Introduction
The Federal Inland Revenue Service (FIRS) has released a circular on the withholding of value added tax (VAT) in Nigeria in line with the provisions of the VAT Act 2004 (as amended).
1.0 Legal basis
A taxable person who receives a taxable supply in Nigeria from a Non-Resident should withhold and remit VAT. The rule applies where FIRS has not appointed another person.
All ministries, statutory bodies, or government agencies shall deduct or withhold VAT on amounts payable to contractors and remit the sum to the tax authority. Entities in the oil and gas industry can withhold VAT at source.
Where the supplier does not charge VAT on a taxable supply in Nigeria, the buyer can self-account for the VAT payable.
2.0 Withholding VAT
Designated entities responsible for withholding VAT on a taxable supply shall remit VAT alongside the regular VAT on their taxable supplies to customers.
Taxable persons, in the legal framework, have three (3) obligations:
- Collection of VAT
- Withholding of VAT from suppliers
- Self-charge VAT
3.0 Taxable supply between companies authorized to withhold VAT
- The buyer will account for the VAT on the transaction for taxable supplies between two companies authorized to withhold VAT.
- Where a non-resident supplier (NRS) provides a taxable supply to an appointed agent in Nigeria, the appointed NRS will collect and remit the tax. Otherwise, the agent will self-account for and pay the VAT to the revenue authority.
- Where FIRS did not appoint a non-resident person, the recipient of the taxable supply in Nigeria will withhold or self-account for the tax.
4.0 Accounting for Withholding VAT
A company withholding VAT will keep a VAT Withheld Account (VWHT A/C) in its books. All VAT deducted at source from suppliers is a credit while tax paid is a debit.
5.0 Input Tax and Withheld Output Tax
Input tax paid by a supplier of taxable goods is an allowable deduction from the output tax. Where an authorized agent withholds the output tax, the supplier will provide:
- The total output tax on all supplies.
- Deduct output tax withheld from the total output tax to get a net output tax. To calculate the net VAT payable, input tax on all supplies is deducted from the net output tax. The restriction for input tax allowable is on goods bought or imported directly for resale and stock in trade used for the direct manufacturing of a new product on chargeable output tax.
- Where the input tax is partially recoverable from the output tax of all supplies, the supplier may use the balance to reduce future VAT liability or apply for a refund.
6.0 VAT Returns
All taxable persons and agents of FIRS must submit VAT returns to FIRS on or before the 21st day of the month after the transaction. However, Finance Act 2023 gives a filing deadline for VAT withheld as the 14th day of the following month. VAT is payable in the currency of the transaction. The return is through the online portal, currently TaxPro Max.
Conclusion
The circular offers clarity on the responsible party to withhold VAT on transactions between two appointed agents. Taxpayers will file VAT withholding in a separate module from the regular VAT. In addition, the new ledger, withholding VAT account, will ease the review of taxpayers’ records. To download FIRS information circular on the withholding and self-account of value added tax, click here.