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, October 2018

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
Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions