The taxation of educational institutions has been a thorny issue in the past few years. It was always assumed that companies were exempt from taxation if they were engaged in the provision of educational services. Prior to 2018, Section 23 of the Companies Income Tax Act (the "CITA") provided that the profits of educational institutions will be exempt from companies income tax if:

1. the educational activities of the company are of a public character; and

2. the profits are not derived from any trade or business carried on by the company. The CITA did not define the phrase "public character" and the language of the CITA seemed to imply that "educational activities" did not constitute a trade or business.

However, in 2018, the Court of Appeal affirmed the judgment of the Federal High Court in Best Children International Schools ("BCIS") Limited v FIRS, that educational institutions incorporated as limited liability companies are subject to companies income tax. The Court of Appeal reasoned that even though BCIS was engaged in providing educational services, it was incorporated as a limited liability company whose purpose is the making profit and therefore should be subject to tax.

According to the court, if the motivation of the promoters of BCIS were not profit, BCIS would have been set up as a company limited by guarantee. This meant that all limited liability companies providing educational services were automatically liable to companies income tax whether or not the company distributed its profits.

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