Nigeria’s newly enacted Tax Act has introduced sweeping changes to the country’s value-added tax (VAT) regime, extending its reach to digital services and cross-border transactions. The reform, which maintains VAT at 7.5 per cent, requires foreign companies supplying taxable services to Nigeria to register for tax and include VAT in their invoices, marking a major shift in the taxation of the digital economy.
Under the new law, a service is deemed to take place in Nigeria if it is provided to and consumed by a person within the country, regardless of where the provider is based. This provision effectively brings digital services such as streaming platforms, online advertising, cloud computing, and software subscriptions into Nigeria’s tax net. Intellectual property rights and other incorporeal assets are also captured where they are exploited by a person in Nigeria or tied to assets located in the country.
The Act also introduces rules for non-resident suppliers. Foreign companies making taxable supplies to Nigeria must register for VAT, issue invoices that reflect VAT, and remit the tax to the Nigeria Revenue Service (NRS), formerly known as the Federal Inland Revenue Service (FIRS). In cases where foreign suppliers do not collect VAT, Nigerian recipients are obligated to withhold VAT from their payments and remit directly to the NRS.
To ensure compliance, the NRS has been empowered to appoint collection agents, including non-resident suppliers, digital platforms, and payment processors. This mechanism is expected to streamline the collection of VAT from cross-border services and reduce opportunities for tax evasion.
The legislation sets out detailed rules for determining when VAT becomes due. For most transactions, VAT is triggered when an invoice is issued, goods are delivered, or payment is received — whichever occurs first. For rental agreements, construction projects, and periodic services, VAT is spread across each instalment or payment interval, rather than concentrated at project completion.
Non-monetary transactions are also addressed. Supplies exchanged through barter, gifts, or transfers between related companies must now be valued at market prices for VAT purposes. Imported goods are subject to VAT calculated on their full value, including the purchase price, foreign taxes, duties, commissions, transport, insurance, and packing costs up to the point of entry into Nigeria.
The new framework significantly widens Nigeria’s tax base by capturing previously untaxed digital transactions while introducing safeguards to ensure compliance by foreign service providers. Government officials have described the reform as critical for boosting revenue, reducing reliance on oil earnings, and aligning Nigeria’s tax practices with global trends in the digital economy.
Industry observers note, however, that the expanded tax net may raise costs for consumers who rely on foreign digital services. Businesses, especially SMEs leveraging global platforms, could also face increased expenses as VAT obligations are factored into pricing structures. The coming months will be a test of how effectively the NRS can implement the new rules without stifling digital growth and cross-border trade.
