In Nigeria, every company whether resident or non-resident is subject to the taxation of its income in line with the provisions of the Companies Income Tax Act (CITA). While the global income of a Nigerian company is taxed, a non-residential corporation is only liable to pay tax on the profits earned from business conducted in Nigeria. This article discusses the legal obligations of Non-Resident Corporations in Nigeria.
As non-resident corporations continue to access the Nigerian market, it is essential that these corporations are aware and stay up-to-date with their tax obligations to avoid potential legal and reputational risks as well as ensure smooth operations within the country.
Also read: Unraveling Tax Implications in Mergers and Acquisitions
WHO IS A NON-RESIDENT CORPORATION?
A non-resident corporation in Nigeria refers to a company incorporated outside the country but operates or derives income from Nigeria. Simply put, a non-resident company is a company established under any law in force in a country outside Nigeria.1
A non-resident firm is taxable in Nigeria under section 13(2) of the CITA if any of the following conditions are met:
- the non-resident company has a fixed base in Nigeria to the extent that the profit is attributable to the fixed base;
- the non-resident company habitually operates a trade or business through a person in Nigeria or habitually maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by a person on behalf of the company;
- the non-resident company does not have a physical presence in Nigeria but derives income from Nigeria through digital activities to the extent that it has a "significant economic presence" in Nigeria and profit can be attributable to such activity;
- the trade business or activities of the non-resident company involve a single contract for surveys, deliveries, installations, or construction;
- the trade or business of the non-resident comprises the provision of technical, management, consultancy, or professional services to a Nigerian resident by the non-resident company with a significant economic presence in Nigeria;
- the trade or business or activities which is considered not to be at arm's length between the company and a related party.
Non-resident corporations are required to obtain a TIN from the Federal Inland Revenue Service (FIRS) to facilitate tax compliance.
Also read: Overview of 2024 Withholding Tax Regulations: Deduction of Tax at Source
TAX OBLIGATIONS FOR NON-RESIDENT CORPORATIONS
Non-resident corporations in Nigeria are subject to various tax obligations, including:
1. Company Income Tax (CIT): By virtue of section 9 of the CITA, the profits of any company accruing, derived from, brought into, or received in Nigeria are taxable in Nigeria. The Federal Inland Revenue Service (FIRS) is the regulatory authority responsible for the administration of the Company income tax regime in Nigeria.2 Where applicable, the relevant tax rate is 30% of the profit deemed taxable
For Nigerian companies, CIT is chargeable on their global income by virtue of section 13(1) of CITA, whereas non-resident companies are charged based on the derivation principle as set out in section 13(2) (a) to (e) of CITA. Non-resident companies operating in Nigeria are required to file tax returns with the Federal Inland Revenue Service with or without notice from the Service in every year of assessment. Failure to file returns constitutes an offense and is liable to penalties under Nigerian Law.3
2. Value Added Tax (VAT): Value Added Tax (VAT) is an indirect tax that is imposed on the supply of goods and services and administered by the Federal Inland Revenue Service (FIRS) in Nigeria.4 VAT is calculated at a flat rate of 7.5% and eventually borne by the final consumer of the goods and services. On or before the 21st day of the month following the month in which the products and services were sold, all VAT collected by business owners must be sent to the Federal Inland Revenue Service (FIRS).
A non-resident company is required upon registration for VAT to include in its invoice VAT at 7.5% with instructions to the receiver of the goods or services to remit the 7.5% VAT in the currency of the transaction to the Nigerian government on behalf of the non-resident company.5
3. Withholding Tax (WHT): Withholding tax (WHT) may be described as an advance and indirect tax deducted at source from the taxpayer's invoices. Withholding tax rates are usually 10% or 15% depending on the type of transaction being carried out. Upon deduction, the tax is remitted to the appropriate tax authority – Federal or State Board of Internal Revenue within the time stipulated under the Regulations. Withholding tax is designed to provide regular revenue flow of income to the Nigerian Government by bringing taxpayers such as consultants, contractors, suppliers & shareholders into the tax net and curbing tax evasion.
Non-resident corporations are required to deduct WHT on payments made to Nigerian residents, including salaries, dividends, interest, and royalties.
4. Capital Gains Tax (CGT): CGT is the tax on the profit gained upon disposal of an asset that increased in value. A non-residential company that makes a gain on the sale of an asset must pay a flat rate of 10% of the chargeable gains made from the sale of the asset. The Federal Inland Revenue Service is in charge of taxing capital gains arising from the disposal of property by non-residential corporations in Nigeria.6
CONCLUSION
Navigating Nigeria's business landscape requires non-resident companies to thread the needle of tax compliance carefully in order to ensure uninterrupted operations and a positive presence in the Nigerian market. Non-residential companies are advised to consult tax specialists or legal advisers knowledgeable in Nigerian tax laws for professional guidance.
Footnotes
1. Adeola Oyinlade & Co, 'An Overview of the Taxation of Non-Resident Companies in Nigeria' https://www.adeolaoyinlade.com/en/an-overview-of-the-taxation-of-non-resident-companies-in-nigeria/ Accessed September 24, 2024
2. Section 1 of the Federal Inland Revenue Service (establishment) Act.
3. Adeola Oyinlade, 'An Overview of the Taxation of Non-Resident Companies in Nigeria' https://www.adeolaoyinlade.com/en/an-overview-of-the-taxation-of-non-resident-companies-in-nigeria/#:~:text=Non%2Dresident%20companies%20with%20significant,tax%20returns%20with%20the%20FIRS. Accessed September 24, 2024
4. Section 7 of the Value Added Tax Act
5. Qeeva, 'Resident Companies Taxation in Nigeria' https://qeeva.com/resident-companies-taxation-nigeria/ Accessed September 24, 2024
6. Federal Inland Revenue Service, 'Capital Gains Tax' https://www.firs.gov.ng/capital-gains-tax Accessed September 24, 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
