The Finance Act's enactment in January 2020 was heralded as a milestone event due to the far-reaching amendments it made to several tax statutes.
The Stamp Duties Act is one of the tax statutes amended by the Finance Act, the first amendment since the law was enacted in 1939.(1) The main amendments to the Stamp Duties Act are the introduction of electronic documents as chargeable instruments and providing for electronic receipts and electronic stamping.(2) These amendments clearly demonstrate the government's aim of increasing government revenue by taking into account the impact of technological advancements on commercial transactions. In addition, on 30 June 2020 the federal government inaugurated an Inter-Ministerial Committee on Recovery and Audit of Stamp Duty and announced its intention to position stamp duty as the next major revenue source for Nigeria as oil and gas revenues continue to dwindle due to a global fall in demand and price.
The increased revenue drive and the amendments made to the Stamp Duties Act, particularly the introduction of electronic documents as chargeable instruments, raise questions as to their scope, applicability and implementation, especially in the context of cross-border transactions.
This article provides a market update on the impact of the new definition of 'instruments' in the Stamp Duties Act on chargeable instruments executed outside Nigeria and received into Nigeria electronically, prior to the day that the Finance Act was signed into law on 13 January 2020 (the commencement date).
The Stamp Duties Act provides that an instrument executed in Nigeria (or if executed elsewhere, relating to property in Nigeria) or any matter or thing to be done in Nigeria must be stamped in order to be admissible in evidence in civil proceedings in Nigeria.(3) In respect of instruments executed outside Nigeria, the timeline for stamping is 30 days after the instrument is first received in Nigeria.(4) The term 'instrument' was previously defined in the Stamp Duties Act to include "every written document".
The Stamp Duties Act does not define the expression 'received in Nigeria' and there does not appear to be any Nigerian judicial precedent on this point. However, the market had previously taken the view that a document is received in Nigeria only when the physical copy of the document with wet-ink signatures is received in Nigeria. This view was supported by the practice of the Federal Inland Revenue Service (FIRS) Stamp Duties Office to stamp only wet-ink originals (and not scanned documents). As a result, prior to the Finance Act's enactment, the practice was that documents which were executed outside Nigeria and subsequently received in Nigeria by email (and not otherwise statutorily required to be registered with any regulatory agency or presented for any other purpose such as issuance of certificates of capital importation) were retained in electronic form and not stamped.
The Stamp Duties Act as amended by the Finance Act (the Amended Stamp Duties Act) defines the term 'instrument' as every written and electronic document but does not define the term 'electronic document' or state when an electronic document is received in Nigeria. Therefore, it must be considered:
- whether the term 'electronic document' may be construed narrowly to refer only to a document that has been wholly generated and concluded electronically as opposed to an electronic reproduction of a physical document (eg, a PDF or an email); and
- what would constitute receipt of an electronic document in Nigeria.
In construing a term used in a statute, a Nigerian court may be persuaded to adopt definitions in legal dictionaries, similar statutes or internationally recognised conventions. Black's Law Dictionary defines 'electronic document' as "any electronic media content other than a computer program or system file, intended to be used either in electronic or printed form". In addition, in defining the term 'document', Black's Law Dictionary notes that "today, the term also embraces any information stored on a computer, electronic storage device or any other medium".(5) In view of the above, it can be argued that a Nigerian court is likely to adopt the broader interpretation of the term 'electronic document' to include a document that is communicated, received or stored electronically.
On the question of when an electronic document is received into Nigeria, assuming that the broader interpretation of the term 'electronic document' is adopted by a Nigerian court, the court could hold that an electronic document is received in Nigeria once the document is emailed to or accessed by a party in Nigeria. The FIRS confirmed this via an information circular dated 29 April 2020, which clarified certain provisions of the Amended Stamp Duties Act.
In the circular, the FIRS stated that an electronic document, receipt or instrument executed outside Nigeria is received in Nigeria if:
- it is received or accessed in or from Nigeria;
- it (or an electronic copy thereof) is stored on a device (including a computer or magnetic storage) and brought into Nigeria; or
- it (or an electronic copy thereof) is stored on a device or a computer in Nigeria.
The circular appears to resolve the question of when an electronic document is received in Nigeria and from a combined reading of the circular and the Amended Stamp Duties Act, it seems clear that chargeable instruments received in Nigeria electronically from the commencement date will be liable to stamp duty. Therefore, the practice of executing documents offshore and leaving documents outside Nigeria and retaining only electronic versions will no longer be sufficient to avoid payment of stamp duty.
However, a question that remains unresolved is: what happens to electronic documents that were received in Nigeria prior to the commencement date?
Neither the Finance Act nor the circular deals with the applicability of the new definition of the term 'instruments' to documents electronically received into Nigeria prior to the commencement date.
There are three possible interpretations that a Nigerian court could apply in order to determine the applicability of the Amended Stamp Duties Act to instruments executed outside Nigeria and electronically received in Nigeria before the commencement date – namely, that:
- duty will be computed from the date on which the document was received in Nigeria;
- duty will be computed from the commencement date; and
- the Amended Stamp Duties Act does not apply to documents electronically received into Nigeria prior to the commencement date.
(2) Other amendments, which are not the focus of this article, include the designation of the Federal Inland Revenue Service and the State Internal Revenue Service as the relevant competent authorities responsible for collecting stamp duty on behalf of the Federal Government and state governments, respectively.