VAT Compliance in Nigeria 2026

Value Added Tax(VAT) compliance has undergone a significant transformation under the Nigeria Tax Act 2025, which took effect on January 1, 2026. For businesses across Nigeria, understanding your VAT obligations is critical, particularly whether you qualify as a small business exempt from VAT requirements or whether you must register, charge, and remit VAT monthly.

This comprehensive guide from SOW Professional breaks down everything you need to know about VAT compliance in 2026, which could be viewed as a subset of the broader tax compliance structure of 2026, including registration requirements, filing obligations, available exemptions, and the special provisions for small businesses.

VAT Compliance 2026

Understanding VAT in Nigeria’s New Tax Regime

Value Added Tax is an indirect consumption tax charged on the supply of goods and services in Nigeria. The current VAT rate remains at 7.5%, unchanged from previous years despite earlier proposals to increase it. However, what has changed dramatically are the rules governing who must charge VAT, how it’s administered, and which businesses qualify for exemptions.

The Nigeria Tax Act 2025 consolidates all VAT provisions that were previously scattered across the VAT Act, bringing clarity and introducing significant reforms, particularly beneficial to small businesses.

Who is a “Taxable Person” for VAT Purposes?

Before we discuss obligations, it’s essential to understand the fundamental concept: a “taxable person” is any individual or entity that makes taxable supplies of goods or services in Nigeria. This includes companies, partnerships, sole proprietorships, and even non-resident entities providing services to Nigerian customers.

However, not every taxable person has the same obligations. The critical distinction lies in whether you qualify as a “small business” under the new regime.

The Game-Changing Small Business Definition

The Nigeria Tax Act 2025 introduces a specific definition of “small business” that determines VAT exemptions:

A “small business” means:

A business that earns gross turnover of ₦50,000,000 or less per annum
With total fixed assets less than ₦250,000,000
Provided that any business providing professional services shall not be classified as a small business

This definition is critical because it determines whether you have VAT compliance obligations or enjoy complete exemption.

What Counts as Gross Turnover?

Gross turnover includes all revenue from your business activities before any deductions. Importantly, when determining whether you meet the ₦50 million threshold, the following are excluded:

Supply of a capital asset (selling business equipment, vehicles, or property)
Supply made solely as a consequence of selling the whole or part of your business
Supply from permanently ceasing to carry on business

This means that if you sell a delivery van for ₦5 million or close one branch and sell its assets for ₦10 million, these amounts don’t count toward your ₦50 million threshold for small business classification.

The Professional Services Exclusion

Professional service providers cannot be classified as small businesses regardless of their turnover or asset size. This exclusion applies to:

Legal services (law firms, solicitors, barristers)
Accounting and audit services
Medical and dental practices
Architectural and engineering consultancies
Tax and financial advisory services
Other licensed professional practices requiring specialized expertise

If you provide professional services, you must comply with full VAT obligations even if your annual turnover is only ₦10 million.

VAT Exemption for Small Businesses: What It Means

Section 22(4) of the Nigeria Tax Act 2025 provides a sweeping exemption for small businesses. It states clearly that the VAT filing requirements “shall not apply to a small business.”

What Small Businesses Are Exempt From:

VAT Registration Small businesses are not required to register for VAT with the Nigeria Revenue Service. You don’t need a VAT registration number or certificate.
Charging VAT on Your Sales You do not charge the 7.5% VAT on goods or services you supply to customers. Your invoices should not include VAT, and you should not collect VAT from customers.
Filing Monthly VAT Returns Small businesses are completely exempt from the requirement to file monthly VAT returns by the 21st of each month.
Remitting Collected VAT Since you don’t charge VAT, you have nothing to remit to the Nigeria Revenue Service.
Exemption from Certain Penalties Critically, small businesses granted exemption are also exempt from:

Section 105: The 40% penalty for failing to collect, deduct, or withhold tax
Section 107: Penalties and interest for failing to remit deducted, collected, or withheld tax
Section 152 of the Nigeria Tax Act: The obligation to pay VAT to suppliers on taxable supplies

The Section 152 Exemption: A Major Benefit

Section 152 of the Nigeria Tax Act normally requires that “a taxable person shall pay VAT to a supplier on the taxable supply made to the person.” In plain language, this means you must pay the 7.5% VAT when purchasing goods or services from VAT-registered suppliers.

However, small businesses are exempt from Section 152. This creates an important practical question: What happens when a small business purchases from a VAT-registered supplier?

Practical implications:

When you buy from VAT-registered suppliers, they will typically still charge you VAT (because they’re required to charge VAT on their supplies)
However, you cannot recover this VAT as input tax credit since you’re not VAT-registered
The exemption from Section 152 likely means you’re not legally obligated to ensure VAT is charged to you, though suppliers will generally include it

This is an area where practical implementation may require further guidance from the Nigeria Revenue Service.

When You Must Register for VAT

If your business does not qualify as a small business, you have mandatory VAT registration obligations.

Businesses Required to Register:

Businesses with Turnover Exceeding ₦50 Million Once your annual gross turnover exceeds ₦50 million, you cease to be a small business and must register for VAT.
Professional Services Firms All professional service providers must register for VAT regardless of turnover. Even a solo law practice with ₦20 million annual revenue must register.
Non-Resident Digital Service Providers Any non-resident business supplying digital or electronically supplied services to Nigerian customers must register for VAT in Nigeria, regardless of turnover. This includes:

Cloud hosting and SaaS platforms
Streaming services (video, music, podcasts)
Software and mobile applications
E-learning platforms
Digital marketplaces and e-commerce platforms
Online advertising services
Any other digital products or services consumed in Nigeria

Businesses That Voluntarily Opt In Section 22(5) allows small businesses to voluntarily register for VAT if they choose.

The Voluntary VAT Registration Option

Small businesses can choose to opt out of their exemption and register for VAT by submitting a written notice to the Nigeria Revenue Service.

Why would a small business voluntarily register for VAT?

Advantages:

Recover input VAT: If you purchase significant inputs from VAT-registered suppliers, registering allows you to claim input VAT credits, potentially reducing your effective tax burden
Business perception: Some clients, particularly large corporations and government entities, prefer dealing with VAT-registered suppliers as it appears more established
Contract requirements: Certain contracts or tenders may require VAT registration
Preparation for growth: If you’re approaching the ₦50 million threshold, early registration smooths the transition

Disadvantages:

Monthly compliance burden (filing returns by the 21st of each month)
Must charge VAT to all customers (which may make you less competitive for price-sensitive retail customers)
Administrative costs for VAT accounting and reporting
Potential cash flow impact (you collect VAT and remit before you recover input credits)

Important consideration: Once you voluntarily register, you take on all VAT compliance obligations. Therefore, carefully evaluate whether the benefits outweigh the compliance costs before opting in.

VAT Registration Process

For businesses required to register (or choosing to register voluntarily), the process involves:

Gather Required Documentation:

Certificate of Incorporation (for companies)
Tax Identification Number (TIN)
Business address proof
Bank account details
Director/proprietor identification
Business description and activities

Submit Application:

Register online through the Nigeria Revenue Service portal
Complete the prescribed VAT registration forms
Upload supporting documents

Receive VAT Registration Certificate: Once approved, you receive a VAT registration certificate and number, which must be displayed at your business premises and included on all VAT invoices.

Timeline: VAT registration typically takes 2-4 weeks for processing, though this can vary.

VAT Filing Requirements for Registered Businesses

Once registered for VAT, you have specific monthly obligations.

Monthly VAT Return Filing

Section 22(1) of the Nigeria Tax Act states: “A taxable person shall, in respect of value added tax, with or without a notice, and whether or not an economic activity has taken place, submit a return to the Service in the prescribed form, on or before the 21st day of the following month.”

Key points from this provision:

“With or without a notice”: You must file even if the Nigeria Revenue Service doesn’t specifically remind you. It’s your obligation to track and meet the deadline.

“Whether or not an economic activity has taken place”: You must file even if you made no sales or purchases during the month. A nil return is still required.

“21st day of the following month”: This is an absolute deadline. For example:

January transactions: File by February 21st
February transactions: File by March 21st
December transactions: File by January 21st of the following year

What Goes into a VAT Return?

Your monthly VAT return must include:

Output VAT (VAT you charged customers):

Total value of taxable supplies made
VAT charged at 7.5%
Details of zero-rated supplies (exports, etc.)
Details of exempt supplies

Input VAT (VAT charged to you by suppliers):

VAT paid on goods purchased for business
VAT paid on services received for business
VAT paid on capital assets acquired

Net VAT Position:

If Output VAT > Input VAT: You owe the difference to NRS
If Input VAT > Output VAT: You have excess credit (can claim refund or carry forward)

VAT Payment Deadline

VAT collected must be remitted to the Nigeria Revenue Service by the same deadline as filing: the 21st day of the following month.

Payment should be made through:

Bank deposit to designated NRS accounts
Online payment through the NRS portal
Electronic transfer with proper transaction references

Critical: Keep evidence of payment (e-receipts, bank confirmations) as proof of compliance.

Penalties for VAT Non-Compliance

The Nigeria Tax Act 2025 and Nigeria Tax Administration Act 2025 impose significant penalties for VAT violations.

For Failure to Register

Businesses required to register but failing to do so face penalties and may be assessed for back-duty VAT plus interest and penalties.

For Late Filing of Returns

Late filing attracts penalties even if no VAT is due. The Nigeria Revenue Service can impose administrative penalties for each month of default.

For Failure to Remit VAT Collected

Section 107 of the Nigeria Tax Administration Act addresses this serious violation. A person who collects or withholds VAT but fails to remit by the 21st day deadline is liable to pay:

(a) The full amount collected but not remitted You must pay the entire VAT you collected from customers.

(b) An administrative penalty of 10% per annum This penalty applies to the tax collected but not remitted.

(c) Interest at the prevailing Central Bank of Nigeria monetary policy rate Interest accrues on the unpaid amount, compounding your liability.

Example: You collected ₦500,000 in VAT during March but didn’t remit by April 21st. By December (8 months later):

Principal amount due: ₦500,000
Penalty (10% per annum for 8 months): ₦33,333
Interest (assuming CBN rate of 18% per annum for 8 months): ₦60,000
Total liability: ₦593,333

The longer you delay, the more the liability grows.

For Failure to Collect VAT When Required

Section 105 imposes a 40% penalty on businesses that fail to collect, deduct, or withhold tax when required. If you’re VAT-registered but don’t charge VAT on taxable supplies, you face a penalty of 40% of the amount you should have collected.

Example: You made taxable supplies worth ₦10 million but didn’t charge VAT (₦750,000). You’re liable for:

The ₦750,000 VAT you should have collected
Plus a 40% penalty: ₦300,000
Total: ₦1,050,000

Criminal Penalties

In cases of deliberate evasion, fraud, or persistent non-compliance, the Nigeria Tax Act provides for criminal prosecution, which can result in imprisonment in addition to financial penalties.

VAT on Different Types of Supplies

Understanding what’s taxable, zero-rated, or exempt is essential for proper VAT compliance.

Taxable Supplies (Standard 7.5% Rate)

Most goods and services are subject to the standard 7.5% VAT rate, including:

Retail sales of goods
Restaurant and catering services
Professional services (accounting, legal, consulting)
Telecommunications services
Hotel and accommodation services
Transportation services (with some exceptions)
Manufacturing and distribution
Construction services
Entertainment services

Zero-Rated Supplies (0% Rate, Can Claim Input VAT)

These supplies are taxable at 0%, but businesses making these supplies can still recover input VAT paid on purchases. Zero-rated supplies include:

Exports of goods and services: Goods shipped outside Nigeria or services provided to non-residents consumed outside Nigeria
Basic food items in natural state: Unprocessed foods like rice, beans, yams, cassava, fresh vegetables, fruits
Medical and pharmaceutical products: Essential drugs, vaccines, medical equipment
Baby products: Baby formula, diapers, and related items
Educational materials: Textbooks, educational supplies
Commercial vehicles and their parts: Buses, commercial transport vehicles
Plant and machinery for use in Export Processing Zones

Advantage of zero-rating: You charge 0% to customers but can recover all VAT paid on your business inputs, effectively making your supplies VAT-free while maintaining cash flow benefits.

Exempt Supplies (No VAT, Cannot Claim Input VAT)

Exempt supplies are outside the VAT system entirely. You don’t charge VAT, and you cannot recover input VAT related to exempt supplies. Exempt supplies include:

Medical services: Services provided by doctors, nurses, hospitals, clinics
Educational services: Tuition and educational instruction
Residential rent: Rent on residential properties (commercial property rent is taxable)
Basic financial services: Granting of credit, deposit taking, operation of bank accounts
Community services: Services by charitable and religious organizations for charitable purposes

Disadvantage of exemption: VAT paid on inputs related to exempt supplies becomes a real cost since you cannot recover it.

Mixed Supplies

If your business makes both taxable and exempt supplies, you must apportion input VAT. Only input VAT related to taxable supplies is recoverable. This requires careful accounting to track which purchases relate to which type of supply.

Special VAT Provisions

Digital Platform Intermediaries

Digital platforms or intermediaries that facilitate supplies and earn commissions must collect VAT on the full supply value, not just their commission. For example, if you operate a marketplace platform where vendors sell goods, you may be responsible for collecting VAT on the entire transaction value.

Reverse Charge Mechanism

Nigerian businesses receiving services from foreign suppliers must self-assess and pay VAT on those services under the reverse charge mechanism. You treat yourself as both supplier and recipient, calculating VAT due and claiming input credit in the same return.

E-Invoicing and Fiscalization

The Nigeria Tax Administration Act requires mandatory fiscalization and e-invoicing with real-time validation. VAT-registered businesses must:

Issue electronically validated invoices
Include sequential numbering
Integrate with the Merchant Buyer Solution (MBS) system
Include business registration number on all VAT invoices

This requirement is being phased in, starting with large taxpayers, but all VAT-registered businesses should prepare for eventual compliance.

Practical Compliance Tips for Businesses

For Small Businesses (Under ₦50 Million Turnover)

Monitor your turnover carefully Track your revenue monthly to know when you’re approaching the ₦50 million threshold. Don’t wait until year-end to discover you’ve exceeded it.
Understand what counts toward turnover Remember that capital asset sales and business disposal proceeds don’t count toward the ₦50 million threshold.
Keep records anyway Even though you’re exempt from VAT, maintain good accounting records. You may need them if you voluntarily register or when you exceed the threshold.
Don’t charge VAT to customers Your invoices should not include VAT. If customers ask why you’re not charging VAT, explain that you’re a small business exempt under the Nigeria Tax Act 2025.
Understand you’ll still pay VAT on purchases When buying from VAT-registered suppliers, you’ll typically be charged VAT, which becomes part of your cost since you cannot recover it.
Plan for transition If your business is growing toward ₦50 million, start preparing for VAT compliance 3-6 months before you expect to cross the threshold.

For VAT-Registered Businesses

Implement robust accounting systems Use accounting software that handles VAT calculations, tracks input and output VAT separately, and generates compliant VAT returns.
Issue proper VAT invoices Every VAT invoice must include:

Your business name and VAT registration number
Customer name and address
Invoice date and sequential number
Description of goods/services supplied
Total amount excluding VAT
VAT amount (7.5%)
Total amount including VAT

Keep all input VAT documentation Maintain files of all supplier invoices showing VAT charged to you. Without proper documentation, you cannot claim input VAT credits.
File on time every month Set calendar reminders for the 21st of each month. Consider filing a few days early to account for technical issues with the NRS portal.
Reconcile regularly Monthly reconciliation of your VAT accounts prevents year-end surprises and makes compliance easier.
Separate business and personal expenses Only VAT on business purchases is recoverable. Keep clear separation to avoid disallowed input claims.
Understand what input VAT you can claim Under the 2026 reforms, you can now claim input VAT on services and capital assets, not just inventory. This includes:

Office rent (if commercial property)
Professional services (legal, accounting)
Equipment and machinery purchases
Vehicle purchases for business use
Software and technology services

Handle mixed supplies correctly If you make both taxable and exempt supplies, work with a tax professional to ensure proper apportionment of input VAT.

When Professional Help Is Essential

VAT compliance can be complex, particularly in these situations:

You should engage tax professionals when:

Transitioning from small business to VAT-registered status
Making both taxable and exempt supplies (apportionment challenges)
Operating as a digital platform or intermediary
Dealing with cross-border transactions
Receiving foreign services (reverse charge situations)
Facing VAT audits or disputes
Considering voluntary VAT registration
Operating in multiple states or with complex supply chains

Professional guidance ensures compliance while optimizing your VAT position and avoiding costly penalties.

Looking Ahead: VAT Compliance in 2026 and Beyond

The Nigeria Tax Act 2025 represents a modernized approach to VAT administration. Key trends to watch:

Increased digitalization: Expect continued rollout of e-invoicing, fiscalization, and real-time reporting requirements.

Enhanced enforcement: The Nigeria Revenue Service has improved data-matching capabilities, making non-compliance easier to detect.

Broader coverage: Digital service providers, platform intermediaries, and non-resident suppliers face increased scrutiny and compliance obligations.

Small business support: The ₦50 million exemption threshold provides meaningful relief for small enterprises, but compliance is required once you exceed it.

Simplified procedures: Despite increased enforcement, NRS is also working to simplify registration, filing, and payment processes through improved online platforms.

Conclusion: Navigate VAT Compliance with Confidence

VAT compliance in 2026 offers both relief and responsibility. Small businesses with turnover of ₦50 million or less enjoy complete exemption from VAT obligations, allowing them to focus on growth without compliance burden. However, once you exceed this threshold or if you provide professional services, full VAT compliance becomes mandatory.

Key takeaways:

Small businesses (≤₦50M turnover, excluding professional services): Completely exempt from VAT registration, charging, filing, and remittance
Businesses exceeding ₦50M or professional services firms: Must register, charge 7.5% VAT, file monthly by the 21st, and remit all collected VAT
Voluntary registration available: Small businesses can opt in if beneficial
Significant penalties for non-compliance: Late filing, failure to remit, and failure to collect all carry substantial penalties and interest
Input VAT recovery expanded: VAT on services and capital assets is now recoverable for registered businesses
Professional services excluded: Cannot qualify as small businesses regardless of size

Don’t navigate VAT compliance alone. Let SOW Professional’s experienced team ensure you’re fully compliant while optimizing your VAT position.

Ready to get your VAT compliance right in 2026? Contact SOW Professional today for a consultation tailored to your business needs.

22 January 2026
Samuel Omofojoye