NGX Real Estate Limited (the “Company”) is a Nigerian real estate company in the business of acquiring, leasing, hiring, or part-exchanging real property. The Company earned rental income from real properties in 2020 and did not pay Value Added Tax (VAT) on the income. The Federal Inland Revenue Service (FIRS) audited the Company’s 2020 financial records and issued a tax assessment of N36,185,564.25 for an unremitted VAT.
Issues considered include:
Whether or not the FIRS was right to have imposed VAT on the Company’s activities. The Company argued that the definition of “goods” in the VAT Act as amended by the Finance Act (FA) 2019, excluded the transfer of interest in land, and therefore VAT should not apply on the sale of buildings, being extensions of land. However, the FIRS contended that “land” and “buildings” were separate concepts and the exemption available to land did not extend to buildings. The FIRS argued that this was the reason that the exemption was expanded in the following year by the FA 2020 to cover both land and buildings.
The TAT’s ruling has clarified that VAT was exempt on the sale of interest in land and buildings in 2020, following the FA 2019 amendment. Further amendments by FA 2020 in the subsequent year have removed ambiguities in the reading of the law. There is no distinction in the VAT treatment with regards to the transfer of interest in residential or commercial real estate, as they are both VAT exempt based on the law. However, assessments need to be done in certain instances such as providing packaged accommodation e.g “serviced apartments”, “short lets”), provision of office space as a service and so on, as these may not meet the exemption criteria in the VAT Act.
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