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Nigeria has introduced a sweeping Value-Added Tax (VAT) reform that will significantly affect digital services and cross-border transactions, compelling foreign companies supplying services to Nigeria to include VAT in their invoices.

The new Nigeria Tax Act requires that “VAT shall be paid on all taxable supplies in Nigeria.” According to the law, “a taxable supply shall be deemed to take place in Nigeria where, in respect of (a) goods – (i) the goods are physically present, imported into, assembled or installed in Nigeria at the time of supply, or (ii) the beneficial owner of the rights in or over the goods is a taxable person in Nigeria and the goods or right is situated, registered or exercisable in Nigeria.”

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This marks a major shift in how digital and cross-border services are taxed. All non-resident persons making taxable supplies to Nigeria must now register for tax and issue VAT-inclusive invoices. While the VAT rate remains at 7.5 per cent, the law broadens the tax net to capture previously untaxed digital transactions and introduces withholding mechanisms to strengthen compliance.

The act specifically targets digital services consumed by Nigerians, regardless of where they originate. “A service is deemed to take place in Nigeria if it is provided to and consumed by a person in Nigeria, regardless of whether the service is rendered within or outside Nigeria,” the law states. This provision effectively brings streaming platforms, cloud computing, online advertising, and software subscriptions into Nigeria’s tax system.

In addition to digital services, the law covers incorporeal property rights such as intellectual property, where exploitation is carried out in Nigeria or the rights are tied to assets within the country.

To ensure compliance, the legislation introduces a withholding mechanism. “A non-resident person who makes taxable supplies to Nigeria shall register for tax and include VAT on its invoice for all taxable supplies. Where a non-resident person is making taxable supplies from outside Nigeria to persons in Nigeria, the taxable person to whom the supply is made in Nigeria shall withhold the VAT due on the supply and remit it to the service,” the act explains.

However, it also provides that “the service may, by notice, appoint any person, including a non-resident supplier of taxable supplies, to collect the VAT and remit it to the service.” In such cases, Nigerian recipients are relieved of the withholding duty, except if the appointed supplier fails to collect the tax.

The Nigeria Revenue Service (NRS), which replaces the Federal Inland Revenue Service (FIRS), now has the authority to appoint collection agents, including digital platforms and payment processors, to manage VAT remittances on cross-border transactions.

The law also clarifies when VAT becomes payable. VAT obligations arise at the earliest point of an invoice being issued, goods being delivered, or payment being received. For rental agreements, periodic services, and construction projects, VAT is applied successively at each payment interval, rather than at the end of the contract.

It further extends to non-monetary transactions such as barter, gifts, or supplies between connected companies, requiring VAT to be calculated at market value. For imports, VAT is assessed not only on the purchase price but also on all associated charges, including taxes, duties, commissions, packing, transport, and insurance up to the Nigerian border.

By widening the scope of taxable supplies and enforcing stricter compliance, the reform signals Nigeria’s determination to modernise its tax framework and secure greater revenue from the fast-growing digital economy.

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