The Federal Government of Nigeria (FGN) has signed a bilateral agreement (“the Agreement” or “the DTA”) with Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains.
The Agreement, which was signed on 2 August 2017 and approved by President Muhammadu Buhari on 26 March 2018, has only recently been made publicly available by the FGN.
Some salient provisions of the Agreement include:
The Agreement covers Singapore’s Income Tax, and the following Nigerian taxes:
• Personal Income Tax
• Companies Income Tax
• Petroleum Profits Tax
• Capital Gains Tax
• Tertiary Education Tax, and
• Information Technology Levy
2. Definition of Permanent Establishment
The DTA defines a Permanent Establishment (PE) to include:
(i) Any place used for the exploration of natural resources for a cumulative period exceeding 60 days in any 12-month period;
(ii) A building site, construction, assembly or installation project or supervisory activities which last(s) for more than 6 months;
(iii) Furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise in the other Contracting State for a period or periods aggregating more than 183 days in any 12-month period.
In addition, an insurance enterprise of a Contracting State shall be deemed to have a PE in the other Contracting State if it collects premiums in the territory of that other State or insures risks therein through a person other than an agent of an independent status.
3. Taxation of passive income
Dividends, interest and royalties are subject to tax at the reduced treaty rate of 7.5% where the recipient is the beneficial owner of the income. However, the reduced rate will not apply where the source of the passive income is effectively connected to a business carried on, or independent personal service performed by, the beneficial owner through a PE or fixed base situated in the Contracting State from which the passive income arose.
Furthermore, the protocol to the DTA stipulates that if any Agreement, Convention or Protocol signed between Nigeria and any other jurisdiction provides for an exemption or lower rate than that applicable under the Agreement to dividends, interest, or royalties, such exemption or lower rate will automatically apply to the passive income. A floor rate of 5% will, however, apply to royalties.
4. Shipping and Air Transport arrangements
Interest on funds connected with the operations of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft where such interest is incidental to the operation of ships or aircraft in international traffic.
5. Capital Gains
Capital gains derived by a resident of a Contracting State from the alienation of shares, other than shares traded on a recognized stock exchange or of an interest in a partnership, trust or estate, and deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State, may be taxed in the latter.
The signing of the DTA with Singapore reinforces the FGN’s drive to strengthen economic ties with Singapore and attract increased foreign direct investment into Nigeria.
The Inland Revenue Authority of Singapore announced on 3 August 2018 that the DTA has been ratified by Singapore, and will enter into force on 1 November 2018, with an effective date of 1 January 2019. However, the Agreement will need to be ratified by Nigeria’s National Assembly as required by the Nigerian Constitution, before it enters into force in Nigeria.
Please click here to download a signed copy of the DTA.
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