Foreign firms in Nigeria Need to Heed Tax Changes
Following the presentation of the 2020 Budget proposal and Finance Bill, 2019 to the National Assembly in October 2019, the President of the Federal Republic of Nigeria, MR. Muhammadu Buhari, signed the Bill into law on 13 January 2020.
The Finance Act, 2019 (the “Act”) introduces amendments to the Companies Income Tax Act, Value Added Tax Act, Petroleum Profits Tax Act, Personal Income Tax Act, Capital Gains Tax Act, Customs and Excise Tariff Act and Stamp Duties Act. These amendments are aimed at increasing revenue collection to fund public expenditure; ensuring that tax laws are consistent with national tax policy objectives, and incentivising investment in infrastructure and capital markets.
An immediate practical challenge is presented by the introduction of an increased VAT rate of 7.5% (previously 5%), which already becomes effective on 1 February 2020, not allowing much time for taxpayers to update their systems to accommodate the change.
Other amendments will have significant implications for foreign groups doing business in Nigeria. Foreign companies involved in the digital economy, including those transmitting or receiving signals in respect of, inter alia, electronic commerce, high-frequency trading, electronic data storage, online adverts, participative network platform and online payments, are to be subject to tax in Nigeria to the extent that the company has a “significant economic presence” in Nigeria and profit can be attributable to such activity. The Minister of Finance is yet to define “a significant economic presence”. A final withholding tax is to be levied on income earned by foreign companies from technical, management, consultancy or professional services that are provided remotely to a Nigerian resident.
The basis for minimum tax has been simplified to 0.5% of a company’s turnover less franked investment income, changing the calculation from a capital basis to revenue basis. Importantly, the exemption from minimum tax for companies with at least 25% imported capital has been removed, which means that many non-resident and foreign-held companies previously exempt, will now be subject to the tax.
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