The Federal Inland Revenue Service (FIRS) has issued Information Circular No.: 2021/19 ("the Circular") on Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers (NRSs) of goods, services or intangibles to persons in Nigeria through electronic, digital or similar platforms.
The Circular was issued pursuant to the provisions of Section 10(5) of the VAT Act Cap.V1 LFN 2004 (as amended) and replaces other notices and publications issued by the FIRS in this regard. The Guidelines will take effect from 1 January 2022 with respect to supply of services and intangibles, and 1 January 2024 for goods.
We have provided below, a summary of the key highlights of the Circular:
1. Scope of the Guidelines
The Guidelines will apply to supplies of goods, services and intangibles made through digital means and other digital products by persons (i.e. natural persons, trusts, partnerships, corporations, companies and any other persons) not physically present, located or represented in Nigeria to businesses ("Business-to-Business" - B2B) or consumers ("Business-to-Consumers" - B2C) in Nigeria.
2. Definition of important terms
2.1. Non-Resident Suppliers
The Circular defines NRSs as "suppliers located outside the territory of Nigeria, who supply taxable goods, services, digital products or intangibles to Nigerian customers through digital or electronic platforms or means or intermediaries where such intermediaries are not the actual owners or suppliers of the goods or services but facilitate the supply, issuance of invoices and payment".
The above definition is consistent with the provisions of the VAT Act (as amended) regarding digital services supplied to and/ or consumed in Nigeria.
2.2. Supply through electronic or digital means
This is defined as "supplies made using digital platforms, any software, electronic or digital interface that enables or facilitates the supply like websites, mobile applications, computer application, online marketplaces, online or digital portals, or like technology. The mechanism for the supply must be automated in nature or involve only minor human interference."
The Circular further defines digital platforms as "multisided platforms (electronic or digital) that enable, by electronic means, direct interactions between two or more customers or participant groups (typically buyers and sellers), and is characterised by two key features, namely:
- each group of participants ("side") are customers of the multi-sided platforms in some meaningful way, and
- the multi-sided platform enables a direct interaction between the sides."
2.3. Taxable services
Services covered in the Circular include "any intangible or services delivered via electronic or digital means or similar networks, whose supply is essentially automated, involves minimal human intervention, and is impossible to ensure in the absence of information technology". The Circular also listed examples of the digital services covered under the Guidelines.
Further, it provides that internationally traded services or intangibles are deemed to be supplied in Nigeria where the services or intangibles are consumed or intended to be consumed in Nigeria, based on the "place of supply" provisions of the VAT Act. Consequently, services provided by internationally owned mobile applications, video streaming, ride-hailing, subscription, ticketing and online leasing or rental platforms, cloud-based services and services linked to immovable property in Nigeria are liable to Nigerian VAT.
Additionally, the Circular provides that digitally supplied services or intangibles are deemed consumed or utilised in Nigeria for VAT purposes, under the following instances:
- the recipient of the supply resides in Nigeria which is supported by a Nigerian billing, business, residential or postal address;
- it can be inferred from information provided to the supplier that the consumer's usual place of residence is Nigeria;
- the customer is a company incorporated under any law in Nigeria;
- the customer's URL, geo-location or IP address is in Nigeria;
- the services are physically performed in Nigeria;
- there are other evidences suggesting that the supply is consumed or utilised in Nigeria or that such supplies can only be utilised in Nigeria; or
- where a place of consumption cannot be established for the supplies using any of the above indices, the place of consumption is Nigeria if the payment for the supplies originates from a bank or any other financial institution licensed in Nigeria pursuant to Nigerian laws.
The criteria for using the information provided by consumers with respect to their usual place of residence as noted in condition "b" above presupposes the use of "place of residence" as the criteria for determining the applicability of Nigerian VAT on supplies made by NRSs. This condition is inconsistent with the extant provisions of Section 2 of the VAT Act which provides for a "place of supply" rule and amounts to an amendment of the law which is beyond the FIRS' jurisdiction. Specifically, Section 2(b) of the VAT Act requires that the "service is provided to and consumed by a person in Nigeria", which emphasises the presence of the consumer in Nigeria rather than a place of residence in Nigeria, to deem the supply to have taken place in Nigeria. Therefore, where the consumer is not in Nigeria at the time of supply of the service, it is reasonable to conclude that VAT should not apply to the transaction. Hence, the FIRS may need to update the Guidelines to align it with the exact provision of the law.
2.4. Exempt services
Based on the Circular, NRSs that provide the following services are exempt from compliance with the requirements stipulated therein:
- Professional and consultancy services that are not automated but are delivered via the internet (e.g., via email);
- Broadcasting services;
- Telecommunications services; and
- Services that are exempt from tax under the First Schedule to the Act.
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