An extract from The Inward Investment and International Taxation Review, 11th Edition
Tax residence and fiscal domicilei Corporate residence
The profits of a Nigerian company are deemed to accrue in Nigeria regardless of where they arise. Nigerian companies are therefore subject to CIT on worldwide profits. The profits of a non-resident company (NRC) are taxable in Nigeria to the following extent:
- the NRC has a 'fixed base' in Nigeria to the extent attributable to such base;
- the NRC habitually operates in Nigeria through a dependent agent who conducts business on its behalf, or who delivers goods or merchandise on its behalf from stock maintained in Nigeria, to the extent attributable to such activities;
- all the profit where the NRC executes a turnkey contract in Nigeria; that is, a single contract for surveys, deliveries, installation or construction;
- the adjustment made by the FIRS where NRC does business with a connected Nigerian company, and the FIRS considers the terms to be artificial or fictitious;
- the NRC transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments, to the extent that the NRC has a 'significant economic presence' (SEP) in Nigeria (as the Minister of Finance may define); and
- the NRC provides technical, professional, management and consultancy services to a Nigerian resident, to the extent that the non-Nigerian company has SEP in Nigeria (as the Minister of Finance may define).
The Minister of Finance issued the Companies Income Tax (Significant Economic Presence) Order, 2020 on 29 May 2020 (the SEP Order) which became effective on 3 February 2020, stipulating what would constitute SEP for NRCs.
In respect of the first instance, the SEP Order provides that a non-Nigerian company would have an SEP in Nigeria (Digital SEP) if any one of the following circumstances is present:
- where the NRC's turnover from Nigeria in an accounting year is more than 25 million naira or its equivalent in any other currency;
- where the NRC uses a Nigerian domain name or registers a website in Nigeria; or
- where the NRC has a purposeful and sustained interaction with persons in Nigeria by customising its digital page or platform to target persons in Nigeria, including reflecting the prices of its products or services in naira or providing options for billing or payment in naira.
Where an NRC has a Digital SEP, a Nigerian resident paying such an NRC is required to deduct and remit withholding tax (WHT) of 5 per cent. The WHT is an advance payment of the ultimate CIT liability of such an NRC.
Regarding the second instance, the SEP Order provides that an NRC would have an SEP in Nigeria where it receives any payment from a Nigerian resident or a Nigerian fixed base or an agent of an NRC for the provision of technical, professional, management and consultancy services. Such a payment attracts WHT of 10 per cent, which is the final tax in respect of the payment.ii Branch or permanent establishment
In determining the fiscal residence of a non-Nigerian company incorporated in a country that has a double taxation treaty with Nigeria, the applicable concept is that of 'permanent establishment', which such treaties define as a fixed place of business through which the business of an enterprise is carried on. However, a permanent establishment will generally not include facilities used solely for the purpose of carrying on an activity of a preparatory or auxiliary nature, or for the storage, delivery or display of goods or merchandise of a non-resident company. The FIRS directed that all non-resident companies are to file income tax returns taking effect from tax year 2015.