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An Overview of the Taxation of Non-Resident Companies in Nigeria
It is important to note that Nigerian tax laws do not exempt the income of a branch of a business or company from taxation. While a Nigerian company is taxed on its worldwide income, a non-resident enterprise is taxed in Nigeria on profits earned from business or commerce conducted in Nigeria. That is to say, the company's branches in other countries are not required to pay taxes in Nigeria.
For any business operating in Nigeria, understanding tax regulations is essential to ensuring compliance and preventing any potential legal problems.
Definition of Non-Resident Company
Non-resident companies are companies which are not based in Nigeria but maintain a presence and carry out operations within the country. Section 105 of CITA defines a non-resident company as any company or corporation established by or under any law in force in any territory or country outside Nigeria.
A non-resident company is not registered or incorporated in Nigeria but generates revenue from business operations in the Nigeria. The income that these businesses generate from their operations in Nigeria is taxed. Exemption from registration in Nigeria does not include tax exemption on non-resident companies.
Taxation Laws for Non-Resident Companies
Companies Income Tax Act: The Companies Income Tax Act (CITA) regulates Nigerian taxation laws for non-resident corporations. Companies that conduct business in Nigeria but do not reside there must pay taxes on their profits. Generally, these taxes are calculated using the company's revenue from Nigerian sources.
Finance Act 2020: The Finance Act 2020 made amendments to the taxation of non-resident companies, highlighting the necessity of filing tax returns in Nigeria and providing clarification on the procedures and requirements for foreign companies that generate profits or are subject to Nigerian taxes.
Tax Liability of Non-Resident Companies in Nigeria
In Nigeria, all companies, whether resident or non-resident, are liable to Companies Income Tax (CIT) on earnings made inside, originating from, importing into, or receiving from Nigeria.
By virtue of section 13(2) of CITA, a non-resident company is taxable in Nigeria if any of the following conditions is met:
Author : Adeola Oyinlade & Co.
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- the non-resident company has a fixed base (i.e. a place of business) 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 maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by a person on behalf of the company;
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- the non-resident company does not have physical presence in Nigeria but derives income from Nigeria through digital activities to the extent that it has a “significant economic presence” in Nigeria;
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- the trade or business or activities of the non-resident involves a single contract for surveys, deliveries, installations or construction;
- the trade or business of the non-resident involves the remote provision of technical, management, consultancy or professional services to a Nigerian resident;
- the trade or business or activities is between the company and a related party, which is considered not to be at arm’s length.
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- has a “fixed base” in Nigeria;
- carries on business activities in Nigeria through an agent authorised by the company to (i) carry on the trade or business, or (ii) maintain stock of goods from which goods or merchandise are delivered, on its behalf;
- derives income from Nigeria through digital activities to the extent that it has a significant economic presence in Nigeria;
- executes a single contract for surveys, deliveries, installations or construction in Nigeria; or
- carries on business involving the provision of services of a technical, management, consultancy or professional nature to persons resident inNigeria.
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- No Permanent Establishment: If a non-resident company does not have a fixed base or permanent establishment in Nigeria, it may be not subject to taxation.
- Tax Treaties: Provisions for preventing double taxation are frequently found in bilateral tax treaties between nations. Certain forms of income received by non-resident companies may be eligible for tax exemptions or reduced tax rates under these treaties.
- Limited Duration and activities: Non-resident companies may be exempted from taxation based on the time frame of the transaction or business activities.
- Sovereign Wealth Funds and Diplomatic Entities: Under some international agreements, non-resident companies that qualify as diplomatic enterprises or sovereign wealth funds may be exempted from paying taxes.
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- The company’s full audited financial statements and the financial statement of the company’s Nigerian operations, attested by an independent Chartered or Certified Accountant in Nigeria;
- Tax computation schedules based on the profits attributable to the company’s Nigerian operations;
- A true and correct statement, in writing, containing the amount of profits from each and every source in Nigeria; and
- Duly completed Companies Income Tax Self-Assessment forms.
Author : Adeola Oyinlade & Co.