Is VAT applicable to digital services?

Yes, VAT is absolutely applicable to digital services in Nigeria. Under the Nigeria Tax Act 2025 (effective January 2026), the rules have been modernized to ensure that whether a service is provided by a local startup or a global giant, it is taxed if it is consumed by someone in Nigeria.

The standard rate remains 7.5%, but how it is collected has changed.

1. What counts as a "Digital Service"?

The 2026 regime explicitly lists several categories that fall under the tax net:

• Streaming & Downloads: Netflix, Spotify, Amazon Prime, and Apple Music.
• Cloud Computing: AWS, Google Cloud, and Microsoft Azure.
• SaaS (Software as a Service): Zoom, Microsoft 365, and Adobe Creative Cloud.
• Digital Advertising: Ads on Facebook, Google, and X (Twitter).
• FinTech & Crypto: Transaction fees on payment gateways (like Paystack/Flutterwave) and custodial fees on crypto exchanges.
• Marketplaces: Listing fees on Jumia, Konga, or even commissions on Bolt and Uber.

2. Rules for Foreign (Non-Resident) Providers

If you are buying from a company outside Nigeria, the law now ensures they don't have an unfair advantage over local businesses:

• Registration Threshold: Foreign digital companies making more than $25,000 (or its Naira equivalent) in annual sales to Nigerians must register for VAT with the Nigeria Revenue Service (NRS).
• The "Collection Agent" Rule: The NRS can appoint these foreign platforms as agents. This is why you see VAT automatically added to your Netflix bill or Spotify subscription—they collect it and remit it directly to the NRS.
• Withholding at Point of Payment: If a foreign provider is not registered, the NRS has empowered banks and payment processors (like your bank or Interswitch) to automatically "withhold" the 7.5% VAT during the transaction.

3. The "Place of Consumption" Rule

A service is taxable in Nigeria if:

1. The recipient is resident in Nigeria.
2. The customer’s IP address is in Nigeria.
3. The bank account used for payment is with a Nigerian bank.
4. The service is "enjoyed" or utilized within Nigeria.

4. Digital Services & E-Invoicing (2026)

For local digital businesses (like a Nigerian SaaS startup):

• You must issue e-invoices that are validated in real-time by the NRS portal.
• If your turnover is above ₦100 million, you must charge the 7.5% VAT and remit it by the 21st of the following month.
• Exported Services: If you are a Nigerian developer selling software to someone in the US, that service is Zero-Rated (0%). This means you don't charge VAT, but you can still claim back the VAT you paid on your server costs and office rent.

Summary of VAT on Digital Services