VAT in Nigeria: Complete Guide for Businesses

Value Added Tax (VAT) is a consumption tax charged on goods and services in Nigeria. If you run a business, understanding VAT is crucial for compliance and avoiding penalties.

What is VAT?

VAT is a tax on the value added at each stage of production or distribution. It's ultimately borne by the final consumer but collected by businesses at each transaction point.

Current VAT Rate

Standard Rate: 7.5% (as of Nigeria Tax Act 2025)

The 7.5% rate applies to most goods and services unless specifically exempted or zero-rated.

Do You Need to Register for VAT?

Mandatory Registration

You MUST register for VAT if:

• Annual turnover exceeds ₦25,000,000
• You provide taxable goods or services
• You're required to account for VAT on imported goods/services

Voluntary Registration

You MAY register voluntarily if:

• Turnover is below ₦25M but you want to reclaim input VAT
• You deal with VAT-registered customers who need VAT invoices
• You want to appear more established to clients

How to Register for VAT

Step-by-Step Process:

1. Obtain TIN - Must have Tax Identification Number first

2. Gather Documents:

   • Certificate of Incorporation (companies)
   • Business registration documents
   • Proof of business address
   • Bank account details
   • Director/owner ID

3. Apply Online - Via FIRS portal (www.firs.gov.ng)

4. Submit Application - Upload required documents

5. Receive VAT Certificate - Usually within 2-4 weeks

No Registration Fee

VAT-Exempt vs Zero-Rated Items

VAT-Exempt (No VAT charged or claimed)

Cannot charge VAT to customers AND cannot reclaim input VAT:

• Medical and pharmaceutical products
• Basic food items (bread, cereals, fish, meat, milk, vegetables, fruits)
• Baby products
• Books and educational materials
• Exported services
• Commercial vehicles and spare parts

Zero-Rated (0% VAT, but can reclaim input VAT)

Charge 0% VAT but can still reclaim input VAT on purchases:

• Exported goods
• Goods/services to diplomats and embassies
• Goods/services purchased with foreign currency
• Plant, machinery and equipment for use in export processing zones

How VAT Works: A Simple Example

Let's say you run a clothing boutique:

Purchase from supplier:

• Wholesale cost: ₦100,000
• VAT (7.5%): ₦7,500
• Total paid: ₦107,500
• This ₦7,500 is your Input VAT (reclaimable)

Sale to customer:

• Retail price: ₦200,000
• VAT (7.5%): ₦15,000
• Total collected: ₦215,000
• This ₦15,000 is your Output VAT (payable to FIRS)

VAT Due to FIRS: Output VAT (₦15,000) - Input VAT (₦7,500) = ₦7,500 net VAT

Filing and Payment

Filing Frequency

Monthly returns must be filed by all VAT-registered businesses.

Deadline: 21st day of the following month

Example: January VAT return due by February 21st

Filing Process

1. Log in to FIRS portal

2. Complete VAT returns form

3. Declare:

   • Total sales (output VAT)
   • Total purchases (input VAT)
   • Net VAT payable/refundable

4. Upload supporting documents

5. Pay VAT due via approved banks or online

6. Download filed return for records

Penalties for Late Filing/Payment

• Late filing: ₦50,000 first month, ₦25,000 each subsequent month
• Late payment: 10% of tax due + 5% interest annually
• Non-compliance: Possible business closure or prosecution

VAT Invoice Requirements

Every VAT invoice must include:

1. Word "VAT Invoice" clearly stated
2. Supplier's name and address
3. Supplier's VAT registration number
4. Customer's name and address
5. Date of supply
6. Description of goods/services
7. Quantity and unit price
8. Total amount excluding VAT
9. VAT rate applied (7.5%)
10. Total VAT amount
11. Total amount including VAT

Sample VAT Invoice Format:

ABC Limited
123 Lagos Street, Ikeja, Lagos
VAT No: VAT-0012345

INVOICE #: INV-2025-001
Date: January 15, 2025

To: XYZ Company
456 Abuja Road, Abuja

ITEM                 QTY    UNIT PRICE    AMOUNT
Office Desks          10     ₦50,000      ₦500,000

Subtotal (excluding VAT):              ₦500,000
VAT @ 7.5%:                             ₦37,500
TOTAL (including VAT):                 ₦537,500

Record-Keeping Requirements

Must maintain for 6 years:

• All VAT invoices (issued and received)
• Sales records
• Purchase records
• Import/export documentation
• Bank statements
• VAT returns filed
• Payment receipts

Common VAT Mistakes

1. Not Registering When Required

If turnover exceeds ₦25M and you're not registered, you can be fined and required to pay backdated VAT.

2. Charging VAT on Exempt Items

Charging VAT on exempt goods (like bread) is illegal and creates compliance issues.

3. Not Keeping Proper Records

Without proper documentation, you cannot claim input VAT or defend against audits.

4. Missing Filing Deadlines

Even if you owe zero VAT, you must still file monthly returns.

5. Claiming Input VAT Without Proper Invoices

Input VAT can only be claimed with valid VAT invoices showing all required details.

VAT Refunds

You may be entitled to a VAT refund if:

• Input VAT exceeds Output VAT (common for exporters)
• You've overpaid in previous periods
• Your business has zero-rated sales

Refund Process:

1. File claim with monthly return
2. Provide supporting documentation
3. FIRS audits claim (4-12 weeks)
4. Refund issued if approved

Key Takeaways

• 7.5% rate applies to most goods/services
• Register if turnover > ₦25M annually
• File monthly by the 21st of following month
• Keep detailed records of all transactions
• Issue proper VAT invoices with all required information
• Claim input VAT on business purchases
• Know exempt vs zero-rated items
• Pay on time to avoid penalties

Resources

• FIRS VAT Guidelines
• VAT Registration Portal
• Approved VAT Agents

Need Help?

• Use our AI Tax Assistant for instant VAT questions
• Download our VAT Calculator spreadsheet
• Read our advanced guide: "VAT Planning Strategies for Businesses" (Premium)
• Consult a licensed tax professional for complex situations

Disclaimer: VAT laws and rates can change. Always verify current requirements with FIRS or a qualified tax consultant before making business decisions.