Nigeria: Non-Resident Company's Taxation & Actual Profit Basis: Should FIRS Revisit This Directive?

Last Updated: 2 February 2016
Article by Yomi Olugbenro
Most Read Contributor in Nigeria, July 2017

Perhaps the most compelling justification for a re-examination of this directive is the spate of losses turned in by NRCs at the immediate aftermath of the application and compliance with this directive

Eighteen (18) months ago today, the price per barrel of crude oil ranged from US$105.15/b to US$111.97/b. At this time:

  • global oil demand growth was forecast at 1.13mb/d
  • world oil demand was anticipated to increase at a faster pace of 1.21mb/d
  • OECD demand was expected to see positive growth from 1.7% to 2.0% in 2015; this was noted as a first time positive growth forecast since 2010
  • Non-OECD consumption was expected to provide the bulk of oil demand growth at 1.18mb/d
  • India was forecast to grow from 5.5% to 5.8% with China to trend at 7.2%
  • Non-OPEC supply was expected to increase by 1.47% mb/d but to grow at a slower pace of 1.3mb/d in 2015

Eighteen (18) months ago, the possibility of the per barrel price per day (pbd) of crude oil to hover at a price lower than thirty (30) US Dollars or approaching twenty (20) US dollars would be sacrilege.

Thus, eighteen (18) months ago, Federal Inland Revenue Service (FIRS) specifically in July 2014, issued a directive that Non-Resident Companies (NRCs) should file their tax returns as required by section 55 of the Companies Income Tax Act (as amended)(CITA) to include audited financial statements, complete with tax and capital allowance computations. These are required in addition to a duly completed self-assessment form and other particulars as specified by CITA.

Prior to this directive, NRCs were filing on deemed profit basis and FIRS was accepting those tax returns under the provisions of section 30 of the CITA. Under that regime, twenty percent (20%) of the turnover of the NRCs was deemed to be taxable profit upon which the statutory rate of thirty per cent (30%) was applied to arrive at the tax payable. The only information/documentation required for the preparation of these returns was the turnover of the NRC on its operations as evidenced by its invoices to the customers in Nigeria. This approach was actually straightforward and extremely convenient. It also guaranteed tax take from the operations of the NRCs no matter what. Under that regime, it was rare to find a NRC that was loss making and thus not entitled to pay some form of tax to FIRS on behalf of the Government.

The first immediate concern was whether NRCs that had filed tax returns for the 2014 year of assessment on deemed income basis prior to the directive by FIRS, needed to refile the 2014 returns on actual income basis. There was no compelling justification for NRCs to refile 2014 tax returns given that in complying with the FIRS directive, NRCs would be required to disclose information relating to a preceding year of assessment (YOA) as prior year comparative/opening figures when computing and filing tax returns and full accounts for 2015 year of assessment and subsequently.

The 'new' regime for NRCs has triggered the following questions around the following items:

  1. Financial Statements: A natural consequence of the FIRS' directive is that NRCs need to prepare carved-out financial statements in respect of their Nigerian operations.

    • what would be the applicable qualifications of persons who may audit such accounts in Nigeria? Are NRCs expected to conform to the provisions of S.358 of Companies and Allied Matters Act as amended (CAMA) and section 77 of Financial Reporting Act (FRA)? CAMA provides that an auditor must be persons who are legally qualified to audit and certify accounts under extant laws in Nigeria while FRA defines an Auditor and Professional Accountant.
    • if there are deviations, is it clear how FIRS intends to handle such?
    • is it safe to assume that FIRS would bear the cost of physical verification of PPE domiciled outside Nigeria?
    • how does FIRS intend to address returns filed based on a qualified audit opinion?
    • would FIRS tax NRCs whether or not the financial statements are qualified on the basis of actual profits where this is less than 20% of deemed profit?
  2. Operating expenses: Whilst the issue of income from the Nigerian operations may be straightforward, the situation with expenses is not that straightforward especially that a number of NRCs operate a system which centralizes strategic services across their respective groups with the resultant direct and administrative costs apportioned as appropriate across several jurisdictions. Consequently:

    • what would be the acceptable basis for apportionment of costs? Or how should the cost attributable to the Nigerian fixed base/PE be determined? Or would this evaluation be on a case by case basis from YOA to YOA?
    • what level of documentation is therefore required for the expenses to pass the deductibility test?
  3. Claim of capital allowance: No doubt, NRCs would be entitled to claim capital allowance on qualifying expenditure under the actual profit regime. However, to be able to claim such capital allowances, they would be required to provide acceptable evidence in relation to ownership, cost and use of any PPE in respect of which capital allowance is claimed. But then, it may be asked:

    • On what basis is the capital allowance to be computed?
    • What guides the claim for capital allowances of old PPE?
    • Are capital allowances deemed to have been claimed on old assets considering the 80% allowances for tax deductible expenses under the deemed profit regime?
    • Should existing assets be treated as new additions for capital allowance purposes?
    • Are the NRCs expected to procure an acceptance certificate as evidence of ownership of the assets, more so where the asset is domiciled outside Nigeria?

Perhaps the most compelling justification for a re-examination of this directive is the spate of losses turned in by NRCs at the immediate aftermath of the application and compliance with this directive. This meant that where FIRS had been certain to recover some taxes based on the turnover of the companies, this may now only be possible (under the actual profit regime) through a proper audit or investigation of the operations; an exercise that ensures that FIRS (ditto the Government) needs to commit time, funds and other resources to recover such taxes within a context of increasing exposure to significant loss in time value of money. Howsoever tempting, this concern is not easily resolved by a refusal to accept the lossmaking returns and issuing a deemed assessment notice as substitute.

It must be recognised that a taxpayer who feels hard done by the tax authorities will not hand over "surprising" tax liability just because FIRS has served on it relevant notices of assessment. Given the impact for the economics of its operations, cash flow, returns to shareholders, lenders and other stakeholders in the business, it will object in writing to the assessment notices and be prepared to explore all available means for resolution within its right under the law. This may increase the specter of significant revenue potentially due to Government that may become trapped in the dispute resolution corridor.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Yomi Olugbenro
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.