Value Added Tax (VAT) in Nigeria: Everything Residents & Expats Need to Know

Understanding Value Added Tax (VAT) is crucial for anyone living, working, or doing business in Nigeria. From how it’s charged to who must pay or register, this comprehensive guide will help residents, businesses, and expats navigate VAT in Nigeria with ease.

What is Value Added Tax (VAT)?

Simple Explanation of VAT

Value Added Tax (VAT) is an indirect tax charged on most goods and services sold or consumed within Nigeria. Unlike a direct tax (like income tax), VAT is paid by the buyer, collected by businesses, and then remitted to the Federal Inland Revenue Service (FIRS).

Example:
If you buy a shirt for ₦10,000 and the VAT rate is 7.5%, you’ll pay ₦750 as VAT, making the total cost ₦10,750.

The Role of VAT in Modern Economies

VAT is a major source of government revenue all over the world. It helps fund public services such as roads, healthcare, and education. It’s preferred because it spreads the tax burden across all consumers, not just companies or wealthy individuals.

VAT vs Sales Tax: Key Differences

VAT is collected at every stage of the supply chain (from manufacturer to wholesaler to retailer to customer).
Sales tax (common in the U.S.) is usually charged only once at the final sale to the consumer.
VAT avoids the problem of “cascading tax” (tax-on-tax) and is more transparent than sales tax.

The History and Evolution of VAT

VAT Globally and in Africa

VAT was first introduced in France in the 1950s and is now used in over 160 countries. Many African nations adopted VAT to modernize their tax systems and boost revenue.

The Introduction and Growth of VAT in Nigeria

Nigeria adopted VAT in 1993 with the VAT Act No. 102. The FIRS manages VAT collection, replacing the old sales tax system for improved efficiency (FIRS, 2024). Since then, VAT rates and compliance rules have evolved to suit Nigeria’s growing economy.

How VAT Works in Practice

How VAT is Calculated at Each Supply Chain Stage

Manufacture:
Manufacturer sells a phone to a wholesaler for ₦50,000 plus ₦3,750 VAT (7.5%).
Wholesale:
Wholesaler sells to a retailer for ₦60,000 plus ₦4,500 VAT.
Retail:
Retailer sells the phone to a consumer for ₦70,000 plus ₦5,250 VAT.

At every stage, each business offsets (deducts) the VAT it has already paid on its purchases, so only the value added is taxed at each stage.

Examples of VAT on Goods and Services

Buying groceries (most are VAT-exempt, like fresh produce)
Paying for a haircut (VATable)
Hotel accommodations (VATable)

Who is Liable to Pay and Collect VAT?

Businesses registered for VAT add it to their goods or services and remit it to FIRS.
Consumers ultimately bear the VAT cost, as it’s included in the price they pay.
Some exemptions apply (see below).

Common VAT Rates in Nigeria & Globally

Nigeria: Standard rate is 7.5% (increased from 5% in 2020).
South Africa: 15%
UK: 20%
Egypt: 14%
Average in Africa: About 15–18%

VAT Compliance and Requirements in Nigeria

VAT Registration with FIRS

Any person or business supplying taxable goods or services in Nigeria must register for VAT with FIRS within 6 months of starting business.
Register online via the FIRS portal or at any FIRS office.

Filing VAT Returns: Processes & Deadlines

VAT returns must be filed monthly, on or before the 21st day of the following month.
Non-compliance attracts penalties and interest.

VAT Invoicing and Record-Keeping

All VAT-registered businesses must issue VAT invoices showing VAT separately.
Maintain records for at least 5 years (PwC Nigeria).

What Happens if You Don’t Comply?

Penalties range from fines (N50,000–N100,000) to interest charges and legal action for persistent non-compliance.
Businesses may also be unable to claim input VAT credits if not registered.

How VAT Affects Individuals and Businesses

VAT for Small Businesses and Large Enterprises

Small businesses (turnover less than ₦25 million per year) are exempt from charging or remitting VAT, but must still register and file “nil” returns.
Large enterprises must comply fully, regardless of location or sector.

Foreign and Expats: What You Need to Know About Nigerian VAT

Foreign companies supplying goods/services to Nigeria may have to register for VAT.
Expats: If you buy/consume taxable goods or services, you’ll pay VAT like locals.

Impact on Everyday Prices and Consumption

VAT is included in most consumer prices, making goods/services slightly more expensive.
Essential items (like certain foods, drugs, and educational materials) are exempt to ease the load on low-income earners.

VAT Exemptions, Zero-Rating, and Refunds

List of VAT-Exempt Goods and Services

Basic food items (rice, beans, yam, vegetables)
Medical services and medicines
Educational materials/services
Exported goods/services

See full list on FIRS VAT regulations page.

What is Zero-Rating? Key Examples

Zero-rated: VAT charged at 0%. Businesses can claim refunds on input VAT.
Examples: Exports, some agricultural products.

How to Claim a VAT Refund in Nigeria

Only VAT-registered businesses can claim refunds if their input VAT exceeds their output VAT (common with exports).
Submit a claim to FIRS with supporting documents.

Advantages and Disadvantages of VAT

Economic Benefits to Nigeria

Reliable source of government revenue
Makes taxes broadly shared among all consumers
Transparent and efficient compared to older systems
Creates incentives for businesses to keep records

Criticisms: Regressivity, Deadweight Loss, Compliance Costs

VAT is regressive: it hits low-income earners harder than the rich
Increases prices of goods/services
Adds compliance costs for small/medium businesses
Occasionally leads to price inflation

How Nigeria Addresses VAT Challenges

Exempting basic goods/services
Raising exemption threshold (to protect micro-businesses)
Investing in FIRS automation and taxpayer education

Comparing Nigeria’s VAT to Other Countries

VAT Rates Across Africa, Europe, and Globally

Country	VAT Rate
Nigeria	7.5%
Ghana	12.5%
South Africa	15%
UK	20%
Egypt	14%
Germany	19%

What Expats Should Know When Moving to Nigeria

VAT is widespread and part of almost every transaction
Bring proof of tax residency for possible exemptions or credits in home country
Some international purchases (e.g., airline tickets, online services) may have special VAT treatments

Frequently Asked Questions about VAT in Nigeria

Q: Who should register for VAT in Nigeria?
A: Any business or person supplying taxable goods or services must register unless annual turnover is below ₦25 million.

Q: Can foreigners/expatriates claim VAT refunds?
A: Generally, only VAT-registered businesses can claim refunds. Tourist VAT refunds are not available.

Q: What if a business fails to remit VAT?
A: FIRS can impose fines, penalties, and even close down non-compliant businesses.

Q: Are all goods and services subject to VAT?
A: No. Many essentials are exempt. See FIRS full exempt list.

Maximizing the Value of VAT Knowledge

Getting VAT right is vital for doing business and managing your finances in Nigeria. Whether you’re a local entrepreneur, a professional, or an expat, understanding VAT regulations, compliance steps, and available exemptions will help you avoid penalties and optimize your costs.

Need personalized VAT advice? Contact FIRS or a qualified tax professional to ensure compliance and unlock all available VAT benefits.