How the Stamp Duties on Tenancy or Lease Agreements Affect Landlords and Tenants

In case you don’t know, the FIRS has the administration of Stamp Duties Acts in Nigeria. As a property owner or renter, you must know how this new development or change will affect you. This is the primary reason for this post. I’m sure it will help you to separate myths from facts on the matter.

Some Nigerians have interpreted the new stamp duty charge on lease/tenancy agreement as just going to any post office to get a ₦50 postage stamp and stick it on a written tenancy or lease agreement. Some even thought the regulation meant charging 6% as the “professional fee” to prepare or write a tenancy or lease agreement.

We have decided to provide the best answers to some of the common questions surrounding stamp duties to clarify and separate the true from the untrue.

Common Questions Surrounding Stamp Duties

Are Stamp Duties the same as Postage Stamps?

The answer is NO. The collection of stamp duty for the Federal Government of Nigeria and the State Government, including the FCT, is carried out by the FIRS and not NIPOST. So the ₦50 postage stamp is not the same as stamp duty.

Is the 6% professional fee the same as the stamp duty on tenancy or lease agreement?

The answer is NO. The stamp duty on tenancy or lease the agreement is charged ad valorem (i.e. proportionate to the estimated value of the property).

What is FIRS?

FIRS stands for the Federal Inland Revenue Service. Read the full details about FIRS here.

What are the taxes imposed by FIRS?

There are certain taxes that individuals and companies in Nigeria (by law) are obligated to pay. FIRS is mandated to collect some specific types of taxes while the state IRS collects others. The taxes collected by FIRS are but not limited to the following:

ALSO READ:  Top 10 Tax Firms or Companies in Nigeria

What is IRS?

IRS stands for Internal Revenue Service. This body is responsible for tax collection in the FCT and the 36 states in Nigeria. Like the FIRS, the State IRS also administers different levies and taxes on companies and individuals. For example, Lagos State has Lagos Inland Revenue Service (LIRS), which is the primary funding arm of the Government of Lagos State. This LIRS is responsible for the collection of taxes and levies for Lagos state. This is the same with all IRS of other states in Nigeria.

Specific taxes administered by the LIRS are Withholding Tax, Hotel Occupancy and Restaurant Consumption Tax, Business Premises Levy, Capital Gains Tax (for individuals), Stamp Duties, etc.

What is Stamp Duty?

Stamp Duty is essentially the tax levied by the government of a country on physical or electronic legal, commercial or financial documents used to legally record or validate certain transactions that took place within that country. These physical or electronic documents such as written agreements, receipts, tellers, cheques, certificates of occupancy, etc. are referred to as instruments.  You can read an overview of stamp duty here.

Stamp duties are charged on what instruments?

The listed instruments are subject to a stamp duty charge.

  • Appointment of Receive
  • Appointment of Trustee or Attorney
  • Appraisement or Valuation of Property
  • Bank Cheque per Leaflet ₦1.00 per leaflet (Premium)
  • Bank Deposit/Transfer
  • Bill of Sale
  • Bonds (Mortgage)
  • Certificate of Occupancy, Partnership
  • Contract Agreement
  • Contract Notes
  • Debenture
  • Deed of Assignment
  • Deed of Gift
  • Deed of Release/Surrender/Discharge
  • Deeds of Conveyance or Transfer on Sale of Property
  • Discharge or Release
  • Gift (Land)
  • Goodwill Debenture, Settlements
  • Guarantor’s Form ( For Loan Application)
  • Insurance Policy/Policies
  • Joint Venture Agreements
  • Legal Mortgage
  • Legal Mortgage (Upstamping)
  • Loan Agreement
  • Loan Agreement (as accompanying document to a mortgage/debenture)
  • Marketable Securities
  • Memorandum and Articles of Association (Alteration of memo)
  • Memorandum of Understanding (Related to Land, Sales, Joint Venture, Surrender, Subdivision Agreements)

Click here to read more about these instruments

  • Memorandum of Understanding (Related to Ordinary agreements)
  • Notaries Act
  • Oath and other affiliates bodies relating to above
  • Oaths, Affidavit-Affirmation, Statutory Declaration, Agreement (Memo of Handwritten) Ordinary
  • Ordinary or Open Agreement Underhand Articles
  • Power of Attorney – Revocable/not land related
  • Power of Attorney (Irrevocable/Land Related)
  • Power of Attorney (POA not relating to sales, conveyance, transfers of any landed property )
  • Pre-Incorporation Share Correction
  • Promissory Notes of Ordinary Documents/I.O.U
  • Proxy Form
  • Sales Agreement
  • Settlement of any Instrument
  • Share Increase
  • Share Reduction
  • Share Transfer
  • Shipping Agreement
  • Surrender, Bills of Exchange
  • Tenancy/Lease for transaction above 21 Years
  • Tenancy/Lease for transaction between 0 – 7 Years
  • Tenancy/Lease for transaction between 8 – 21 Years
  • Vending Agreement
  • Will
ALSO READ:  The History of Taxation in Nigeria

Why is the government collecting stamp duties on lease or rent agreements?

It is included in the Stamp Duties Act, CAP S8, LFN 2004 (as amended) that stamp duty is to be charged on tenancy or lease agreements. However, for a very long time, the FIRS and State IRS have been unserious with the implementation or enforcement of the law regarding stamp duties. Now that the Nigerian government is faced with dwindling revenue from crude oil sales coupled with the global Covid-19 pandemic that has severely affected the Nigerian economy, the FIRS wrote a memo on the payment or collection of stamp duty. This is mainly to increase the revenue of the country.

Nevertheless, the truth of the matter is that stamp duty charge on lease/tenancy agreements has been in existence for years.

Why must you pay stamp duty?

The simple answer is that it is mandatory for individuals and businesses in Nigeria to pay stamp duties in addition to taxes. Also, stamp duty should be seen as one of these taxes or levies to be paid to the government. Unfortunately, the agencies that were obligated to collect these levies have failed to do so for so many years, and a lot of Nigerians have been failing in their payment taxes or stamp duties.

How is stamp duty calculated and how much should a tenant pay?

Depending on the class of instrument, stamp duty is charged at either at ad valorem (proportionate to the estimated value of the property) or fixed rates. Lease or tenancy agreements, as an instrument, fall under ad valorem. This means that whatever amount paid as rent to a landlord, a certain percentage of it is charged as stamp duty.

When the FIRS first published the memo on stamp duty in July 2020, people thought that the 6% charge would be charged on all tenancy/lease agreements, regardless of the lease tenure. But on 22nd July 2020, the FIRS through its Director of the Communications and Liaison Department, Abdullahi Ahmad, said, “Property-related transactions like tenancy or lease agreement fall under the Ad Valorem category of the stamp duty which attracts six percent duty payable in [the] percentage of the total value or sum of the tenancy or lease.

Taking Mr. Ahmad’s statement literally, it means that on every written tenancy agreement, FIRS will charge 6% of the value of rent as stamp duty. Well, many Nigerians protested this on social media. So, the FIRS’ Director of Tax Policy, Mr. Matthew Gbonjubola explained that The 6% stamp duty is for tenancy above 21 years while 7 to 21 years lease or tenancy attracts 3% and less than 7-year tenancy is below 1%. This was corroborated by the FIRS Chairman, Mr. Muhammad Nami, during a live TV interview on TVC.

ALSO READ:  Tax Implications of Transactions With Foreign Entities

For easy comprehension and clarification, see the table below:

1Less than 7 years0.78%
28 to 21 years3%
321 years and above lease or tenancy6%

Who pays the stamp duty on a lease or tenancy agreement?

It is the tenant that is liable for the payment of the stamp duty.

Who collects the stamp duty?

Well, either the owner or agent in charge of the property for rent or lease is obligated to collect or remit the stamp duty on a lease or tenancy agreement. However, Mr. Muhammed Nami made it clear that tenants or renters can also pay the stamp duties at the FIRS or State IRS office located where the property is. However, the tenancy agreement on which the stamp will be affixed should be brought along with them.  

Is the stamp duty on lease or rent paid yearly?

The answer is NO. The stamp duty is paid only once. If a new or fresh rent or lease agreement is signed, new stamp duty would have to be paid.

I have not paid the stamp duty on my new rent, should I still pay?

NO. The stamp duty charge starts from July 2020. So any new rent or lease agreement signed in or after July 2020 is subject to the stamp duty charge.

There was no written agreement; do I still need to pay for stamp duty?

NO. Stamp duties are paid on both electronic and physical instruments. Therefore, verbal agreements cannot be considered as a physical instrument.

What is the penalty for not collecting or remitting stamp duties on lease or rent agreements?

According to Section 23 of the Stamp Duties Act, Cap S8, LFN 2004 (as amended) the penalty for non-collection or remittance of stamp duty includes (paraphrased):

  1. The person will be charged to court. If found guilty, he or she must pay a ₦20 fine. If the unpaid duty is more than ₦20, he or she will be further penalised by paying an interest rate of 10% per annum from the first day the instrument was first implemented to the time when the total interest equals to the unpaid stamp duty.
  2. In the case of ad valorem, the person will pay the unpaid duty in addition to the penalty stated in No. 1 above.

See the image below:

Punishment or Penalty for non-payment or remitting stamp duties in Nigeria