Folly Ltd is a gossip news website based in Nigeria and owned by a student in a local University in Nigeria. He gets a lot of visitors to his website and has recently been approached by advertisers.
His advertisers are both local and foreign-based, all jostling to have an ad space on his website. Folly Ltd is a straight- up guy and wants to be tax compliant. So he wants to know who to charge VAT and who can deduct WHT from his invoice.
For most website owners who run advertisement on their websites, ad revenues collected from local advertisers should include a VAT payment of 5% of the cost of advertising.
For every N100 you charge them, you must include a 5% VAT to make your invoice N105. If you do not issue a physical invoice but have a platform where they can deposit money while you amortize payment as their ads are displayed, then make sure your ad rates include 5% VAT.
Now this can be tricky. WHT by definition, are deducted on contract of purchases or services represented by invoices. In addition, the law also clearly stipulates that the service or purchase will be delivered in the location of the client thus not in the ordinary course of business.
For example, if you go to a Supermarket to buy Stationery, you pay the full amount inclusive of VAT but don’t deduct withholding tax. This is an example of selling a product in the ordinary course of business.
If you however, get the Supermarket to supply the product to your company under a supply contract then you should deduct withholding tax. That transaction is viewed as not being in the ordinary course of business.
On the back of the illustration above, companies who pay you to advertise on your website should not deduct WHT from your invoice except you are under a contract. This is because, the adverts are placed on your website in the ordinary course of business.
The mistake most advertisers make is that they deduct WHT from your fee because they ask you for an invoice. We have also been a victim of that too.
The right thing to do would have been to issue them a receipt (but you can’t issue receipt without payment). The problem also is that they ask blog owners to issue them an invoice which they use to process an approval for disbursement.
One solution however, will be to issue them a debit note or a bespoke rate card that spells out the specific ad rate that they have quoted for and your bank details.
If you are circumspect about what to do and don’t want to pay VAT, then we suggest that you avoid signing contracts with advertisers to place adverts on your website.
Instead, send them your ad rates along with you bank details. Better still adopt a solution that guys like Nairaland use where ad placements are paid upfront and advertisers are provided with analytics on how the ads are being utilized as well as performance metrics.
If your invoice has been deducted for WHT
Our candid opinion will be for bloggers to disregard the WHT and only give them value for the cash paid (which has been deducted for VAT).
For better clarity, if an ad rate for a week is N105k (5% VAT inclusive) and the advertiser pays you N95k (assuming they deducted WHT of 10%). We suggest you only give them advert value that covers N90.47k only and pay the FIRS Vat of N4.53k. That way you do not bear the cost of the N10k erroneously deducted by the advertiser.
Note:A simple way to determine your Net Income (less VAT) from a gross amount (which includes VAT) is to divide the Amount received by 1.05. For example, N105/1.05=N100. In this case N95k/1.05= N90.47k
VAT on Foreign Advertisers
VAT is currently exempt on all exports from Nigeria. This means that foreign advertisers should not be charged an additional 5% VAT whenever you bill them or structure your ad tables to suit foreign clients.
You are also not obligated to pay the Federal Inland revenue VAT for such services or products especially if it is earned abroad. This applies to advert income from Google Adsense, Foreign Affiliate marketers etc. If your AD Agency is Google and because Google is not registered in Nigeria as an AD Agency or Client, you cannot charge them VAT.
Drop us a comment if you need more clarification.