Finance Act 2019: Minister Clarifies the Meaning of Significant Economic Presence


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.


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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:

  • Streaming or downloading services to a person in Nigeria
  • Transmission of data collected about Nigerian users which were generated from such users' activities on a digital interface including websites and mobile applications
  • Provision of goods and services, directly or indirectly, through a digital platform to Nigeria, other than those provided by connected persons, or
  • Provision of intermediation services through a digital platform, website or other online applications that link suppliers and customers in Nigeria.


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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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