What stamp duty means
Stamp duty is a tax on documents rather than on income.
It attaches to instruments, meaning written documents that create or transfer rights, such as a deed of assignment, a lease, or the share capital of a company. Paying it produces evidence of stamping on the document itself.
Its importance is not only fiscal. An instrument that should have been stamped and was not can face real difficulty being admitted in evidence, which turns a tax problem into a litigation problem.
How it is used
In property, stamp duty is assessed when a deed is submitted for stamping, usually as part of perfecting title alongside Governor's consent and registration. The amount is calculated by reference to the value of the transaction.
In company formation, stamp duty is charged on share capital, which is one of the reasons a large declared share capital increases your registration cost.
It also arises on leases and on certain other agreements, with the rate depending on the instrument and the term.
Key features
- A tax on instruments rather than on income or profits
- Applies to deeds, leases, share capital and various agreements
- Assessed by reference to value, or at a fixed rate depending on the instrument
- Evidenced by stamping on the document
- An unstamped instrument can face admissibility problems in court
How this works in Nigeria
Stamp duty is administered by the Federal Inland Revenue Service for instruments between companies, and by state revenue authorities for instruments between individuals.
In property transactions it lands alongside consent fees, capital gains tax and registration fees, and buyers who budget only for the purchase price frequently stall at this stage. Budget for the perfection costs before you agree the price, not after.
Stamp duty vs registration fees
Stamp duty is a tax on the instrument, paid to a revenue authority.
Registration fees are paid to the lands registry for recording the transaction on the register, which is what gives the world notice of your interest.
They are different payments to different bodies serving different purposes, and both are usually needed. A deed can be stamped but unregistered, which leaves you exposed to a later buyer who registers first, or registered but with duty unpaid, which creates its own problems.
Limits and risks
Paying stamp duty does not validate a defective document. A deed signed by somebody without authority is still defective once stamped.
Rates and administration also vary by instrument and by whether the parties are individuals or companies, which is why quotes for perfecting title differ so much and why it is worth asking for a written breakdown rather than a single figure.
Worth knowing
Budget for stamp duty, consent fees and registration when you agree a property price. Buyers who plan only for the land itself routinely run out of money before the title is perfected.