Nigeria’s simplified compliance regime for non-resident suppliers

Many tax jurisdictions encounter difficulties exercising their tax legislation against taxpayers who do not reside in their jurisdictions. The adoption of a simplified registration and collection mechanism is one of the approaches suggested by the OECD to address these difficulties. The simplified compliance regime is more appropriate for business-to-consumer (B2C) transactions as most B2C customers are individuals who are not registered for VAT purposes. Hence, it is impracticable for B2C customers to account for the VAT on such transactions.

Nigeria has joined the league of countries that have, or are in the process of, implementing the approach suggested by the OECD in respect of simplified registration and collection mechanisms. Recently, Nigeria’s Federal Inland Revenue Service (FIRS) released the “Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers”, dated 11 October 2021. The guidelines have been issued by FIRS in a bid to prevent the loss of tax revenue arising from business-to-business (B2B) transactions and, especially, B2C transactions involving non-resident suppliers. The guidelines define B2B supplies as supplies where the supplier and customer are businesses, and B2C supplies as supplies where the supplier is a business, but the customer is an individual.

This article provides a high-level overview of the guidelines issued by FIRS and summarises the proposed changes for the supply of intangibles, services, and goods by non-resident suppliers via a digital or electronic channels.

Basis for taxation of non-resident suppliers

Previously, non-resident suppliers carrying on business in Nigeria were not required to register, collect or remit VAT in Nigeria. However, by virtue of Section 10 of the Nigerian VAT Act, as introduced by the Nigerian Finance Act of 2020 and 2021, non-resident suppliers are now required to register, collect and remit VAT to FIRS.

In exercise of its powers, by virtue of Section 10(6) of the VAT Act, FIRS has issued guidelines in respect of the simplified compliance regime. This regime applies to the suppliers of goods, services, and intangibles, made by persons through digital means and other digital products. Persons here may be natural persons, trusts, partnerships, corporations, companies, and any other person not physically present, located, or represented in Nigeria.

Goods and services covered

Services covered under this regime include any intangible or service delivered using electronic or digital means or similar networks, whose supply is essentially automated and involves minimal human intervention. In a nutshell, the services covered should practically be impossible to perform without the aid of information technology. On the other hand, goods covered under the simplified compliance regime are limited to goods supplied through electronic or digital means or similar networks.

Further, the guidelines provide examples of services covered under this regime. These include streaming, downloading or access to digital content; online gaming; online ticketing excluding international air travels and freight charges; online betting services; online intermediation platform services, and so on. The guidelines also provide a list of services not covered under the simplified compliance regime. These are professional and consultancy services that are not automated but delivered via the internet (e.g., email); broadcasting services; telecommunications services, and services exempt from VAT.

Registration requirement

Non‐resident persons that make a taxable supply of goods and services to Nigerian taxpayers are generally required to register for tax under the Nigerian VAT Act and obtain a Tax Identification Number (TIN). The FIRS intends to provide a dedicated link on its website to ensure simplified registration for and remittances of tax by non-resident suppliers. Non-resident suppliers already registered for VAT in Nigeria must transition to the new simplified compliance regime using the link to be provided.

It is important to note that this registration shall not automatically create a taxable presence for non-resident suppliers for income tax purposes. There is, however, an exception where such non-resident suppliers would have a taxable presence under the relevant provisions of the Nigerian Income Tax Act and in terms of the applicable tax treaty.

Registration applies to non-resident suppliers whose total supplies to persons in Nigeria exceed or are expected to exceed US$25,000 or its equivalent. This threshold should be considered over 12 consecutive months before or after the effective date of the guidelines.

Any non-resident supplier (old or new) whose total supplies in any particular year have not, or is not, expected to hit the threshold in any 12 consecutive months, is not covered under this regime. However, this does not deter such suppliers from collecting and remitting VAT to the FIRS under the existing framework.

After registration, a non-resident supplier who failed to meet this threshold requirement for three consecutive years may communicate to the FIRS its intention to be deregistered from the simplified compliance regime.

Filing of returns and payment of tax

Non-resident suppliers registered for VAT are obliged to file monthly VAT returns using their name and TIN. The monthly filing should be done using the dedicated link, even where no taxable supplies were made to Nigerian taxpayers during the month. Alternatively, the return may also be filed using the VAT Form 002 and forwarded to the designated email address of the FIRS within the statutory timeline.

The statutory timeline for filing VAT returns is on or before the 21st of the month following the month of supply. Where a non-resident supplier cannot meet the deadline, they may seek an extension from the FIRS before the due date. The tax payment can be made at any local bank in Nigeria if the transaction is denominated in Nigerian Naira (₦), or through electronic payment, if the transaction is denominated in a foreign currency.

Rate of tax

The VAT rate applicable to the taxable supplies covered under the simplified compliance regime is 7.5%.

Consequences of the failure to remit VAT

A non-resident supplier who excludes a particular transaction from its return or fails to charge VAT would be regarded as having failed to perform its role as a VAT collection agent, in terms of the guidelines. Due to the virtual nature of digitalised transactions, there may be some difficulties in enforcing the provisions of these guidelines. Nonetheless, the FIRS will take all necessary steps to recover the amount due, including using the instrument of Mutual Administrative Assistance in tax collection.

Effective date

The guidelines took effect on 1 January 2022 for the supply of services and intangibles while it will take effect from 1 January 2024 for the supply of goods. However, we still await the dedicated link to be provided by the FIRS in respect of the supply of services and intangibles.