Taxation of Non-Resident Companies in Nigeria (Part 1)

Taxation of Non-Resident Companies in Nigeria (Part 1)

It is no news that the Non-Resident Companies (NRCs) have been on the FIRS’ watchlist to drive revenue generation in Nigeria. Prior to the creation of the Non-Resident Persons Tax Office (NRPTO) as a separate department, the tax laws have had specific provisions for income generated by NRCs in Nigeria and as such, tax compliance by NRCs in Nigeria has been ever present. However, following the amendments by the Finance Act 2019 and creation of the NRPTO department at the FIRS, there has been an increase in tax compliance for NRCs receiving income from Nigeria which includes NRCs with significant economic presence (SEP) in Nigeria, providing management, professional and technical services in Nigeria etc.

We have been talking about NRCs without explaining who or what the NRCs are. Essentially, an NRC is a company/individual that is not registered or incorporated in Nigeria but derives income or profits from Nigeria in any kind of business it operates. It is noteworthy that historically, the FIRS accepted the Non-Resident Companies (NRC) preparing and paying their income taxes on a deemed profit basis. Deemed profit basis is a system whereby the FIRS estimates 20% of turnover to be profit and 80% as operating expenses. The 20% is then subjected to 30% as Company Income Tax. When filing returns under the deemed profit regime, the NRC only needed to submit the deemed profit tax computations alongside a statement of turnover derived from Nigeria and Withholding Tax (WHT) Credit Notes for WHT incurred on the income for tax credit.

In 2014, FIRS through its Transfer Pricing (TP) unit notified some tax consultants of NRCs that the deemed profit system was inadequate. It required NRCs to resubmit tax returns in actual profit basis alongside Capital Allowance Computations and Audited Financial Statements done by a Nigerian Auditor in line with International Standards for Auditing. It is important to note that NRCs are subjected to CIT but exempted of Tertiary Education Tax (TET) unlike Resident Companies which are subjected to both taxes. Investment Income from Nigeria earned by NRCs are also exempted from taxation as they are already franked. Franked Investment income is one which has already been taxed at source and as such, subjecting it again to taxation would amount to double taxation hence the exemption.

Below is a schedule showing rates for NRCs in Nigeria:

Non-Resident Companies
Tax TypeRate
CIT: Companies with over 100m naira annual turnover,Medium companies with 25m to 100m naira turnover,Small companies with less than 25m turnover.  30% (same as residents)   20% (same as residents)   0% (same as residents)
TETNot applicable to NRCs
NPTFL0.005% (same as residents)
CGT10% (same as residents)
Dividend, Interest and Rent10% (same as residents)
Royalties10% (same as residents)
Consultancy fees, Management fees and fees for technical services10% (same as residents)

For more enquiries, please contact: Abimbola Oyebowale (a.oyebowale@taxaide.com.ng, +234 908 341 1615), Emenike Ugwuanyi (e.ugwuanyi@taxaide.com.ng, +234 806 536 7616), Emmanuel Emereuwa (e.emereuwa@taxaide.com.ng, +234 806 807 1347).

Highlights of the week.

The United Nations Conference on Trade and Development disclosed that world trade’s recovery from the COVID-19 crisis hit a record high in Q1 2021, increasing by 10% year-over-year and 4% quarter-over-quarter.

The agency disclosed this in its Global Trade Update released on Wednesday, citing that the rebound in Q1 2021 was driven by the strong export performance of East Asian economies, whose early success in pandemic mitigation allowed them to rebound faster and to capitalize on booming global demand for COVID-19 related products. Read more HERE

The Manufacturers Association of Nigeria (MAN) disclosed that the reduced inflation rate of April is still far from the healthy inflation rate needed to kickstart the economy.

This was disclosed by MAN DG, Mr Segun Ajayi-Kadir, in an interview with NAN on Wednesday in Lagos. Read more HERE

According to the data published by the National Bureau of Statistics (NBS), the total value of Company Income Tax (CIT) collected in Q1 2021 was N392.8 billion, a growth of 32.8% when compared with N295.7 billion collected in Q4 2020. Yearly, CIT revenue also improved by 32.8% when compared with N295.7 billion generated in Q1 2020. Read more HERE

The National Bureau of Statistics (NBS) says the country’s revenue from value-added tax (VAT) increased by N171.81 billion in one year.

According to the recently released sectoral value-added tax (Q1 2021) report, N496.39 billion was generated in the first quarter of 2021 (Q1 2021), as against N324.58 billion in Q1 2020, representing a 52.93 percent increase year-on-year. Read more HERE

Please stay tuned to our TaxThursday bulletins, our website and of course our mobile application, TBook. Also, don’t forget to follow us on Social Media. You can find us on Twitter, Facebook, Instagram and Linkedln. We appreciate your feedbacks as usual. Please continue to send them. Feel free to read more of our publications on our website. You can email us on intelandcomms@taxaide.com.ng or if you prefer, call us on 0700TAXAIDE.