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Nigeria: Tax provisions in Finance Act, 2020

Nigeria: Tax provisions in Finance Act, 2020

The Finance Act, 2020 introduces changes to various tax regimes in Nigeria including:


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  • Companies income tax, including measures concerning the taxation of non-resident companies
  • Value added tax (VAT), including an increase in the VAT rate to 7.5% (from 5%)
  • Petroleum profits tax, including repeal of a tax exemption for dividends paid from after-tax profits
  • Individual (personal) income tax
  • Capital gains tax, including a limited deduction for loss of office
  • Customs and excise tax
  • Stamp duty (tax)

Amendments under the Finance Act are intended to raise revenue, among other objectives.

Non-resident companies, nexus and digital economy

The Finance Act includes provisions that create nexus for the taxation of income earned by foreign companies from technical, management, consultancy or professional services that are remotely provided to a person resident in Nigeria. The tax on these foreign companies will be limited to the tax withheld (deducted) from payments made to them.

The Finance Act also introduces provisions to tax any foreign company that:

…transmits, emits or receives signals, sounds, messages, images or data of any kind from 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, online 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.

The Finance Act does not define what constitutes “significant economic presence,” but it authorizes the Minister of Finance to define the term. The expectation is that ministerial guidance will be provided.

Prior to the Finance Act, 2020, a non-resident company was only subject to tax in Nigeria if it had a fixed base in Nigeria and the taxable profit was the profit attributable to that fixed base. In other words, the nexus for taxing profits derived by a foreign company in Nigeria previously was based on its physical presence in Nigeria. With the amendment, non-resident companies involved in e-commerce, filming, computing, ride-sharing services, media, etc., that previously had no fixed base in Nigeria will now be liable to Nigerian income tax, assuming the companies satisfy the “significant economic presence” threshold. These entities may be required to register for taxes and file income tax returns in Nigeria.

Read a January 2020 report [PDF 4.48 MB] providing analysis of the tax measures in the Finance Act, 2020, prepared by the KPMG member firm in Nigeria

Additional information is available from KPMG in Nigeria, including text of the legislation: Finance Act, 2020: Impact Analysis

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