Introduction
Value-Added Tax (VAT) compliance is a major item in the monthly to-do lists of many Nigerian law firms. VAT compliance involves such tasks as preparation and submission of VAT schedules. Some of the items covered by submitted VAT schedules include legal services provided to non-resident individuals and corporate entities. From our tax experience spanning a few decades, these types of legal services have always been charged to VAT without much fuss.
Recently however, our review of relevant Nigerian VAT laws reveals a slightly different position for service providers generally, including law firms. This short article highlights our review as aforesaid, stating the clear position of the law on exported (legal) services.
VAT on Services: The General Position
VAT is administered by the Federal Inland Revenue Service (FIRS),1 and is chargeable on transactions involving goods and services.2 Section 46 of the VAT Act3 defines "services" as:
"(i) Anything, other than goods, or services provided under a contract of employment; and
(ii) Includes any intangible or incorporeal (product, asset, or property) over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land and building, money or security."
Clearly, services provided by legal practitioners are chargeable to VAT as a general rule.
Exported Services: An Exception to the General Rule?
The VAT Act goes further to create a special category called "exported service". Exported services are exempt from VAT.4
Section 46 of the VAT Act5 defines it as follows:
"a service rendered within or outside Nigeria by a person resident in Nigeria, to a non-resident outside Nigeria".
From the above, a service will be regarded as an exported service under the following conditions:
- The service must be provided by a Nigerian resident to a non-resident; and
- The non-resident to whom the service is provided must be outside Nigeria when the service is consumed.
Commentary/Conclusion
From the foregoing, the correct position of the law is that exported (legal) services are not chargeable to VAT; in fact, they are VAT-exempt. Thus, where a legal practitioner or a law firm provides legal support and advisory services to an individual or entity non-resident in Nigeria, such services are VAT-exempt.
Despite the apparent clarity in the application of VAT to exported services, it is noteworthy that some fine margins in factual backgrounds (behind tax issues) may necessitate slightly different approaches to the interpretation of the legal provisions elucidated above. Therefore, the service of competent tax legal practitioners is indispensable to an accurate analysis of tax scenarios on a case-by-case basis.
Footnotes
1. Section 7 of the VAT Act (as amended).
2. Except those listed in the First Schedule to the VAT Act. See section 3 of the VAT Act.
3. As amended by section 44 of the Finance Act 2020 (FA20).
4. Paragraph 4 of Part II of the First Schedule to the VAT Act.
5. As amended by section 46 of the Finance Act 2019 (FA19).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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