Key Stamp Duties Imposed on Landed Properties You Should Know

Introduction

The idea of owning a property or securing a perfect accommodation feels like a giant leap toward securing your future and achieving your dream. What you would not anticipate, however, is the maze of fees and legal processes that await you, especially the mystery of stamp duties.

Stamp duty is a tax levied on certain instruments (i.e., legal documents), whether written in hard copy or electronic. It is an indirect tax, imposed on the document and not directly on a person or business.

A legal document is a written record of an agreement between two parties. In Nigeria when you purchase or lease a landed property, the government requires you to pay this stamp duty.

The amount payable can be either a fixed fee or a percentage of the value of the transaction (this is called an ad valorem rate) depending on the size and type of the property.

The Stamp Duties Act (SDA) 2004 (as amended) governs the payment of stamp duty in Nigeria.

What is the Scope of the Stamp Duties Act, 2004?

Stamp duties apply to various types of landed properties. Section 4 of the Stamp Duties Act , specifies that the Federal Government collects stamp duties on documents related to transactions between companies and individuals or groups while the State Governments collect duties on transactions between individuals, at rates agreed upon with the Federal Government.

Understanding the applicable stamp duties on landed properties is important for both landlords and tenants to ensure compliance in order to avoid liable penalties and ensure the agreement is legally valid and enforceable in court. In essence, Stamp Duties make a landed property agreement valid in the eyes of the law.

The Different Forms of Stamp Duties Applicable to Landed Properties in Nigeria

There are two forms of stamp duties applicable in Nigeria. They include the following:

1. Fixed duties: These are set amount of tax payable at a flat rate, regardless of the price of the goods, services or transactions. For example, tax on certain types of payment receipts.

2. Ad valorem duties: Ad valorem is a Latin phrase that means ‘according to value’. The Ad valorem duties are payable based on a calculated percentage of the proportion or value of goods, services or transactions. For example, tax on transfer of properties.

Regulatory Bodies Monitoring Stamp Duties in Nigeria 

In Nigeria, tax collection is handled by two main bodies; the Federal Inland Revenue Service (FIRS) and the State Internal Revenue Service (SIRS). Think of it this way, the FIRS handles federal taxes, while the SIRS handles state taxes.

1. The Federal Inland Revenue Service (FIRS): The Federal Inland Revenue Service is an institutional body established by the Federal government for the purpose of tax administration, assessment, and collection in Nigeria. FIRS handles the tax affairs of corporate entities/public companies anywhere in Nigeria.

2. The State Inland Revenue Service (SIRS): The State Internal Revenue Service is an Institution established by the relevant state government including the Federal Capital Territory (FCT) in Nigeria for the purpose of tax administration, assessment, and collection within states. SIRS handles tax affairs of individuals and enterprises.

If you are a company/corporate entity, the FIRS handles your stamp duties. If you are an individual or own a small business in a specific state, the SIRS of a particular state handles your stamp specifically. 

Top Stamp Duties on Landed Property in Nigeria:

1. Duty on the Lease Agreement (Ad Valorem): This is the most significant stamp duty on a commercial lease. It is calculated ad valorem (as in proportion) based on the total rent payable over the lease term. The rate varies depending on the lease duration:

a. Leases for a term not exceeding 7 years: 0.78% of the total rent.

b. Leases for a term exceeding 7 years but not exceeding 21 years: 3% of the total rent.

c. Leases for a term exceeding 21 years: 6% of the total rent.

Example: A 5-year lease with a total rent of ₦10,000 would have a stamp duty of ₦78 (0.78% of ₦10,000).

2. Duty on Counterpart Leases: If duplicate original lease agreements are executed (i.e., one for the landlord and one for the tenant), each "counterpart" is subject to stamp duty, usually at a nominal rate or the same rate as the original.

3. Duty on Assignments of Leases: When a tenant transfers their remaining lease term to another party (an assignment), this transfer is also subject to stamp duty, calculated ad valorem on the consideration paid for the assignment.

4. Lease Agreements on Plants and Machinery: The duties imposed on this kind of lease carry the same calculation as the duty on Lease Agreements with an ad valorem rate.

5. Duty on Rent Receipts: Due to the rise in electronic transfers and other modern payment methods, are deducted at a flat rate of ₦50 for transfers exceeding ₦10,000.

Key Methods of Stamping Documents in Nigeria 

Stamping is done by impressing a die on a document or affixing an adhesive stamp.

However, with the modernization of tax collection in Nigeria, the primary method of paying stamp duty is now electronic called E-Stamping. The e-stamping process enables stamp duties to be paid online (via Taxpro Max) without necessarily going to any of the Stamp Duty offices for physical stamping. However, the option of in-person payment remains available.

The method involves:

1. Registering on the platform.

2. Selecting the appropriate stamp duty type.

3. Providing details of the transaction.

4. Making an online payment.

5. Receiving an electronic stamp duty certificate as proof of payment.

While e-stamping is the preferred method, physical stamping might still be required in very specific circumstances or for certain types of documents. This would involve presenting the physical document to an FIRS office to be stamped

Key Requirements for Registration and Stamping Processes:

A taxpayer needs to have a Tax Identification Number (TIN), which is used to register on the platform to make payment. TIN is a special number issued by either FIRS or SIRS to be used for the payment of taxes. The registration for TIN can be done online via the tax registration portal, in person at any office of the government bodies in charge, and through a registered tax agent.

The required documents for individual registration include:

1. Birth certificate

2. Bank verification number

3. Phone number

4. Previous Tax Identification Number (if applicable)

The required documents for company’s registration, include:

1. Certificate of incorporation

2. Memorandum and Articles of Association

3. Particulars of directors and share capital statement.

The online process for dutiable instruments generally involves:

i. Log on to taxpromax.firs.gov.ng

ii. Click on login and log in with credentials

iii. Click on taxpayer services and Select “group taxes” then select “stamp duty”

iv. Select and subscribe to a stamp duty instrument

v. Input instrument details

vi. Make payment online.

vii. Download/print stamp duty certificate

viii. Payment certificates are sent via email

Consequences of Non-Compliance with Payment of Stamp Duties in Nigeria 

Non-compliance with stamp duty obligations can have serious which consequences, which include:

1. Inadmissibility in Court: Unstamped or improperly stamped instruments are generally inadmissible as evidence in Nigerian courts.

2. Penalties and Interest: Section 23 of the SDA and 40 FIRS (Establishment) Act impose financial penalties and interest on unpaid or late-paid stamp duty. The penalties can be significant, including percentage-based penalties and interest calculated at the prevailing Central Bank of Nigeria minimum rediscount rate.

3. Potential Imprisonment: In some cases, deliberate evasion of stamp duty can lead to criminal prosecution and imprisonment. This is in accordance with section 40 of the FIRS (Establishment) Act.

Conclusion

Understanding and complying with stamp duty requirements on commercial leases is crucial for individuals and businesses operating in Nigeria, as failure to do so can result in significant financial penalties and legal complications.

At Prestige Attorneys, we have a vibrant legal team to help you navigate the appropriate stamp duties on your landed property transactions. Contact us today at prestigeattorneys@gmail.com to get started.