Nigeria’s value-added tax (VAT) system shapes how businesses price products, manage cash flow, and stay compliant. With a standard VAT rate of 7.5%, Nigeria is among the lower-VAT jurisdictions globally. On aggregate, VAT for the second quarter of 2024 was 1.56 trillion Nigerian naira (NGN).

Below, we’ll discuss the Nigeria VAT rate, which goods and services are taxable, when VAT registration becomes mandatory, and how regular VAT compliance works.

What’s in this article?

• What is the Nigeria VAT rate?
  
• Which goods and services are subject to VAT in Nigeria?
  
• Which businesses are required to register for VAT in Nigeria?
  
• How does VAT compliance work in Nigeria?
  
• How do you calculate VAT in Nigeria?
  
• Can businesses claim VAT refunds in Nigeria?
  
• How Stripe Tax can help
  

What is the Nigeria VAT rate?

Nigeria’s VAT rate is 7.5%. This is the standard rate applied nationwide to taxable goods and services.

VAT was increased from 5% in 2020. Despite that change, Nigeria’s VAT rate remains relatively low by international standards, particularly compared with many African and European countries.

Which goods and services are subject to VAT in Nigeria?

Nigerian tax law divides goods and services into standard-rated, zero-rated, and exempt categories. Understanding these distinctions is essential for compliance and pricing goods correctly.

Here are the three categories.

Standard-rated goods and services (7.5%)

Goods and services that fall under the standard 7.5% VAT rate include manufactured goods, professional and consulting services, digital services, retail sales, and many B2B transactions. If a product or service is not specifically listed as zero-rated or exempt, it’s taxable at 7.5%.

Zero-rated goods and services (0%)

Zero-rated products and services have 0% VAT added to their price, but the business can still recover VAT they pay on related business costs. This category primarily covers essential goods, such as basic food items, educational materials, and healthcare services, as well as exported goods and services besides oil and gas.

VAT-exempt goods and services

Exempt products are entirely outside of the VAT system. Customers are not charged VAT, and businesses can’t recover VAT paid on related inputs. VAT-exempt goods and services include oil and gas exports, baby products, shared-passenger road transport services, and land or buildings.

Note that only zero-rated supplies allow businesses to reclaim input VAT, the VAT paid on goods and services used in their own business activities, not VAT-exempt supplies. If you’re an exporter or a business dealing in essential goods, this distinction can significantly affect margins, pricing strategy, and cash flow.

Which businesses are required to register for VAT in Nigeria?

Companies, partnerships, sole proprietors, and nonresident suppliers providing digital or physical taxable goods or services to Nigerian customers are all subject to VAT registration rules. VAT registration in Nigeria is mandatory for all businesses above the exemption threshold. The system is designed to ease the burden on small businesses, which are exempt from filing and paying VAT.

How does VAT compliance work in Nigeria?

Once registered, VAT compliance becomes an ongoing responsibility. There are a few components that you need to monitor and manage. Here’s what VAT compliance entails.

Monthly VAT returns

VAT returns are filed monthly using form VAT 002 and must be submitted to the Nigeria Revenue Service (NRS) by the 21st day of the month following the transaction month. Late filing incurs a 100,000 NGN penalty in the first month, with 50,000 NGN penalties each month thereafter. Late payment may also incur interest. Payments can be completed online via the NRS portal or at designated banks. Retain proof of payment if you choose the latter.

VAT payable is calculated by subtracting input VAT (VAT paid on business purchases) from output VAT (VAT charged to customers on sales).

Imports and foreign services

VAT applies to imported goods as well as services that are provided to and consumed by people in Nigeria, regardless of whether the service is delivered in Nigeria. VAT also applies to services connected with existing immovable property (for example, the services of engineers and architects). Before clearing taxable goods, importers must pay VAT to the NRS.

Recordkeeping

Businesses must retain records, including VAT invoices and proof of VAT payments if they pay at a bank instead of directly to the NRS.

As transaction volumes grow, many businesses rely on automated tools to calculate VAT, generate compliant invoices, and track monthly liabilities. Stripe Tax, for example, can handle real-time VAT calculation and simplify reporting, which helps businesses maintain accuracy as the number of transactions grows.

How do you calculate VAT in Nigeria?

VAT calculation is relatively straightforward, but mistakes can come from confusing VAT-inclusive and VAT-exclusive pricing.

Here are some basic calculations you’ll need to do to calculate VAT:

• For standard-rated goods and services, add 7.5% of the VAT-exclusive price to the sale.

• To figure out the VAT portion of a VAT-inclusive price, divide the total amount by 1.075. The result is the VAT-exclusive price; the difference between the VAT-exclusive and VAT-inclusive prices is the VAT portion.

• At the end of each month, total all output VAT and subtract input VAT. If output VAT exceeds input VAT, the business pays the difference to the tax authority. If input VAT exceeds output VAT, the excess is applied to future VAT payments.

Manual calculations become harder to manage as transaction volumes increase. Businesses can use automated tax tools to apply the correct rate at checkout and maintain accurate monthly VAT totals without relying on spreadsheets.

Can businesses claim VAT refunds in Nigeria?

VAT refunds do exist in Nigeria, but they’re generally issued as credits. When a business pays more VAT on purchases (input) than it collects from customers (output) in a given month, the excess can be carried forward as a credit. That credit is then used to reduce VAT payable in future months.

You can request a refund from the NRS of excess VAT not used as a credit, but the NRS might request information or documents from you. Consider carrying VAT credits forward rather than relying on refunds.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a VAT registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.