarity to non-resident suppliers in interpreting the provisions of the law, It is imperative that these new guidelines are aligned with the amendments in VAT Act via the Finance Act.