Topice Consulting

FIRS Finance Act Circular
Regulated securities lending
transactions

Background
The Federal Inland Revenue Services
(FIRS) has issued a circular on the tax
implications of regulated securities
lending (RSL) transactions in Nigeria.
RSL involves various parties including:
• Lender: Owner of dividend-bearing
securities.
• Borrower: Borrows securities from
Lender and provides a collateral.
• Agent: Facilitates transactions between
both parties.
The Borrower obtains securities from
Lender through an approved Agent, for an
agreed fee and a stipulated period.
Borrower provides collateral to Lender
usually in the form of cash. Borrower
seeks to profit by selling and repurchasing
the securities (“short selling”).
Lender receives the securities back at the
end of the transaction and profits by
earning a fee.
Agent profits from commission or
brokerage fees.
In the period that ownership is transferred
temporarily to Borrower, Borrower pays
any dividends on the securities to Lender.
Also, Lender pays interest earned on the
collateral to the Borrower. These are
regarded as “compensating payments”
which can be made directly to Borrower or
Lender, or through the Agent.
These activities are subject to approval
and regulation by the Securities and
Exchange Commission (SEC).
Highlights
The circular clarifies the following:
Companies Income Tax (CIT)
Rights, bonuses, fees and other benefits
accruing to Borrower or Lender constitute
taxable income.
Dividends paid by Borrower to Lender
are Franked Investment Income
exempt from CIT in Lender’s hands.
Such dividends paid by Borrower to
Lender will not be an allowable
deduction for the Borrower.
Interests on collateral paid by Lender to
Borrower are taxable in Borrower’s
hands.
Interests paid by a Lender to earn taxexempt dividends are not taxdeductible.
Dividends and interests received or
paid by the Agent on behalf of other
parties are exempt and non-deductible
respectively.
Withholding Tax (WHT)
WHT applies on interests paid by
Lender to Borrower. However, if Lender
pays through Agent, the responsibility
to deduct WHT is on the Agent.
WHT does not apply on dividends paid
by Borrower to Lender irrespective of
whether the dividends are paid directly
to Lender or through the Agent.
The WHT Regulations issued under
Section 81 of CITA will not apply to
compensating payments made in an
RSL.
Personal Income Tax (PIT)
The amendments relating to RSL only
affect entities taxable under the CITA.
Therefore, individuals that participate in
RSL will continue to be taxed in line
with existing provisions of the PIT Act.
Stamp Duties

RSL instruments such as receipts,
shares, stocks or securities and other
documents issued by the SEC are
exempt from stamp duties.
Capital gains tax (CGT)
Transfer of securities in RSL
transactions are not disposals. Capital
gains on the sale of shares are already
exempt from CGT under the CGT Act.
Takeaway
The FIRS circular considers rights and
bonus issues as taxable income
whereas in the strict sense they are
“compensating payments” in respect of
capital, and therefore should not be
taxed. Rights and bonus issues are
adjustments against share capital which
do not constitute income for the holders.
The circular regards dividends paid by
Borrower to Lender as franked, and
exempt from CIT. However, this may not
always be the case where such
dividends have been exempted from
WHT.
Overall, the new tax regime introduced
by the Finance Act will facilitate
activities in RSL which is expected to
have a positive impact on the capital
market.
A

FIRS issues information circular on
the implementation of VAT changes
in the Finance Act

Background
The Finance Act(FA)
2019 introduced
significant amendments to the Value
Added Tax Act (VATA). The FIRS circular
seeks to provide guidance on how the
FIRS intends to implement the VAT
amendments.
In this publication, we examine some of the
matters clarified in the FIRS circular,
including:
1. Definition of goods and services;
2. Transition to the new VAT rate,
3. VAT registration and deregistration;
4. Self accounting for VAT;
5. Registration by non-residents;
6. Introduction of VAT threshold;
7. Business reorganisation;
8. Exported service;
9. Penalty regime; and
10. Status of the information circular.

Definition of supply of goods and
services
The circular reiterates that apart from
tangibles, VAT now applies on the supply
of intangible goods in Nigeria, and
provides examples such as the supply of
rights in mineral resources, copyrights and
trademarks.
In line with the FA, goods are considered
to be supplied in Nigeria if they are
physically present, assembled or imported
for use in Nigeria. Also, if the beneficial
owner of the rights in the goods is a
taxable person in Nigeria and the rights are
situated, registered or exercisable in
Nigeria.
For services, VAT will apply if the service
is performed to persons in Nigeria
irrespective of the location of the provider or
medium of delivery.

Transition to new VAT Rate of 7.5%

The VAT rate has been increased from
5% to 7.5%. The FIRS Circular states the
effective date as 1 Feb 2020.
In terms of which rate to use and the cutoff
date, the FIRS mentions that:
• a service is supplied when it is
performed or an agreed milestone is
reached
• goods are supplied upon delivery or
transfer of risk, whichever occurs first.
Based on the above, any taxable supply
made from 1 Feb 2020 would be subject
to VAT at 7.5%. Where it is not practicable
to determine the time of supply, FIRS may
rely on the date contained in invoices,
bills, debit notes, good received notes,
journal entries or waybills as the date of
supply.

Registration and de-registration of
taxable persons
The amended VATA requires businesses
to register for VAT upon commencement.
Also, when ceasing a trade, the tax law
mandates businesses to notify the FIRS
within 90 days of cessation. In addition,
the circular states that supplies made
post-cessation will be considered as
supplied immediately before ceasing.
The penalties for failure to register for VAT
have been increased, and new penalties
have been introduced for failure to notify
FIRS of cessation.

Registration by non-residents
The circular highlights that a Non-Resident
Company (NRC) that “makes taxable
supplies” to a Nigerian resident should:
• register for the tax with the FIRS using
the address of the person to whom it is
making a supply; and
• include VAT on its invoice.
NRCs that have a fixed base in Nigeria
should register using the address of the
fixed base and comply with charging, filing,
payment and other requirements as if it
were a Nigerian company.

Self-Accounting for VATThe circular clarifies that a taxable person
should self-charge and remit VAT on
transactions with:
• a supplier who is exempt from charging
VAT because of the N25m threshold;
• a taxable person that fails to charge
VAT; and
• an NRC without a presence in Nigeria.
A taxable person that self-charges VAT
should remit the VAT using VAT Form 006
and maintain a schedule of such
transactions.

Introduction of VAT Threshold

The FA exempts companies that make
taxable supplies of less than N25m from
charging, collecting, remitting and filing
monthly VAT return to the FIRS. Such
businesses are also exempt from penalties
for non-registration.
A taxable person may determine if the
threshold has been met as follows:
a) A business that made taxable supplies
of N25m or above prior to 1 February
2020 should continue to account for VAT,
even if taxable supplies in the current
year are below N25m;
b) A business that made taxable supplies
less than N25m prior to 1 February 2020,
but makes or expects to attain the
threshold in the current year should
account for VAT in the month it meets or
expects to meet the threshold; and
c) A business may volunteer to account
for VAT (subject to notifying the FIRS),
even though it does not meet the VAT
threshold.
“Taxable supplies” for determining the
N25m threshold is defined to include all
supplies for a consideration irrespective of
whether they are VAT exempt. However,
this excludes the taxable supply of the
capital assets and sale of the whole or part
of the business.

Business Reorganisations

The FA 2019 introduced a VAT
exemption on transfer of assets in a
business reorganisation between related
parties, subject to the following
conditions:
a) The companies must justify to the
FIRS that they have been related
parties for at least one year before
the transaction;
a) The transferred assets should not be
disposed of at least a year after the
transaction. Where the assets are
sold within this period, any
concessions granted will be
withdrawn by the FIRS, and penalties
and interest will be charged from the
transaction date.

Exported Service
The FA 2019 amended the definition of
“exported services” in the VATA to
mean: “a service rendered within or
outside Nigeria by a person resident in
Nigeria, to a non-resident outside
Nigeria. Provided that a service
supplied to the fixed base or permanent
establishment of a non-resident person
shall not qualify as exported services”
The FIRS circular highlights that for a
service to qualify as an exported service:
• it must be provided by a Nigerian
resident to a non-resident; and
• the non-resident person must be
outside of Nigeria when consuming the
service.
The Circular also clarifies that the following
do not qualify as exported services:
a) Where a non-resident person is in
Nigeria or consumes the service while
in Nigeria;
a) Where a non-resident provides a
service through its fixed base in
Nigeria;
a) Where a Nigerian resident provides
service to the fixed base of a nonresident
in Nigeria; and
a) Where a service is provided to a
consumer who is in Nigeria, on behalf
of a non-resident person.

Penalty Regime
The FA 2019 amended the VATA to
increase the penalty for failure to comply
with VAT obligations. The circular
summarises the penalties as follows:
• Failure to register for VAT, to notify the
FIRS of change of address or permanent
cessation of business or to submit VAT
returns: N50,000 for the first month, and
N25,000 for each subsequent month of
failure;
• Failure to remit VAT attracts penalty at
10% of the VAT payable plus interest at
the prevailing CBN minimum rediscount
rate (MRR).

Status of the FIRS Circular

The Circular supersedes other publications
previously issued by the FIRS on VAT to the
extent of any inconsistency and may be
withdrawn, amended or replaced at any time

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For corporate organisations and individuals who require the services of an Audit, Taxation Management and Accountancy professional....


We at Topice Consulting render such services and more in an accurate and professional manner.

Please find below our corporate profile for your perusal:

Topice Consulting (Chartered Accountants and Tax Practitioners)

General information
The firm was registered by Corporate Affairs Commission (CAC) in May 2015 to provide high quality professional services to clients in various sectors of the economy. The firm is principally driven by sound professional and business principles geared towards providing value-added services through highly experienced and well trained professionals.

Our vision and mission

Vision:
To be the first choice solution-driven professional service firm.

Mission:
To provide uncommon and value-added services to our clients; towardsm the attainment of their goals and objectives.

Our Professional services:
-Audit & Assurance Services
-Investigation & Due Diligence
-Taxation Management Service
-Accountancy Service
-Financial Advisory Service

Management:

Tope Sodeye-HND,ACA,ACIT.
The Managing Consultant is a Chartered Accountant and Tax Practitioner with over 9 years varying experience in Financial, Tax Management, Audit and Investigation assignments. An associate member of both the Institute of Chartered Accountants of Nigeria (ICAN) and the Chartered Institute of Taxation of Nigeria (CITN) he is also a holder of a Higher National Diploma in Accountancy and Finance from Yaba College of Technology, Yaba.

Contact Details:
Topice Consulting
-3 Okeho street Ire akari estate Isolo Lagos Nigeria.

Managing consultant
-Tope Sodeye: 08038158203,08078139239.
Email: [email protected].