Input VAT Recovery in Nigeria 2026

Input VAT recovery in Nigeria 2026 has undergone a revolutionary transformation under the Nigeria Tax Act 2025. For VAT-registered businesses, understanding input VAT recovery in Nigeria in 2026 is crucial to enhancing cash flow, minimizing operational costs, and recovering substantially more VAT than was previously possible.

Effective January 1, 2026, the new regime for input VAT recovery in Nigeria 2026 allows businesses to claim VAT on a much broader range of purchases, including services and capital assets. This comprehensive guide from SOW Professional explains everything you need to know about input VAT recovery in Nigeria 2026 and how to maximize your recoveries under the new tax regime.

Understanding Input VAT Recovery in 2026

Input VAT recovery in Nigeria 2026 starts with understanding the basic concept. Input VAT is the Value Added Tax that your business pays when purchasing goods or services from VAT-registered suppliers. The framework for input VAT recovery in Nigeria 2026 allows businesses to offset this tax against Output VAT collected from customers.

Example: Your company purchases office equipment worth ₦1,000,000 from a VAT-registered supplier. The supplier charges you:

Equipment cost: ₦1,000,000
VAT at 7.5%: ₦75,000
Total payment: ₦1,075,000

The ₦75,000 you paid is your Input VAT on this transaction.

The VAT Credit Mechanism

The beauty of the VAT system is that VAT-registered businesses don’t bear the final cost of VAT on their purchases. Instead, they can offset Input VAT against Output VAT collected from customers.

How it works:

You pay ₦75,000 Input VAT on purchases
You collect ₦150,000 Output VAT from customers
You remit the difference to NRS: ₦150,000 – ₦75,000 = ₦75,000

This mechanism ensures that VAT is ultimately borne by the final consumer, not by businesses in the supply chain. Therefore, mastering input VAT recovery in Nigeria 2026 directly impacts your cash flow, cost structure, and competitive position.

The Revolutionary Change in Input VAT Recovery

The framework for input VAT recovery in Nigeria 2026 represents a fundamental shift from previous VAT legislation. Under the old regime, Input VAT recovery was severely restricted. Businesses could typically only recover VAT on goods purchased for resale or materials used directly in production. However, input VAT recovery in Nigeria 2026 has expanded dramatically.

The Old Regime: Limited Recovery

What was recoverable:

VAT on goods purchased for resale
VAT on raw materials used in production
VAT on inventory directly incorporated into products

What was NOT recoverable:

VAT on services (professional fees, consulting, telecommunications, etc.)
VAT on fixed assets (machinery, equipment, vehicles, buildings)
VAT on general business expenses

This restriction particularly hurt service-based businesses and companies making significant capital investments. A consulting firm paying ₦1 million in VAT on office rent annually had no way to recover it. A manufacturer purchasing ₦50 million in equipment paid ₦3.75 million in VAT that was simply a sunk cost.

Input VAT Recovery in 2026: What Changed

The Nigeria Tax Act 2025 fundamentally transforms the rules governing input VAT recovery in Nigeria 2026. The Act expands input VAT recovery to cover all purchases, including services and fixed assets, provided they directly relate to taxable supplies.

What is NOW recoverable:

VAT on all goods purchased for business purposes
VAT on ALL services (professional, consulting, telecommunications, utilities, etc.)
VAT on capital assets (machinery, equipment, vehicles, buildings)
VAT on overhead expenses related to making taxable supplies

The only requirement is that: The purchases must directly relate to making taxable (including zero-rated) supplies.

The Impact of broadened VAT Recovery scope

Understanding the practical benefits of input VAT recovery in Nigeria 2026 is best illustrated through real examples.

Example: Consulting Firm Annual business expenses with VAT:

Office rent: ₦10,000,000 + ₦750,000 VAT
Professional services (legal, accounting): ₦3,000,000 + ₦225,000 VAT
IT and telecommunications: ₦2,000,000 + ₦150,000 VAT
Furniture and equipment: ₦5,000,000 + ₦375,000 VAT
Total Input VAT: ₦1,500,000

Old regime (before 2026): None of this ₦1,500,000 was recoverable.

New regime : All ₦1,500,000 is recoverable (assuming the firm provides taxable services and is VAT-registered), dramatically improving profitability and cash flow.

Example: Manufacturing Company Purchases new production equipment:

Equipment cost: ₦100,000,000
VAT: ₦7,500,000

Old regime (before 2026): The ₦7,500,000 VAT was a sunk cost, increasing the real investment by 7.5%.

New regime : The ₦7,500,000 VAT is fully recoverable, meaning the real cost of the equipment is just ₦100,000,000.

What Qualifies for Input VAT Recovery in Nigeria 2026?

The scope of input VAT recovery in Nigeria 2026 is comprehensive. Here’s what businesses can now claim:

Goods and Inventory

Fully recoverable:

Raw materials for production
Goods purchased for resale
Consumables used in business operations
Office supplies and stationery
Fuel for business vehicles
Spare parts and maintenance materials

Services: The Major Expansion in Input VAT Recovery this year

One of the most significant aspects of the Nigeria Tax Act is the full recovery of VAT on services, provided other conditions are met

Now fully recoverable:

Professional services (legal fees, accounting, tax advisory, consulting)
Telecommunications and internet
Utilities (electricity for commercial premises, water)
Rental of commercial property
Advertising and marketing
Transportation and logistics
Repairs and maintenance
Security, cleaning, and janitorial services
Training and development
Software subscriptions and cloud services

Capital Assets: Game-Changing for Input VAT Recovery

For businesses making significant investments, input VAT recovery in Nigeria 2026 on capital assets represents substantial savings.

Now fully recoverable:

Machinery and equipment
Vehicles (commercial use)
Computers and IT hardware
Furniture and fixtures
Buildings and construction
Leasehold improvements

Critical note: For vehicles and equipment used for both business and personal purposes, only the business-use portion of VAT is recoverable.

What is Still Excluded from VAT Recovery

Despite the expansion, certain Input VAT remains non-recoverable under the Act’s requirement that input tax must be “incurred for the purpose of consumption, use or supply in the course of making taxable supplies.”

VAT on Purchases Related to Exempt or Non-Taxable Supplies If you make exempt supplies (medical services, educational services, residential property rental), you cannot recover Input VAT related to those activities. The Act explicitly limits recovery to input tax incurred for taxable supplies only.
Personal or Non-Business Use VAT on purchases for personal consumption is not recoverable, as it’s not incurred “in the course of making taxable supplies.”
Purchases Without Proper Documentation Even if a purchase qualifies, without a valid VAT invoice from a registered supplier, you cannot claim the Input VAT.
Purchases from Non-Registered Suppliers If your supplier isn’t VAT-registered (typically businesses under ₦50 million turnover), they don’t charge VAT, so there’s no Input VAT to recover.
Input Tax Older Than Five Years The Act provides a 5-year time limit. Any input tax incurred more than 5 years ago can no longer be claimed.

Documentation Requirements for VAT Recovery

Successful recovery depends entirely on proper documentation. Without valid documentation, even legitimate claims will be rejected. Here’s what you need for input VAT recovery in Nigeria 2026.

Valid VAT Invoice

Every Input VAT claim must be supported by a valid VAT invoice containing:

Supplier Information:

Full business name and VAT registration number
Business address

Customer Information:

Your company name and address
Your VAT registration number

Invoice Details:

Unique sequential invoice number
Date of issue
Clear description of goods/services supplied

Financial Details:

Amount excluding VAT
VAT rate (7.5%)
VAT amount
Total amount including VAT

Additional Supporting Documentation

Maintain:

Delivery notes or goods received notes
Purchase orders and payment evidence
Service agreements or contracts
Asset register entries (for capital assets)
Apportionment calculations (for mixed-use items)

Retention Period

Keep all VAT documentation for at least 6 years from the end of the accounting period to which they relate.

Timing of Input VAT Recovery

Proper timing is essential for maximizing the cash flow benefits of input VAT recovery in Nigeria 2026. According to the Nigeria Tax Act 2025, input tax may be deducted from tax payable at the end of the tax period in which the supply occurred.

The Five-Year Rule for VAT Recovery.

A critical provision for VAT system and doumentation is the time limit: input tax shall be allowable for deduction within five years after the end of the tax period in which the input tax was incurred.

What this means:

You have up to 5 years from the end of the tax period to claim input VAT
Input VAT incurred in January 2026 can be claimed anytime until January 2031
This provides significant flexibility for businesses to recover VAT even from older transactions

For capital assets: You can claim the Input VAT immediately upon receiving the invoice and asset, even if you’re paying in installments.

Best practice for VAT management in Nigeria 2026: While you have 5 years to claim, it’s best to claim Input VAT promptly (within the same month or following month). Early claims maximize cash flow benefits and reduce the risk of lost documentation or forgotten claims.

Apportionment Rules for Input VAT Recovery in Nigeria 2026

If your business makes both taxable and exempt supplies, the rules for input VAT recovery in Nigeria 2026 require you to apportion Input VAT between the two. The Nigeria Tax Act 2025 explicitly states this requirement.

The Legal Requirement for Apportionment

According to the Act: “Where any input tax is incurred in making both taxable and non-taxable supplies, only the proportion relating to making taxable supplies may be deducted.”

This means input VAT recovery in Nigeria 2026 is only allowable to the extent that the input tax was incurred for the purpose of consumption, use or supply in the course of making taxable supplies.

The Apportionment Rule for Input VAT Recovery in Nigeria 2026

You can only recover Input VAT to the extent it relates to taxable supplies. For costs relating to both taxable and exempt (non-taxable) supplies, use this formula:

Recoverable Input VAT = Total Input VAT × (Taxable Supplies ÷ Total Supplies)

Example: Your business makes:

Taxable supplies: ₦80,000,000 (80%)
Exempt supplies: ₦20,000,000 (20%)

You incur ₦1,000,000 in Input VAT on overhead expenses that relate to both activities.

Recoverable Input VAT: ₦1,000,000 × 80% = ₦800,000

The remaining ₦200,000 cannot be recovered because it relates to exempt supplies.

Direct Attribution

Where possible, directly attribute Input VAT:

Directly for taxable supplies: Fully recoverable
Directly for exempt/non-taxable supplies: Not recoverable
Related to both (overhead): Apportion using the formula

Critical for input VAT recovery in Nigeria 2026: The apportionment requirement is mandatory, not optional. Businesses making both taxable and exempt supplies that claim 100% of Input VAT will face adjustments and penalties during audits.

How to Claim Input VAT Recovery in Nigeria 2026: Step-by-Step

Following the correct process for input VAT recovery in Nigeria 2026 ensures maximum recovery and compliance.

1: Collect and Organize VAT Invoices

Ensure every purchase from VAT-registered suppliers has a valid VAT invoice
Verify invoices have all required elements
File invoices systematically

2: Record in Accounting System

Record gross amount, VAT amount, and net amount separately
Flag invoices requiring apportionment
Tag capital asset invoices separately

3: Calculate Total Input VAT

Sum all Input VAT for the month
Subtract non-recoverable amounts
Apply apportionment to mixed-use items

4: Complete and Submit VAT Return

Report total Output VAT and total Input VAT
Calculate net VAT payable (Output VAT – Input VAT)
Submit through NRS portal by the 21st of the following month

5: Handle Refunds or Carry Forward

If Output VAT > Input VAT: Pay the difference
If Input VAT > Output VAT: Carry forward credit or request refund

Maximizing Input VAT Recovery in Nigeria 2026: Strategic Tips

To fully benefit from input VAT recovery in Nigeria 2026, consider these strategic approaches:

Verify All Suppliers Are VAT-Registered Before engaging suppliers, verify they’re VAT-registered. Purchasing from registered suppliers allows you to recover VAT.
Insist on Proper VAT Invoices Don’t accept receipts lacking required elements. Request proper VAT invoices with all necessary information.
Timing of Major Purchases Making large capital purchases in months with high Output VAT allows immediate offset, improving cash flow.
Separate Business and Personal Expenses Maintain detailed logs proving business use percentage for mixed-use items. Higher documented business use means more recoverable VAT.
Review Service Contracts Now that input VAT recovery in Nigeria 2026 includes services, reconsider services previously avoided due to “irrecoverable VAT cost.”
Capital Investment Planning When evaluating capital projects under input VAT recovery in Nigeria 2026, factor in VAT recovery. The 7.5% reduction in real cost can make marginal projects viable.
Quarterly Input VAT Reviews Regular reviews of your input VAT recovery in Nigeria 2026 help identify missing invoices, verify documentation, and ensure all claims are properly supported.
Training for Staff Ensure staff who purchase goods/services understand VAT invoice requirements and the importance of proper documentation.

Common Mistakes That Limit Input VAT Recovery in Nigeria 2026

Avoid these common errors that reduce your input VAT recovery in Nigeria 2026:

Accepting Receipts Instead of VAT Invoices Handwritten receipts and till slips are not VAT invoices and cannot support Input VAT claims.
Claiming VAT from Non-Registered Suppliers Verify VAT registration numbers on the NRS portal before claiming.
Late Claims While you have up to 5 years to claim under input VAT recovery in Nigeria 2026, holding invoices for months or years reduces cash flow benefits. Claim promptly for maximum financial benefit.
No Apportionment for Mixed Supplies The Act explicitly requires apportionment when making both taxable and exempt supplies. Businesses that ignore this requirement will face adjustments and penalties during audits.
Poor Record-Keeping Implement robust document management systems and maintain organized records for audits.
Claiming Personal Use VAT Maintain clear separation between business and personal expenses.

Special Situations in Input VAT Recovery in Nigeria 2026

Reverse Charge Mechanism

When receiving services from foreign suppliers, you must self-assess VAT:

Calculate VAT that would apply (7.5%)
Declare as both Output VAT (owe) and Input VAT (claim)
Net effect is usually zero, but must report both amounts

VAT on Imported Goods

Input VAT recovery in Nigeria 2026 includes VAT on imported goods paid at the port (Import VAT), which is fully recoverable as Input VAT. Required documentation includes import duty receipts, customs documentation, and commercial invoices.

Conclusion: Maximize VAT Management in 2026

VAT reovery system represents one of the most taxpayer-friendly reforms in the new tax regime. The expansion of input VAT recovery in Nigeria 2026 to cover all purchases (goods, services, capital assets) provided they relate to taxable supplies dramatically improves cash flow and reduces operational costs for VAT-registered businesses.

Key takeaways for VAT management

Input VAT Reovery

2026:

All business purchases now generate recoverable Input VAT
Proper documentation is absolutely critical
Timing matters for cash flow optimization
Apportionment required for mixed taxable/exempt supplies
Regular reviews maximize recovery and ensure compliance

For service businesses, professional firms, and companies making significant capital investments, input VAT recovery in Nigeria 2026 fundamentally changes the economics of operations and growth. The key is understanding the rules, maintaining meticulous documentation, and implementing systems to track and claim all eligible Input VAT under the new input VAT recovery in Nigeria 2026 framework.

Don’t let inadequate systems or poor documentation cost you millions in input VAT recovery in Nigeria 2026.

Ready to maximize your input VAT recovery in Nigeria 2026? Contact SOW Professional today for a complimentary input VAT recovery assessment.

This article is for informational purposes only and does not constitute tax or legal advice. For guidance tailored to your situation, consult with qualified tax professionals.

About SOW Professional SOW Professional is a leading professional services firm based in Nigeria with a global perspective. We provide comprehensive accounting, tax, audit, and advisory services, helping businesses navigate Nigeria’s evolving tax landscape with expertise and confidence.

27 January 2026
Samuel Omofojoye