Does your business need to charge VAT? Most Nigerian MSME owners are either charging it when they shouldn't be, or ignoring it entirely when they should be registered. This guide gives you the straight answer.
Just want to know if you need to charge VAT? See: Do I Need to Charge VAT? A Plain English Guide
VAT stands for Value Added Tax. It is a 7.5% tax charged on most goods and services sold in Nigeria.
Until recently, VAT was managed by the Federal Inland Revenue Service (FIRS). Under the new tax laws effective 2026, this function has moved to the NRS (Nigeria Revenue Service). Any reference you see to "FIRS" on older forms or guides now means NRS.
The NRS collects VAT on behalf of the federal government. As a business, you act as the collection agent — you charge your customers, hold the money, and remit it to the NRS every month.
The single most important number is ₦100 million.
If your business earns less than ₦100 million per year in taxable sales, you are below the VAT registration threshold. You do not need to register, charge, or file VAT.
If your business earns ₦100 million or more per year, you must register with the NRS and charge VAT.
Here is what that looks like for real Nigerian businesses:
Mama Chidinma's food stall (Onitsha Market)
She sells cooked food. Annual revenue: ₦4.2 million. Below the threshold, and food is also VAT-exempt. She does not charge VAT.
Ada's Boutique (Wuse II, Abuja)
Women's clothing. Annual revenue: ₦18 million. Below the threshold. She does not need to register for VAT yet.
Bayo Designs (IT consultant, Lagos)
Software development and support services for corporate clients. Annual revenue: ₦60 million. Below the threshold. He does not need to register for VAT yet.
Auntie Ngozi's Catering (Port Harcourt)
Event catering — she only does big corporate gigs. Annual revenue: ₦22 million. Well below the threshold. She can continue without VAT registration for now.
Chukwuemeka Digital Agency (Enugu)
Social media management and content production. Annual revenue: ₦38 million. Below the threshold. Does not need to register yet.
Not sure where your business stands? Add up your last 12 months of sales revenue. If that figure is below ₦100 million, you are below the threshold for now. Check again every quarter.
These two terms confuse almost everyone. Here is the plain English version:
Exempt means VAT does not apply at all. The most common examples for Nigerian MSMEs: basic food items, medical services, educational services, and books. If your business sells only exempt goods, you do not charge VAT — even if you are above ₦100 million.
Zero-rated means VAT technically applies, but the rate is 0%. This is mostly relevant for exports. If you sell a service to a client outside Nigeria, you charge 0% VAT. You still need to be VAT-registered to use this category.
For most small Nigerian businesses, the only question that matters is: am I selling exempt goods, or am I selling taxable goods and services above ₦100 million?
Registration is done through the NRS (previously called FIRS) online portal or at your nearest NRS office.
You will need:
Once registered, you receive a VAT registration number. This number goes on every invoice you send to clients.
Important: Do not charge VAT on your invoices until you have received your VAT registration number. Adding VAT to an invoice before you are registered is a tax offence under the NRS Act.
Once registered, you file VAT returns every single month — not quarterly, not annually. Every month.
① Collect VAT from your customers throughout the month
Add 7.5% to your invoices. Keep a separate record of how much VAT you collected (called "output VAT").
② Track VAT you paid on your own purchases
When you buy goods or services for your business from VAT-registered suppliers, you pay VAT too (called "input VAT"). Keep all receipts. You can deduct this from what you owe.
The VAT you remit = Output VAT collected − Input VAT paid
Example: You collected ₦75,000 in VAT from clients. You paid ₦15,000 in VAT on business supplies. You remit ₦60,000 to the NRS.
③ File your monthly VAT return on the NRS portal
Log in to the NRS e-services portal. Complete Form 002 (the VAT return form). Enter your output VAT and input VAT figures.
Deadline: the 21st of every month — not the end of the month, not quarterly. File by the 21st for the previous month's transactions.
④ Make your payment
Pay the balance due via the NRS payment gateway, your bank, or through a Remita payment. Keep your payment receipt — it is your proof of compliance.
Late filing penalty: ₦50,000 for the first month of default, ₦25,000 for each subsequent month. These add up fast. File on time even if you have nothing to remit.
Every invoice you issue must show:
Example:
Consulting services (June 2026): ₦500,000
VAT @ 7.5%: ₦37,500
Total due: ₦537,500Do not charge VAT if you are not registered — this is a tax offence. It does not matter if it "looks more professional." If a client's accountant notices you charged VAT without a registration number, it creates serious problems for both of you.
1. Charging VAT without being registered
This is the big one. Some businesses add "VAT 7.5%" to their invoices to look more professional or because they assume they should. If you are not registered, do not do this.
2. Filing late because you thought it was quarterly
VAT is a monthly obligation. Many MSMEs discover this late and face accumulated penalties. Set a calendar reminder for the 20th of every month.
3. Not keeping input VAT receipts
Every receipt from a VAT-registered supplier is money you can offset against what you owe. Losing those receipts means you pay more than you should.
4. Not updating your registration when your business changes
If you change your business address, add a new product line, or your turnover changes significantly, you need to update your NRS registration.
The NRS can back-date a VAT liability. If they determine you crossed the ₦100 million threshold two years ago and have been operating without registration, they can assess you for two years of unpaid VAT, plus interest and penalties.
This is rare for very MSMEs, but it is a real risk for growing businesses in the ₦70–₦120 million annual revenue range.
The safest approach: as soon as your revenue approaches ₦80 million per year, start tracking your monthly figures and prepare to register before you cross ₦100 million.
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Sources & further reading
Tags: VAT Nigeria, MSME tax Nigeria, NRS registration, VAT registration threshold, how to file VAT Nigeria