Taxation of E-commerce and Digital Businesses in Lagos State.


With the rapid growth of e-commerce and digital businesses, tax authorities around the world are facing new challenges in adapting their tax systems to this evolving landscape. In Lagos State, Nigeria’s commercial hub, the Lagos Internal Revenue Service (LIRS) has been proactive in addressing the taxation of e-commerce and digital businesses. In this article, we will explore the key aspects of the taxation of e-commerce and digital businesses in Lagos State and the implications for businesses operating in this dynamic sector.

  • Digital Presence and Nexus:

One of the fundamental issues in taxing e-commerce and digital businesses is determining the appropriate tax jurisdiction. The concept of “nexus” refers to the connection between a business and a taxing jurisdiction that gives the jurisdiction the authority to tax the business. In the case of e-commerce and digital businesses, physical presence is not always necessary for tax liability to arise.

In Lagos State, the LIRS considers factors such as the volume of digital transactions, the location of customers, and the use of digital advertising to establish the nexus for taxation. Digital businesses with significant economic activities in Lagos may be subject to tax even if they do not have a physical presence in the state.

  • Value Added Tax (VAT):

Value Added Tax is applicable to most e-commerce transactions in Lagos State. Online sales of goods and services are subject to VAT, and e-commerce businesses are required to register for VAT with the LIRS once their turnover exceeds the stipulated threshold.

For digital businesses located outside Lagos State but making supplies to customers in Lagos, the LIRS may require them to appoint a local VAT representative or register for VAT directly with the LIRS.

  • Withholding Tax (WHT):

Withholding Tax is another important consideration for e-commerce and digital businesses. Under Nigerian tax law, certain payments made to non-resident companies for digital services are subject to WHT. This tax is deducted at the source of payment by the Nigerian resident making the payment.

For e-commerce platforms facilitating digital sales, the LIRS may require them to withhold the applicable tax on behalf of the foreign sellers or service providers.

  • Digital Advertising and Withholding Tax:

Many e-commerce and digital businesses engage in digital advertising to promote their products and services. Payments made to foreign advertising platforms for digital advertising services are subject to Withholding Tax.

The LIRS may require businesses to withhold the appropriate tax and remit it to the tax authorities as part of their tax compliance obligations.

  • Transfer Pricing Considerations:

For e-commerce and digital businesses with related-party transactions, transfer pricing regulations must be considered. Transfer pricing rules ensure that transactions between related entities are conducted at arm’s length and that appropriate taxes are paid on profits.

Digital businesses involved in cross-border transactions with related entities must comply with transfer pricing documentation requirements to avoid tax disputes and penalties.


As e-commerce and digital businesses continue to reshape the business landscape in Lagos State, tax authorities, including the Lagos Internal Revenue Service, are adapting their tax systems to accommodate these changes. The taxation of e-commerce and digital businesses requires a nuanced approach that considers digital presence, VAT, WHT, and transfer pricing implications.

For businesses operating in the digital sphere, understanding their tax obligations and complying with the relevant tax laws are crucial. Engaging with experienced tax professionals can be instrumental in navigating the complexities of e-commerce taxation and ensuring proper compliance.

As Lagos State remains at the forefront of Nigeria’s economic development, a fair and efficient tax system for e-commerce and digital businesses will contribute to increased revenue collection, infrastructure development, and the overall growth of the state’s economy. By striking the right balance between supporting innovation and ensuring tax compliance, Lagos can position itself as a thriving hub for e-commerce and digital entrepreneurship in Nigeria and beyond.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, You can also reach us via WhatsApp at +2348038460036.