Digital Services Tax in Nigeria: What Tech Companies Must Know

Nigeria has implemented significant measures to tax the digital economy. Tech companies—both Nigerian and foreign—must understand these rules to maintain compliance. This guide covers Significant Economic Presence (SEP), VAT on digital services, and practical compliance strategies.

The Digital Economy Tax Framework

Why Nigeria Taxes Digital Services

Driver	Explanation
Revenue mobilization	Capture value from digital transactions
Level playing field	Equal treatment with traditional businesses
OECD alignment	Following international developments
Economic activity	Taxing where value is created

Key Legal Provisions

Legislation	Provision
Finance Act 2019	Introduced SEP concept
Finance Act 2020	Expanded digital taxation
Finance Act 2021-2024	Refinements and clarifications
CITA	Company Income Tax provisions
VAT Act	VAT on digital services

Significant Economic Presence (SEP)

What Is SEP?

SEP is a new nexus rule for taxing non-resident companies that have significant digital engagement with Nigeria without physical presence.

SEP Triggers

A non-resident company has SEP in Nigeria if it earns income from Nigeria and meets any of these:

Criterion	Threshold
Revenue	Derives ₦25 million or more from Nigeria
Digital reach	Uses Nigerian domain or targets Nigerian customers
Data collection	Collects data from Nigerian users
Active users	Has significant Nigerian user base

Activities Creating SEP

Activity	SEP Implication
Streaming services	Revenue from Nigerian subscribers
E-commerce platforms	Sales to Nigerian customers
Digital advertising	Ads targeting Nigerian audience
App stores	Downloads/purchases by Nigerians
Online intermediation	Facilitating Nigerian transactions
Data monetization	Using Nigerian user data
Cloud services	Providing services to Nigerian users

SEP Tax Consequences

Consequence	Details
CIT liability	Taxable on Nigerian-sourced income
Tax rate	6% of turnover OR 30% of deemed profit
Filing requirement	Annual CIT return
Registration	Must register with NRS (Formerly FIRS)

SEP Calculation Methods

Option 1: Turnover Basis

Tax = Nigerian Revenue × 6%

Option 2: Deemed Profit Basis

Deemed Profit = Nigerian Revenue × 20% (assumed profit margin)
Tax = Deemed Profit × 30% = 6% of revenue

Example: SEP Tax Calculation

A streaming service earns ₦500 million from Nigerian subscribers:

Method	Calculation	Tax Due
6% of turnover	₦500M × 6%	₦30 million

VAT on Digital Services

Scope

VAT applies to:

• Digital content (music, video, e-books)
• Software and applications
• Online advertising
• Digital marketplaces
• Cloud services
• Online intermediation

Who Must Charge VAT?

Supplier Type	Obligation
Nigerian companies	Charge and remit 7.5% VAT
Non-resident (registered)	Charge and remit VAT
Non-resident (not registered)	Nigerian customer may withhold

Non-Resident Digital Services

Scenario	VAT Treatment
B2B (business customer)	Reverse charge by customer
B2C (consumer)	Supplier should register and charge
Platform facilitated	Platform may be liable

Registration Requirements

Non-residents providing digital services may need to:

• Register for VAT in Nigeria
• Appoint a tax representative
• File monthly VAT returns
• Remit VAT collected

VAT Calculation

Subscription price: ₦10,000
VAT (7.5%): ₦750 Total charge: ₦10,750

Digital Services Categories

Streaming and Content

Service	Tax Treatment
Video streaming (Netflix, etc.)	SEP + VAT
Music streaming (Spotify, etc.)	SEP + VAT
E-book sales	SEP + VAT
Online gaming	SEP + VAT

Software and Apps

Service	Tax Treatment
Software subscriptions	SEP + VAT
App store purchases	SEP + VAT
SaaS products	SEP + VAT
Cloud storage	SEP + VAT

Online Advertising

Service	Tax Treatment
Search advertising	SEP + VAT
Social media ads	SEP + VAT
Display advertising	SEP + VAT
Programmatic ads	SEP + VAT

E-commerce and Marketplaces

Activity	Tax Treatment
Online retail	CIT + VAT on goods
Marketplace commissions	SEP + VAT
Intermediation fees	SEP + VAT

Compliance Requirements

For Nigerian Tech Companies

Requirement	Details
CIT registration	Standard company registration
VAT registration	If turnover > ₦25 million
Monthly VAT returns	By 21st of following month
CIT returns	Within 6 months of year-end
WHT obligations	On applicable payments

For Non-Resident Companies

Requirement	Details
SEP assessment	Determine if thresholds met
Registration	Register with NRS (Formerly FIRS)
Tax representative	Appoint local representative
Filing	Annual CIT, monthly VAT (if registered)
Payment	Remit taxes due

Withholding Mechanisms

Where non-residents don't register:

Payment Type	WHT Treatment
Digital services to businesses	10% WHT
VAT	May be withheld by customer

Practical Scenarios

Scenario 1: Foreign Streaming Service

A US-based streaming platform has 500,000 Nigerian subscribers paying ₦3,000/month.

Annual Revenue: ₦3,000 × 500,000 × 12 = ₦18 billion

Tax Obligations:

Tax	Calculation	Amount
SEP CIT	₦18B × 6%	₦1.08 billion
VAT (if registered)	₦18B × 7.5%	₦1.35 billion

Scenario 2: Nigerian SaaS Company

A Nigerian SaaS company earns ₦200 million annually from Nigerian and foreign customers.

Customer Location	Revenue	Tax Treatment
Nigerian customers	₦150M	CIT (normal), VAT (7.5%)
Foreign customers	₦50M	CIT (normal), zero-rated VAT

Scenario 3: Foreign Ad Platform

A foreign digital advertising platform earns ₦5 billion from Nigerian advertisers.

Tax	Basis	Amount
SEP	Exceeds ₦25M threshold	Applies
CIT	6% of Nigerian revenue	₦300 million
VAT	7.5% on services	₦375 million

Challenges and Considerations

Attribution of Revenue

Challenge	Consideration
User location	How to determine Nigerian source
Multi-territory pricing	Allocation methodology
Currency conversion	Exchange rate treatment

Double Taxation

Issue	Mitigation
Tax in home country	May claim foreign tax credit
No treaty protection	SEP is unilateral measure
Overlapping taxes	Potential double taxation

Compliance Burden

Challenge	Response
Multiple jurisdictions	Centralized compliance
Frequent changes	Stay updated
Technical complexity	Professional advice

Strategies for Tech Companies

For Nigerian Tech Companies

Strategy	Benefit
Proper VAT invoicing	Claim input VAT
Revenue tracking	Accurate reporting
Export documentation	Zero-rating eligibility
Professional advice	Optimize tax position

For Foreign Tech Companies

Strategy	Benefit
Assess SEP exposure	Know obligations
Consider registration	May be more efficient
Appoint representative	Facilitate compliance
Monitor thresholds	Act before breaching

General Best Practices

1. Track Nigerian revenue separately
2. Document user locations accurately
3. Maintain compliance records
4. Review pricing for tax implications
5. Stay updated on regulatory changes

Enforcement and Penalties

NRS (Formerly FIRS) Enforcement Powers

Power	Application
Information requests	Third-party data
Bank data access	Transaction monitoring
Platform cooperation	Required disclosure
Best judgment assessment	If data unavailable

Penalties

Offense	Penalty
Non-registration	₦50,000 + ₦25,000/month
Non-filing	₦50,000 + ₦25,000/month
Non-payment	10% + interest
False returns	Criminal penalties

Future Developments

Expected Changes

Area	Anticipated Development
Global tax reform	OECD Pillar One/Two implementation
Rate adjustments	Potential changes
Threshold changes	May be updated
Enforcement	Increased activity

OECD Pillar One

Element	Potential Impact
New nexus rules	May supersede SEP
Profit allocation	New formulas
Certainty	Multilateral approach

How Finora Supports Digital Companies

Revenue Tracking

Feature	Benefit
Revenue tracking	Monitor all income streams
Customer categorization	Nigerian vs foreign
Service classification	Digital service identification

Tax Calculations

Finora computes:

• VAT on digital services
• WHT where applicable
• CIT provisions
• SEP considerations

Compliance Support

Feature	How It Helps
Invoice generation	VAT-compliant invoices
Return preparation	Filing-ready reports
Document retention	Audit trail maintenance

Reporting

Report	Use
Revenue analysis	Geographic breakdown
Tax computation	Accurate obligations
Compliance status	Know what's due

Frequently Asked Questions

Does my app business need to worry about SEP?

If your app earns revenue from Nigerian users (subscriptions, in-app purchases, advertising) exceeding ₦25 million, SEP rules likely apply. Even below this threshold, VAT may still apply.

How do I know if my customers are Nigerian?

Use indicators like: billing address, payment method location, IP address, phone numbers, and user-provided location data. Document your methodology.

Can I claim tax paid in Nigeria against my home country tax?

Depending on your home country's rules and any tax treaty, you may be able to claim foreign tax credits. Consult advisors in both jurisdictions.

What if I don't register for SEP?

NRS (Formerly FIRS) may assess tax based on available information (bank records, platform data, etc.) and impose penalties for non-compliance.

Does SEP apply to all digital services?

SEP targets services deriving value from Nigerian users without physical presence. Traditional services with Nigerian presence may be taxed under normal rules instead.

How does VAT work for B2B digital services?

Nigerian business customers may apply reverse charge VAT (account for VAT themselves) on services from non-resident suppliers who aren't VAT registered in Nigeria.

Conclusion

Digital taxation in Nigeria requires careful attention:

Key Points:

• SEP creates tax nexus for non-residents
• 6% turnover tax on SEP income
• VAT at 7.5% on digital services
• Registration may be required
• Enforcement is increasing

Compliance Essentials:

• Track Nigerian-source revenue
• Assess SEP and VAT obligations
• Register if thresholds exceeded
• File returns timely
• Maintain documentation

Finora helps tech companies navigate digital taxation with proper revenue tracking, tax calculations, and compliance reporting.

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