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Wednesday, June 03, 2020 / 09:30 AM / Deloitte
The Honourable Minister
of Finance, Budget and National Planning, Mrs Zainab Ahmed, has issued the
Companies Income Tax (Significant Economic Presence) Order, 2020 (the Order) to
clarify the meaning of Significant Economic Presence (SEP) as contained in the
Finance Act 2019 (FA19). The Minister issued the Order in line with Section
13(4) of Companies Income Tax Act (CITA), as amended by FA19. The Order has a
commencement date of 3 February 2020, although it was made public on 29 May
2020.
Before SEP was
introduced, a Non-resident company's (NRC) profits were deemed to be derived
from Nigeria if the NRC had any of the following: a fixed base in Nigeria, a
Nigerian dependent agent empowered to conclude contracts on its behalf,
execution of a turnkey project in Nigeria or a related party transaction that
is not at arm's length. However, FA19 introduced the SEP concept into CITA
under Section 13(2) (c) and (e). SEP qualifies the scope of profits of NRCs
that are deemed to be derived from and therefore taxable in Nigeria.
The Order went ahead to
provide that a Digital NRC (NRCs that operate in the digital economy) would be
liable to Nigerian tax where it derives gross turnover of more than N25million
(or foreign currency equivalent), in an accounting year through:
Further, NRCs which use
a Nigerian domain name or a registered Nigerian website, or has a "purposeful
and sustained interaction with persons in Nigeria" (which may be shown by
customising its digital page or platform to target persons in Nigerian,
including reflecting the prices of its products or services in Nigerian
currency or providing options for billing or payment in Nigerian currency)
would be liable to Nigerian tax.
Service NRC, on the
other hand, will be deemed to have a SEP in Nigeria where they earn income or
receives payments from a person resident in Nigeria of or the fixed base of
another NRC. This is in connection with carrying on the trade or business of
providing consultancy, technical, management or professional services. It is important to note that the N25m threshold applicable to
Digital NRCs does not apply to Service NRCs. The income of
Service NRCs will be subjected to withholding tax (WHT) at 10%, which in this
case is the final income tax.
It is important to note
that this order shall not apply to digital NRCs where Nigeria has a
multilateral or consensus agreement to address the tax challenges arising from
the digitalization of the economy, payments made to NRCs for teaching in an
educational institution or for teaching by an educational institution, Payments
made by a foreign fixed base of a Nigerian company to an NRC and payments made
under an employment contract.
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