It was recently reported1  that some international shipping  companies (specifically, owners of motor tankers used for  transporting crude oil and petroleum products) engaged in  Nigerian trade may be considering terminating their  operations in the country, with the largest economy in  Africa, following the receipt of Notices of Taxes Assessment (the "Notices") from the Federal Inland Revenue  Service (the "FIRS" or the "Service"). We also understand  the Notices have resulted in a surge in charter rates for  motor tanker vessels that service the Nigerian market as  owners are now actively avoiding Nigeria for fear of  possible detention by FIRS2.

In the Notices, FIRS referred to its Information Circular  dated May 11, 20223  which relate to, inter alia, the "tax  compliance of international shipping lines deriving  income from Nigeria" (the "Circular"). The FIRS, relying on  Section 14 of the Companies Income Tax Act ("CITA") 4, stresses that the full profits of foreign shipping companies  (based on freight income) derived from Nigeria are taxable  in Nigeria and same shall be determined in line with the  provisions of CITA. The Service also states that foreign  companies engaged in shipping that are residents of  countries that have a double taxation treaty ("DTT") with  Nigeria are exempt from Nigerian income tax if the DTT  grants unconditional tax exemption. On the other hand,  where the DTT grants unconditional tax exemption, the  foreign company will not pay tax in Nigeria but only in their  respective home countries, where Nigerian resident  companies also operate ships in international traffic  calling at the ports of the treaty partner. Where there is no  corresponding operation of ships of Nigerian companies  in international traffic calling at the ports of that treaty  partner, the foreign companies' resident in such country  are assessable to tax in Nigeria in respect of their freight  income in Nigeria and at the rate specified in the respec[1]tive DTTs.

The Circular further states, unequivocally, that the  foregoing provisions would apply to any vessel that  carries crude oil, gas, petroleum products or any other  item from Nigeria, irrespective of where or with whom the  carriage contract was executed.

Without doubt, the FIRS, being Nigeria's principal tax  regulatory agency, has the power to issue demand notices  to tax subjects where it believes that the tax subject has  not discharged its tax obligation under relevant law. It is  also not in doubt that by Section 14 of CITA (as amended  by Section 8 of the Finance Act, 2020), non-Nigerian  shipping companies must pay income tax on profit earned  from freight activities. However, it must be noted that the  extent of the aforesaid liability is to be determined on a  case-by-case basis having regard to, inter alia, any  applicable DTT between Nigeria and the country of  residence of a relevant international shipping.

It is also noteworthy that, in practice, the income of these  shipping companies is subject to withholding tax ("WHT")  deductions and where such deductions were indeed made  at source and remitted to the FIRS, any further assess[1]ments must take into cognizance the WHT remitted on  behalf of the foreign shipping companies.

Also, Nigerian law provides a time frame within which FIRS  can assess a tax subject which has not been assessed or  has been assessed at a less amount than that which  ought to have been charged, except where any form of  fraud, wilful default or neglect has been committed by or  on behalf of such tax subject in connection with any tax  imposed under a relevant law. Consequently, any demand  issued by the Service which reflects an assessment for a  period beyond the time limit provided by law may be  challenged on that basis.

Also, the cargo loading location, in Nigeria, may also  provide a defense to the Notices.

Finally, in its Public Notice of December 17, 2021, the FIRS  requested all international shipping companies deriving  income from Nigeria to regularize their tax compliance  status not later than February 28, 2022. The Service also  indicated that it would collaborate with other regulatory  agencies in the maritime sector and security agencies to  enforce the tax laws against defaulting entities.

Also, by Section 14(6) of CITA (as amended by Section 5 of  the Finance Act, 2023), regulatory agencies in the shipping  and other relevant sectors shall mandate all companies  taxable under Section 14 of CITA to present evidence of  income tax filing for the preceding tax year and Tax  Clearance Certificates, showing income taxes paid for the  three (3) preceding tax years, in order to continue to carry  on business in Nigeria or obtain any relevant approvals  and permits.

It is therefore necessary that foreign shipping companies  deriving income from Nigeria engage the FIRS through  their legal or tax advisers to resolve issues around any  assessment that may be made by the FIRS without further  to avert sanctions that will have an undesired effect on  their operations or assets in Nigeria. Going forward,  foreign shipping companies deriving income from Nigeria  should have their charterparties reviewed, from a Nigerian  law perspective, to avert 'surprises' (like back taxes) in the  future.

While we note that the recent actions of FIRS, as reflected  in the recent demand notices issued to foreign shipping  companies, does not necessarily reflect a change of  policy, since the relevant tax laws imposing taxes on the  income of foreign shipping companies predates the  President Tinubu GCFR led Federal Government of  Nigeria, it is important that affected companies take  necessary steps given the current disposition of the  administration to plug leakages and shore up revenue for  campaign promises.


  1. laims/2-1-1466814
  3. This withdraws and replaces the previous FIRS Information Circular 2021/14 of June 3, 2021 on the same subject.
  4. Cap. C21, LFN 2004 (as amended).

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