• Thursday, March 28, 2024
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VAT now applies to services by Nigerian-based firms for related non-resident companies  

VAT now applies to services by Nigerian-based firms for related non-resident companies   

The Tax Appeal Tribunal sitting in Lagos has ruled that the services rendered by a company in Nigeria for a related firm outside the country are subject to Value Added Tax (VAT).

The tribunal delivered the judgement on Wednesday in a case filed by Allan Gray Investment Management Nigeria Limited against the Federal Inland Revenue Service (FIRS).

The appellant had sought to determine whether or not the services it rendered to its non-resident parent company qualified as “exported services” under the VAT Act, Cap. V1, Laws of the Federation of Nigeria, 2004 (“VAT Act”) and, therefore, exempted from VAT.

The VAT Act defines “exported services” as services performed by a Nigerian resident or a Nigerian company to a person outside Nigeria, and subsequently exempts the services from VAT.

Allan Gray Investment Management Nigeria Limited had executed a marketing and distribution agreement with its parent, Allan Gray International (Pty) Limited (AGI), an investment management company incorporated and resident in South Africa.

The agreement required the appellant to market and distribute AGI’s African Equity Funds in Nigeria for a fee which it considered as exported services and should be exempted from VAT.

Read also: Bill to amend Companies Income Tax Act, VAT, others passes second reading in Reps

Having considered arguments of both parties, the TAT held that AGI is effectively carrying on business in Nigeria based on its appointment of the appellant as the sole and exclusive local representative of its African Funds in Nigeria.

The tribunal also pointed out that even though AGI was not physically present in Nigeria, it is legally present through the appointment of the appellant as an agent to market and distribute its services in the country.

Consequently, the court ruled that the services performed by the appellant in Nigeria on behalf of its related non-resident parent company do not qualify as exported services and are, therefore, liable to VAT in Nigeria.

Meanwhile, Wole Obayomi, Partner and Lead Tax, Regulatory and Service at KPMG, said the judgement raises fundamental questions on when a non-resident company will be characterized as legally present or doing business in Nigeria and what will qualify a service performed by a Nigerian company for a non-resident company as an exported service for VAT purposes.