A value-added tax is a consumption tax levied on a good or service wherever value is added at a production stage and at the final stage. It is solely borne by the final consumer. The VAT rate in Nigeria is 7.5% after it was raised from 5% on the 1st of February, 2020, and is governed by the Value Added Tax Act Cap V1, LFN 2004 (as amended). The VAT system in Nigeria is administered by the Federal Inland Revenue Service (FIRS).
Persons Who Should Pay Taxes
Every business must register for VAT with FIRS within 6 months of commencement of business in accordance with Section 8 of the Value Added Tax Act.
Documents required for VAT Registration
- Duly filled and officially stamped VAT form
- Application letter on company letter headed paper, with official stamp
- Certificate of Incorporation or Business Name Registration Certificate
- Memorandum & Articles of Association
- Particulars of Persons who are First Directors of the Company
- Utility bill
- Statement of Share Capital and Return of Allotment\
- The original copy and two photocopies of each document
- Official Company stamp or seal for the application form
A VAT certificate is usually issued by the Federal Inland Revenue Service after the VAT registration has been completed. This certificate qualifies the registered party as a collection agent for the federal government. The VAT identification number is also contained in the certificate.
What is a VAT number?
A VAT number is a registered tax identification number in tax systems that use Value-Added Tax (VAT). When you register for VAT in Nigeria, you receive a VAT number for Nigeria’s tax system.
How is the tax registration processed?
VAT registration is usually within a week. The Value Added Tax is collected on behalf of the Government by businesses and organizations which have been registered with the Federal Inland Revenue Services (FIRS) for VAT purposes. VAT returns and payments are normally made monthly to the FIRS on or before the 21st day of the month after which there will be penalties for late payment.
Penalties for Not Filing VAT In Nigeria
Failure to register and submit returns will be NGN50,000 in the first month of default and NGN25,000 in each subsequent month of default. In addition, failure to notify the FIRS of a change of address or permanent cessation of trade or business within 30 days attracts a fine of 50,000 for the first month and 25,000 for each subsequent month of default. The penalty on non-remittance of VAT is 10% of the unremitted tax (VAT payable) plus interest at the prevailing Central Bank of Nigeria’s minimum discount rate (MRR).