Introduction

In Nigeria, companies are subject to taxation under the Companies Income Tax Act (CITA), irrespective of whether they are resident or non-resident. While Nigerian companies are taxed on their worldwide income, non-resident companies are taxed only on profits derived from activities conducted within Nigeria. This framework ensures that even foreign entities with a significant economic footprint in Nigeria contribute to the country’s tax revenue.

Definition of Non-Resident Company

A non-resident company is defined under Section 105 of CITA as any company established under laws outside Nigeria that operates within the country but is not registered or incorporated there. These companies generate revenue from their Nigerian operations and are subject to Nigerian tax laws. Notably, non-resident companies are not exempt from Nigerian taxation based on their registration status abroad.

Taxation Laws for Non-Resident Companies

Companies Income Tax Act (CITA): This act governs the taxation of non-resident companies in Nigeria. It mandates that non-resident companies conducting business in Nigeria must pay taxes on their Nigerian-derived profits. The tax is typically calculated based on revenue from Nigerian sources.

Finance Act 2020: This act introduced amendments to the taxation framework for non-resident companies, emphasizing the need for tax return filings and clarifying procedures for foreign companies earning income from Nigeria. It aims to streamline compliance and provide greater clarity.

Tax Liability of Non-Resident Companies

Non-resident companies are liable for Companies Income Tax (CIT) on earnings from Nigeria. According to Section 13(2) of CITA, a non-resident company is taxable if it meets any of the following conditions:

1. Fixed Base: The company has a fixed base in Nigeria, and profits are attributable to this base.
2. Trade through a Representative: The company operates through a person or maintains stock in Nigeria, from which regular deliveries are made.
3. Digital Activities: The company derives income from Nigeria through significant digital activities, indicating a significant economic presence (SEP).
4. Contract-Based Activities: The company engages in single contracts for surveys, deliveries, installations, or construction in Nigeria.
5. Professional Services: The company provides technical, management, consultancy, or professional services to Nigerian residents.
6. Non-Arm’s Length Transactions: Transactions with related parties that are not at arm’s length.

Passive Income

Non-resident companies receiving dividends, interest, royalties, or rents from Nigeria are subject to Nigerian taxes. Tax treaties between Nigeria and other countries may affect the taxation of such income, potentially providing relief based on treaty terms.

Profits “Deemed” Derived from Nigeria

Income is considered derived from Nigeria if:

1. Fixed Base: The company has a fixed base in Nigeria.
2. Agent-Managed Business: The company conducts business through an authorized agent in Nigeria.
3. Digital Presence: The company has a significant economic presence through digital activities.
4. Contract-Based Activities: The company executes contracts related to surveys, installations, or construction in Nigeria.
5. Service Provision: The company provides services to Nigerian residents.

Permanent Establishment and Tax Treaties

Under tax treaties, a non-resident company is only taxable in Nigeria if it has a Permanent Establishment (PE) in the country. The profits attributable to the PE are subject to Nigerian tax, while profits not linked to a PE are generally not taxable.

Filing of Returns and Payment of Tax

Non-resident companies must file self-assessment returns with the Federal Inland Revenue Service (FIRS), regardless of their tax status. This includes submitting:

1. Audited financial statements for Nigerian operations.
2. Tax computation schedules based on Nigerian profits.
3. Detailed statements of Nigerian-source profits.
4. Completed self-assessment forms.

Failure to file returns results in penalties, and the FIRS may appoint agents to recover unpaid taxes.

Exemptions for Non-Resident Companies

Exemptions may apply under specific conditions:

• No Permanent Establishment: Companies without a fixed base in Nigeria may not be subject to Nigerian tax.
• Tax Treaties: Bilateral treaties may offer tax exemptions or reduced rates for certain types of income.
• Limited Duration: Tax exemptions may apply based on the duration of the business activities.
• Diplomatic and Sovereign Entities: Certain international agreements may exempt diplomatic missions or sovereign wealth funds.

Assessment and Compliance

Turnover Assessment: The FIRS may assess tax based on turnover, deeming a portion as profit subject to a 30% tax rate.

Significant Economic Presence (SEP) Rules: Non-resident companies with significant economic presence in Nigeria are required to register for income taxes, prepare financial statements, and file annual tax returns. The SEP rules apply to companies with gross turnover or income exceeding ₦25 million.

Double Taxation Agreements: Nigeria’s agreements with various countries prevent double taxation on income received by non-resident companies, ensuring that taxes are not paid twice on the same income.

Conclusion

Non-resident companies conducting business in Nigeria must comply with local tax regulations, including the Companies Income Tax Act and recent amendments. Understanding these requirements is crucial for ensuring compliance and avoiding legal issues. By adhering to the tax laws and leveraging applicable tax treaties, non-resident companies can navigate Nigeria’s tax landscape effectively and contribute to the country’s economic growth.

Read our publication on this topic here: http://innerkonsult.com/wp-content/uploads/2024/09/Taxation-of-Non-Residents-upload.pdf.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.