The Nigeria Tax Act And Non-Resident Companies

In June 2025, President Bola Ahmed Tinubu signed into law four landmark Tax Reform Bills: the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA)¹. These Reform Acts form the backbone of Nigeria's ongoing effort to refine and harmonise its fiscal framework, enhance compliance, and respond to the realities of a global and digitalised economy.

The Act that should be of particular interest to non-resident companies (NRCs) operating in the country is the NTA, which revises and expands the rules governing the taxation of NRCs in Nigeria. This article examines some of the key changes that NRCs should expect under the NTA 2025, and the practical steps they can take to navigate the evolving Nigerian tax landscape effectively.

Taxation of Non-Resident Companies Under the Companies Income Tax Act (CITA)

Pre-Finance Act 2019, Section 13(2) of the CITA, outlined the activities that will trigger the taxation of NRCs in Nigeria. Notably, if the NRC:

• operates through a fixed base in Nigeria, the profits linked to that fixed base are considered taxable in the country;
• habitually conducts business through an agent or person in Nigeria authorized to act on its behalf or on behalf of related companies, maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by such a person, to the extent that profits are attributable to these business activities;
• If the trade, business, or activities involve a single contract, such as for surveys, deliveries, installations, or construction, the profits attributable to that contract will be subject to tax in Nigeria;
• where such trade or business is carried out between the NRC and a related party (a company controlled by or having controlling interest in the NRC), and the commercial or financial terms between them are deemed by the tax authorities to be artificial or fictitious.

In January 2020, Finance Act (FA) 2019 was signed into law, and it introduced the concept of significant economic presence (SEP) to expand the scope of Nigerian tax on NRCs deriving income from their activities in the country, which were hitherto, not captured in the tax net. The FA 2019 amended Section 13 (2) by introducing two additional activities that will trigger the taxation of an NRC in the country as follows:

• if it transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, on line adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity; and

• if the trade or business comprises the furnishing of technical, management, consultancy or professional services outside of Nigeria to a person resident in Nigeria to the extent that the company has significant economic presence in Nigeria; provided that the withholding tax (WHT) deducted on such payment will be the final tax on the income of the NRC in this instance.

The Significant Economic Presence Order 2020² (the Order) provided clarification on what would constitute an SEP for NRCs carrying out digital activities, or providing services to customers, in Nigeria.

Determination of SEP for Digital Activities

The Order provides that a foreign company shall have a SEP in Nigeria in any accounting year, where it

a. derives N25 million annual gross turnover or its equivalent in other currencies from any or combination of the following digital activities:

b. uses a Nigerian domain name (i.e., .ng) or registers a website address in Nigeria; or

c. has a purposeful and sustained interaction with persons in Nigeria by customizing its digital page or platform to target persons in Nigeria, including reflecting the prices of its products or services in Nigerian currency or providing options for billing or payment in Nigerian currency.

Determination of SEP for Technical, Professional, Management and Consultancy Services

Paragraph 2 of the Order provides that a foreign company providing technical, professional, management or consultancy services shall have an SEP in Nigeria in any accounting year where it earns any income or receives any payment from a person resident in Nigeria, or a fixed base or agent of a foreign company in Nigeria.

The Order reshaped Nigeria's approach to taxing NRCs operating with or without a physical footprint in the country and ensured that profits earned by foreign companies in/from Nigeria's market do not escape taxation simply because those businesses operate virtually.

Challenges Faced by NRCs Operating in Nigeria

Despite the provisions set out above, the taxation of NRCs in Nigeria continued to face practical challenges and issues, some of which are discussed below.

• Definition of Fixed Base: One of the issues was the absence of the definition of what constitute a "fixed base" in the CITA. While the CITA listed activities that would not constitute a fixed base, such as using facilities solely for storage or display or collection of information; the definition of a fixed base that would create a taxable presence for an NRC was not codified Consequently, businesses have continued to rely on circulars from the Federal Inland Revenue Service (FIRS) - which are not legally binding - and judicial precedents (especially the judgement in the dispute between FIRS and Shell) to define what constitutes a "fixed base" in tax administration.
• Status of Agents: The issue of when an NRC's agent (person authorised to conduct business on its behalf) in Nigeria creates a taxable presence was a bone of contention for some NRCs, particularly, as it concerns the distinction between dependent and independent agents. While the Double Taxation Treaties (DTTs) that Nigeria has with other countries typically stipulate that an independent agent acting in the ordinary course of business does not constitute a permanent establishment (PE), a term typically used interchangeably with "fixed base", CITA does not provide such distinction. Interestingly, the FIRS issued a Circular in 1993 ("Circular No. 9302³"), which seemed to align with the provisions of the DTTs suggesting that an independent agent, acting in the ordinary course of business, would not create a taxable presence for the NRC in Nigeria. However, in 2022, through Circular No. 2022/12⁴, the FIRS revised its position noting that the classification of an agent as dependent or independent "was not envisaged" in CITA; and that what matters is whether the agent "is authorized and whether the activities are carried out on behalf of its principal", which in this case, is the NRC.
  
  Nigerian courts have held that circulars are publications through which information is disseminated by administrative bodies and departments (FIRS inclusive), and thus, they do not command the force of law. However, some NRCs have relied on the guidance provided by the FIRS in its 1993 Circular referenced above regarding the term "agents" to organize their operational affairs in Nigeria, as it seemed to align with the Organisation for Economic Co-operation and Development (OECD)'s framework⁵ on the type of agent that should constitute a PE in any tax jurisdiction. The shift in the FIRS' stance in 2022 created uncertainty for NRCs operating in the country. NRCs that have built their economic models on the assumption that independent agents would not trigger a taxable presence in the country now faced the risk of being taxed on profits that may be deemed attributable to their Nigerian operations, regardless of their agent's independence.

• Unclear Profit and Cost Attribution Rules: Section 55 of CITA (as amended), requires that a company other than a Nigerian company that derives profits from Nigeria under Section 13(2) of CITA as amended, should submit tax returns for the relevant year of assessment, with such returns accompanied by the audited accounts of the NRC, and other relevant documentation. In effect, such NRC will be assessed to CIT on the actual profits derived from their Nigerian operation. However, one challenge that this requirement has unearthed is the allocation of the costs, incurred centrally by an NRC in its home country, to its PE in Nigeria, to arrive at the profits attributable to Nigeria? To enable the FIRS assess NRCs to CIT in the absence of precise expense data, Section 30 of the CITA as amended, empowers the FIRS to apply a deemed profit method, i.e., assess and charge NRCs for the relevant year of assessment on such "fair and reasonable percentage" on their Nigerian turnover.
  
  In practice, the FIRS has typically applied the ratio of 20% of the income/revenue derived by NRCs from their Nigerian operations as their deemed profit, on which tax is applied at 30%. While this deemed profit approach provided an easy and practical option for the tax authorities to ensure that NRCs do not evade tax, due to difficulty in cost/expense allocation framework, it has often resulted in tax assessments that are not reflective of the actual profitability of NRCs' Nigerian operations. Some NRCs, especially those in low-margin industries, or with seasonal revenue and profitability trends, found that the 20% deemed profit rate is excessive, compared to their actual profit margin, leading to over-taxation.

What Has Changed?

The NTA 2025 ushers in one of the most substantial overhauls of Nigeria's tax framework for NRCs over the past decades. Its provisions are designed to modernise outdated rules, align Nigeria's tax system with global best practices, and remove uncertainties that might have complicated compliance for NRCs doing business in or with Nigeria. Some of the key changes introduced by the NTA are discussed below:

1. Permanent Establishment and the "Place" of Business: The Act formally introduces the word "Permanent Establishment" (PE). This word was not referenced or defined hitherto in the current CITA. It may safely be argued that the adoption of this word reflects Nigeria's intention to align its tax framework more closely with global standards and international best practices; and it brings some clarity as to the application of this term to NRCs.
   
   The NTA provides a comprehensive statutory definition of when an NRC is deemed to have a PE through "a place where it carries on business or is at its disposal for the purpose of its business in Nigeria". The CITA only listed what would not amount to a "fixed base". However, the NTA explicitly defines what "a place" means in a manner similar with the definition of a PE as provided in Nigeria's DTTs. This includes branches, offices, factories, workshops, mines, wells, quarries, and other natural resources' sites irrespective of the length of time it is used. It also recognises sites linked to building, construction, installation, assembly projects, and supervisory activities, regardless of the project's duration.

2. Project-Based PE: Under the CITA, it is common practice for companies to split contracts for turnkey projects into offshore and onshore components, with each component to be executed by different entities (NRC for the offshore component and a Nigerian company for the onshore component). Typically, only the income attributable to the onshore portion of the contract, i.e., the work physically performed in Nigeria, would be subject to Nigerian Company Income Tax (CIT), provided that both portions are covered under different contracts. This arrangement allowed NRCs to manage their Nigerian CIT exposure.
   
   However, under the NTA, the definition of a PE includes any non-resident person who executes a project in Nigeria involving activities such as surveys, designs, deliveries, building, construction, assembly, installation, commissioning, decommissioning, or supervisory activities, either solely or jointly with others. This definition applies irrespective of whether parts of the project are performed inside or outside Nigeria, or whether multiple entities perform different parts of the work. The implication of the above is that even if an NRC carries out part of the work outside Nigeria as an offshore contract, it would still be deemed to have a PE in Nigeria on that portion of the contract if it is for a Project being executed in Nigeria, and thus, liable to tax in the country. The only solace to manage the potential tax damage may be for such NRC to seek refuge in the provisions of the DTT of its home country with Nigeria, if such exists.

3. Income and Cost Attribution Rules: The NTA incorporates the "force of attraction" principle recognised under the UN model Tax Convention⁶ by broadening the scope of a PE's taxable profit. Specifically, income from the sale of goods or the provision of services made by the NRC or its connected persons directly to/in Nigeria, may be deemed attributable to the Nigerian PE where such goods or services are similar to those offered by the PE. This provision intends to address situations where an NRC has a PE in Nigeria but continues to make most of its sales directly from abroad to customers in Nigeria to avoid Nigerian tax.
   
   Furthermore, unlike the CITA, which offered no guidance on the basis for attribution of costs to the Nigerian operations of an NRC, the NTA specifies the nature of expenses that are allowed and those not allowed for deduction. It also outlines the income that would be included as part of the taxable profit of the PE or NRC. Specifically, it provides that deductions would be permitted only for expenses incurred for and in producing the taxable profits attributable to the Nigerian PE. However, no deduction would be allowed for payments made by the PE to the NRC or its connected persons, such as royalties, fees, or similar charges, except where these represent reimbursement of actual expenses incurred.

4. Introduction of Alternative Profit Attribution Method: The NTA also empowers tax authorities to apply the profit margin of the NRC, as reflected in its published audited financial statements, to the total income generated from Nigeria, to determine the profit of its Nigerian PE, and consequently, the tax payable in the country, where actual profits cannot be accurately determined. This approach would seem to provide a more practical method for determining the taxable profit of a PE, when the actual cost or expense cannot be accurately determined, compared to the flat 20% deemed profit rate currently in use under the CITA. The only challenge with this approach is that it ignores the peculiarities of the local environment around the ease of doing business and the reality that some of the NRCs/PE actually provide the required infrastructures and facilities for business at their own cost, which ordinarily, should have been provided by the government.
   
   In addition, the NTA provides that if the calculated actual profit is lower than what would result from applying the profit margin directly to income generated from Nigeria, then the higher figure would be used.

5. Minimum Tax Threshold/Effective Tax Rate: The NTA also establishes a minimum tax threshold – which is not less than the amount of withholding tax deducted at source, or where no withholding tax applies, 4% of the total income generated from Nigeria.
   
   Furthermore, section 57 of the NTA provides that where the effective tax rate (ETR) of a company that is a constituent entity of an MNE group or any other company with an aggregate turnover of N20 billion and above, is less than 15%, such company shall recompute and pay an additional tax that makes its effective tax rate equal to 15%.
   
   Section 202 of the NTA further defines an MNE group as any group that includes two or more enterprises the tax residence for which is in different jurisdictions or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction. It also defines a constituent entity as any company, permanent establishment or business unit that is a member of an MNE.
   
   A combined reading of the above provisions means that the Nigerian PE of an NRC would be deemed to be a constituent entity of an MNE group and would also be subject to the ETR provision in determining its final tax liability in Nigeria.

6. Payment for Service Furnished Outside Nigeria: The NTA 2025 refined paragraph 2 of the SEP order, which addressed the furnishing of technical, management, consultancy, or professional services from outside Nigeria to a person resident in Nigeria. The NTA introduces a broader provision requiring that any payment made by a person resident in Nigeria or by the Nigerian PE of a non-resident, in respect of services furnished from outside Nigeria to a Nigerian resident or a Nigerian PE of a non-resident shall be subject to withholding tax (WHT), which will constitute the final tax on such income. The same provision applies to payments made in respect of insurance premiums/risks insured from the territory of Nigeria. The only exception is where the payment is made to an employee under a contract of employment, by an individual for teaching in an educational institution and by a foreign PE of a Nigeria resident where that PE bears the expense.

Notwithstanding the above, it should be noted that the application of existing DTTs is immune to the provisions of the NTA, and as such, NRCs operating under treaty protection will continue to enjoy the benefits conferred by the treaty, in line with Section 121 of the NTA.

Reflecting on These Changes

One area where the NTA falls short of aligning with global best practices is the treatment of independent and dependent agents. Under the OECD Model Tax Convention for Income and For Capital, and the UN Model Tax Convention, an independent agent, where such person is acting in the ordinary course of their business generally does not create a PE. However, the NTA is silent on the mention or differentiation of both terms, other than the use of the word "agents" in subsection 17(9)(v). This effectively treats all agents, whether independent or not, as creating a PE for the NRC in Nigeria, subject to the provisions of the relevant DTT.

In addition, the introduced provisions on projects executed in Nigeria as well as treatment of payments for services furnished outside Nigeria, have widened the scope of Nigerian taxation to include NRCs who, under the CITA, may not have been regarded as taxable in Nigeria.

Also, with the introduction of the profit attribution rules, minimum tax threshold, and effective tax rate, a PE's final tax liability will be based on whichever amount is highest from these three criteria.

What Should Non-Resident Companies Do?

Given the expanded scope and increased clarity brought by the NTA 2025, NRCs operating in Nigeria must proactively review their business models, contracts, and operations to manage their tax exposure effectively. Some practical steps to take are suggested below:

• Assess PE or SEP Risks: NRCs should carefully evaluate whether their activities in Nigeria create a PE or SEP under the NTA and proactively remodel their operations. This includes examining not just physical presence but also digital and project-related involvements.

• Cost Attribution and Documentation: NRCs should be prepared to justify cost allocations to their Nigerian operations with comprehensive and robust documentation. The concerted effort to clarify and specify the rules for profit and cost attribution to a PE as provided in the NTA means that tax authorities will scrutinize deductions and related-party transactions more closely, with a view to disallowing any portion that an NRC is unable to substantiate.

• Proactive Engagement: Proactive engagement with Nigerian tax consultants, tax authorities, and other relevant agencies is advisable to seek clarity, obtain advance rulings on planned activities in Nigeria where necessary, and establish a transparent compliance relationship.

Conclusion

The enactment of the NTA and the accompanying reforms mark a watershed in the history of the taxation of NRCs in Nigeria. Yet, this reform is a double-edged sword: while it offers certain clarity, it also casts a far wider net. Activities that were previously considered low risk for Nigerian tax exposure may now fall within the scope of Nigerian taxation. Therefore, for NRCs, it is no longer business as usual. The cost of inertia could be steep, ranging from unexpected tax liabilities to penalties and reputational risks. More than ever, NRCs must deeply reassess their structures, revisit contracts, tighten documentation, and stay actively engaged with Nigerian tax authorities.

Only those who adapt, prepare, and respond strategically will thrive. The NTA is not merely a new law, it is a call to action. Non-resident businesses must step up, rethink their approach, and position themselves confidently for the new era of tax compliance and opportunity in Nigeria.

Footnotes

1. https://punchng.com/breaking-tinubu-signs-tax-reform-bills-into-law/

2. S. I. No. 9 of 2020

3. Microsoft Word - INFO-9302

4. FEDERAL INLAND REVENUE SERVICE

5. Model Tax Convention on Income and on Capital 2017 (Full Version) (EN)

6. United Nations Model Double Taxation Convention between Developed and Developing Countries | DESA Publications

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.