Lottery Tax and Exemptions
Q: We understand that there is currently a Lottery Companies Income Tax (‘Lottery Tax’) of 7% of Net Revenue. We further understand that payment of the Lottery Tax exempts gambling operators from VAT and from possible Corporate Income Tax obligations. Please confirm that our understanding is correct.
A: Yes, the National Lottery Amendment Act 2017 (NLRA) imposes a 7% Lottery Tax on domestic licensees engaged in the lottery and gaming business in Nigeria. This tax is computed at the rate of 7% on the net proceeds of the licensee in each assessment year. Section 35(a) further provides that where a licensee has been assessed for lottery tax in any year, it shall be exempt from the provisions of CITA and the VAT Act.
Player Deposit Tax and Remote Operators Permit
Q: We understand that the NLRC/FIRS applies a rate of 4.5% on all player deposits (Player Deposit Duty). Please confirm this rate and the legal basis (if any).
A: Offshore gambling companies with a Remote Operator Permit are charged a 4.5% ‘Player Deposit Duty’ on player deposits, as authorized by the NLRC’s powers outlined in the Lottery Act 2007. The Duty will be charged by NRLC and collected through the Sentinal System. This rate equates to approximately 18% of Gross Gaming Duty. We can confirm that the rate and duty base of 4.5% duty on player deposits will not be subject to change for the duration of the Remote Operators Licence.
Interaction of Lottery Tax and Player Deposit Tax
Q: Can you also please advise how payment of the Lottery Tax interacts with the 4.5% Players Deposit Duty withheld from deposits through the Sentinal System under the NLRC’s Remote Operators Permit? Are Remote Operators required to pay both the 7% Lottery Tax and the 4.5% Players Deposit Duty on deposits?
A: No, Remote Operators will not be charged both. They will also be exempt from VAT, domestic corporate income tax, and local state tax obligations. This VAT exemption levels the playing field with Domestic Operators. Offshore gambling companies with a Remote Operator Permit are only charged a 4.5% Player Deposit Duty on player deposits.
Exemption from Lottery Tax due to Player Deposit Tax
Q: Alternatively, does paying the 4.5% Players Deposit Tax through the Sentinal System exempt Remote Operators from Lottery Tax? If payment of the 4.5% Players Deposit Duty exempts Remote Operators from the Lottery Tax, do they also remain exempt from any VAT or Domestic Corporate Income Tax obligations?
A: Yes, the 4.5% Player Deposit Duty exempts Remote Operators from the Lottery Tax, VAT, domestic corporate income tax, and local state tax obligations.
Withholding Tax on Payments to Suppliers
Q: Can you also please confirm that no Nigerian Withholding Tax (WHT) would be applicable on any payments made by the non-resident Remote Operator in connection with supplying online gambling to Nigeria residents, and in particular payments through the Sentinal System, intra-group payments, and payments to local suppliers for services such as marketing.
A: Non-resident Remote Operators are not subject to Nigerian WHT on payments to suppliers outside of Nigeria. However, if a Remote Operator becomes a Non-Resident taxpayer in Nigeria and pays Nigerian suppliers, they must withhold taxes and remit them to FIRS. This will not, however, change the above analysis in question 3 and question 4 on the liability to any taxes outside of the Player Deposit Duty as a result of B2C transaction of the betting business.
Permanent Establishment and Bank Accounts
Q: Please confirm if opening/operating a bank account in Nigeria either through an agent in Nigeria or otherwise, would constitute a permanent establishment in Nigeria for the Remote Operator.
A: No, registering and opening a bank account will not constitute a permanent establishment in Nigeria for the Remote Operator. Utilizing the Bank Verification Number (BVN) of a Nigerian resident for this purpose will not establish a fixed base.
Finance Bill 2022 and CIT on Remote Operators
Q: We understand that The Finance Bill 2022 seeks to amend Section 15 of the CIT Act to include taxation of lottery and gaming businesses. Could you confirm whether Remote Operators paying through the Sentinal System will be liable for 30% CIT on profits derived from Nigerian customers?
A: We can confirm that these proposed changes were not included in the final version of the Finance Bill 2022 that was passed into law in 2023.
Continuation of Player Deposit Tax under the Finance Bill 2022
Q: Please confirm if the 4.5% players deposit tax will continue to apply to remote online gaming operators when the Finance Bill 2022 becomes operational.
A: Yes, the 4.5% Player Deposit Duty will continue throughout the term of the Remote Operators’ license, which is 5 years.
VAT on Stakes and Winnings
Q: If not, and Nigerian VAT is applicable to Remote Operators supplying online gambling to Nigeria residents, would the stakes paid by Nigerian customers, and any winnings paid to Nigerian customers become subject to output and input VAT respectively? Or, would you regard the payment of winnings to be an adjustment to the taxable base on which any output tax is due rather than an actual or notional input tax credit?
A: This question is not applicable based on the information provided.
VAT Exemption for Gambling Companies
Q: Gambling companies who pay the Lottery Tax currently enjoy a VAT exemption. Please confirm if gambling companies will continue to enjoy VAT exemption if the Finance Bill becomes operational as proposed.
A: Yes, gambling companies will continue to enjoy VAT exemption as mentioned above.
Alteration of WHT Position under Finance Bill 2022
Q: Please confirm whether the Finance Bill 2022 would alter the current WHT position on any payments made by the non-domiciled Remote Operator in connection with supplying online gambling to Nigeria residents, and in particular, payments through the Sentinal System, intra-group payments, and payments to local suppliers for services such as marketing.
A: The Finance Bill 2022 will not alter the current WHT position.