Nigeria's population of over 190 million and its continuously expanding consumer market have made it an investment destination of interest to foreign investors for some time. Nigeria is the largest economy in Africa, with a GDP of US$375.8 billion as at December 2017. The establishment of democratic structures during the past 19 years and the efforts of the government towards entrenching the rule of law may have improved the country's political risk profile. Some potential investors may see the country's relatively low corporate tax rates as a good incentive to do business in Nigeria, in spite of tremendous infrastructure deficits and the multiplicity of taxes at the different tiers of government, which can make running a business in Nigeria quite challenging.

The country is a federation of 36 states and 774 local government areas, each with power to impose tax on specified activities. Lagos State, one of the 36 states, is the fifth-largest economy in Africa.


i Corporate

The most common form of corporate business organisation is the private limited liability company. This may not have more than 50 shareholders and must restrict the transfer of its shares. There is also the public limited liability company (plc), which can have any number of shareholders starting from two. This is the required form for companies listed on the stock market. The unlimited liability company is also an available form, but is rarely used.

Finally, there is the open-ended investment company, which is allowed to buy its own shares.

Most enterprises can only be carried on using a corporate vehicle. For instance, banking, and crude oil exploration and production, can only be carried out by registered companies. The company itself (not its owners) is taxed on its profits.

ii Non-corporate

Many small-scale businesses and petty traders carry on as unincorporated enterprises. Besides sole proprietorships, the most commonly used form of non-corporate business entity is the general partnership. Partnerships are not liable to tax – their profits are shared among the partners and taxed in the partners' hands.


i Tax on profits

There are two corporate income taxes: companies' income tax (CIT) pursuant to the CIT Act (CITA) and petroleum profits tax (PPT) pursuant to the PPT Act.

Determination of taxable profit

CIT is chargeable on the profits of all companies apart from those engaged in oil exploration and production. Expenses are deductible if they are 'wholly, exclusively, necessarily and reasonably' incurred in the making of profits. Donations to charities and educational institutions are deductible up to a prescribed limit. Instead of depreciation, capital allowance is allowed annually at specified rates that can be as high as 95 per cent in the first year.

PPT is chargeable on the profits of any company engaged in the exploration and production of petroleum (or crude oil). Under the PPT Act, expenses are deductible if they are 'wholly, exclusively and necessarily' incurred in the making of the profits. The test for deductibility does not include reasonableness as is the case with companies in other sectors. In addition, instead of depreciation, capital allowance is allowed annually at specified rates. For the purposes of both CIT and PPT, taxable profits are arrived at by aggregating all trading income and then deducting exempt income, allowable expenses, capital allowance and carried-forward losses.

For the purposes of CIT, profits are taxed on an accrual basis. The tax is paid after the tax year (that is, on a preceding-year basis). PPT, however, is paid in advance, in monthly instalments based on forecasts of year-end profits and tax; in other words, PPT is paid on a current-year basis with reconciliation made at the end of the tax year to reflect actual profits made in that year. Profits of a Nigerian company are deemed to accrue in Nigeria regardless of where they arise. Nigerian companies are therefore subject to CIT on worldwide profits. Profits of a non-Nigerian company are taxable in Nigeria to the extent that they arise (or are deemed to arise) in Nigeria – the CITA prescribes various tests for determining this (see Section IV).

The CITA also sets out rules for taxation of a company at commencement of business, change of accounting date and cessation. The commencement rules and change of accounting date may lead to double taxation on a company.

Capital and income

Taxable profits consist solely of income or trading profits – these are profits that arise from business or trade. Profits that arise from the disposal of a capital asset are not included in income tax computations but are chargeable to tax under the Capital Gains Tax Act (CGT Act).


A company that makes trading losses is entitled to treat them as tax-deductible and to carry forward unrecovered losses indefinitely, even if the ownership of the company changes. Losses cannot, however, be carried back or offset against capital gains.


The CIT rate is 30 per cent of profits. Companies engaged in crude oil exploration and production are subject to PPT at rates that vary between 50 and 85 per cent depending on the nature of the taxpayer's operations. The CGT rate is 10 per cent.


Corporate taxes are administered by a single tax authority, the Federal Inland Revenue Service (FIRS). Every company is required to file a self-assessment return with the tax authority at least once a year. The filed return must contain the company's audited accounts, tax and capital allowances computation, and a duly completed self-assessment form. The company may pay the tax due and forward evidence of payment along with its return. For PPT purposes, at least two returns must be filed. The first is filed early in the tax year and is based on forecasts of profit and tax. The second is filed after the end of the tax year and reflects actual profits and tax. If forecasts change during the year, a company may amend the first returns from time to time.

Education tax of 2 per cent of assessable profits is imposed on all companies incorporated in Nigeria. Assessment and payment of education tax are done together with the assessment and collection of the CIT or PPT, whichever is applicable.

The Industrial Training Fund Act requires every employer with a staff strength of 25 or more to contribute 1 per cent of its annual payroll to the fund established by the Act. An employer may be refunded up to 60 per cent of the amount contributed if the Industrial Training Fund Governing Council is satisfied that the employer's training programme is adequate.

The Employees' Compensation Act directs every employer covered by the Act to make a minimum monthly contribution of 1 per cent of its monthly payroll. The scope of the Act extends to both the public and private sectors with the exception of members of the armed forces; however, staff of the armed forces employed in a civilian capacity are covered by the Act.

The Niger Delta Development Commission (Establishment) Act mandates every oil or gas company to pay 3 per cent of its annual budget to the Commission for tackling ecological problems in the Niger Delta, where most of Nigeria's oil is produced.

The National Information Technology Development Agency (NITDA) Act mandates telecommunications companies, cyber-related companies, pension-related companies, banks and other financial institutions with an annual turnover of 100 million naira or more to pay a levy of 1 per cent of their profits before tax to the NITDA Fund. In addition, the Nigerian Maritime Administration and Safety Agency imposes a 3 per cent levy on all inbound and outbound cargo from ships or shipping companies operating in Nigeria.

The FIRS has introduced an integrated tax administration system to enhance tax administration. Thus, taxpayers are now able to file tax returns and pay their taxes electronically. This has significantly reduced the complexity, time and cost of paying taxes.

Tax grouping

Nigerian law makes no provision for the tax treatment of a group of companies as one entity. Each company within a group is therefore taxable in Nigeria on an individual basis. Consequently, losses suffered by one member of a group of companies cannot be utilised to reduce the tax liability of another company within the group, but must be carried forward and set off against the future profits of the company that incurred them.

ii Other relevant taxes

In addition to income taxes, Nigerian businesses are also subject to other taxes such as value added tax (VAT) under the VAT Act, CGT under the CGT Act and stamp duties under the Stamp Duties Act.

VAT is levied on the supply of all goods and services with a few exceptions. The rate of VAT is 5 per cent, and it is collected by the supplier and remitted to the FIRS, except where the supplier is a foreign company, in which case the purchaser withholds the VAT and remits it to the FIRS. A taxpayer is allowed to recover VAT incurred in acquiring stock-in-trade or inventory, but not VAT incurred on overheads and administration or on capital assets. It remains unclear whether VAT arises on the sale of choses in action (or intangible contractual rights). Lagos State has also introduced a 5 per cent consumption tax on hotels, restaurants and event centres.

CGT is charged on the gains arising on the disposal of an asset at a rate of 10 per cent. Gains that are applied towards replacing business assets are exempted from CGT, as are gains arising from the disposal of stocks and shares, and those arising from the merger of two companies provided that no cash payment is made. On the other hand, gains arising from a demerger or spin-off are not exempted even where assets have been moved to entities under the same control and ownership as the transferor.

The Stamp Duties Act provides for stamp duty to be paid on instruments. The rates are as contained in the Act, and can be as high as 6 per cent of the value of the underlying transaction.


i Corporate residence

The profits of a Nigerian company are deemed to accrue in Nigeria regardless of where they arise. Nigerian companies are therefore subject to CIT on worldwide profits. The profits of a non-Nigerian company are taxable in Nigeria to the following extent:

  1. the company has a 'fixed base' in Nigeria to the extent attributable to such base;
  2. the company habitually operates in Nigeria through a dependent agent who conducts business on its behalf, or who delivers goods or merchandise on its behalf from stock maintained in Nigeria, to the extent attributable to such activities;
  3. all the profit where the company executes a turnkey contract in Nigeria, that is, a single contract for surveys, deliveries, installation or construction; and
  4. the adjustment made by the FIRS where the foreign company does business with a connected Nigerian company, and the FIRS considers the terms to be artificial or fictitious.

ii Branch or permanent establishment

In determining the fiscal residence of a non-Nigerian company incorporated in a country that has a double taxation treaty with Nigeria, the applicable concept is that of 'permanent establishment', which such treaties define as a fixed place of business through which the business of an enterprise is carried on. However, a permanent establishment will not include facilities used solely for the purpose of carrying on an activity of a preparatory or auxiliary nature, or for the storage, delivery or display of goods or merchandise of a non-resident company. The FIRS directed that all non-resident companies are to file income tax returns taking effect from tax year 2015.


The drive to encourage foreign direct investments in Nigeria has led to the enactment of various pieces of legislation, including the Industrial Development (Income Tax Relief) Act. This Act encourages investment in sectors of the economy that are necessary for the economic development of the country by granting tax relief to businesses. For a business to enjoy relief from corporate income tax under this Act, it must be engaged in one of the industries listed in the Act, or would have to apply and obtain a designation of its activity as a pioneer industry. Relief under this Act is for an initial period of three years extendable up to a maximum period of two years. Dividends are not subject to tax in the hands of the shareholders of the company enjoying the relief. Capital allowances can be carried forward and utilised at the end of the tax relief period. This incentive regime was reviewed in 2017 by the Application Guidelines for Pioneer Status Incentive. The Guidelines have replaced the erstwhile 'service charge' of 2 per cent of estimated tax savings with a new annual service charge of 1 per cent of actual pioneer profits.

The Venture Capital (Incentives) Act provides tax incentives to venture capital companies that invest in venture capital projects and provide at least 25 per cent of the total project cost. The incentives include a 50 per cent reduction of the withholding tax payable on dividends distributed by project companies, allowing equity investments in venture project companies to be treated as qualifying capital expenditure, and exempting capital gains on the disposal of such equity from tax.

The Nigeria Export Processing Zones Act also contains certain fiscal incentives for businesses. It provides in Section 8 that approved enterprises within a zone would be exempted from all federal, state and local government taxes, levies and rates. It also provides in Section 18 that such enterprises may repatriate capital, profits and dividends at any time. The Oil and Gas Export Free Zone Act grants similar incentives to approved enterprises operating within the zone.

Capital allowances are another form of tax incentive. Capital allowances are granted on the acquisition of qualifying capital expenditure that is used solely for the purpose of the business. Capital allowances serve to reduce the profits of a company, and ultimately reduce tax liability. Under the CITA, there are initial and annual allowances. The initial allowance can be claimed only in the year in which the asset was acquired, while the annual allowance, based on the remainder after deducting the initial allowance from the cost of the asset, is spread over the tax life (including the first year) of the asset until the cost of the asset is reduced to a book value of 10 naira.

Under the PPT Act, a petroleum investment allowance (PIA), which allows an uplift of up to 20 per cent on qualifying capital expenditure, is available as an incentive to encourage investment in offshore exploration. In addition to the PIA and capital allowances, companies operating production-sharing contracts (PSCs) in Nigeria's deep offshore and inland basin regions are entitled to either an investment tax credit (ITC) or an investment tax allowance (ITA), depending on when the PSC was signed, which is equal to 50 per cent of annual qualifying expenditure. The ITC operates as a full tax credit, while the ITA is deductible from profits before the calculation of tax. The ITC does not result in a deduction from qualifying capital expenditure for the purposes of calculating capital allowances. There are also special incentives available to oil companies to encourage gas utilisation or the development of gas delivery infrastructure. Most significantly, such companies can offset their gas-related capital allowance against their oil production profits. Given the difference in tax rates between gas production and oil production (30 per cent versus 85 per cent), this incentive has led to considerable investment in gas utilisation projects.

To stimulate the financial markets, the federal government, in 2012, amended relevant laws to exempt from taxation, income earned from debt instruments. Consequently, income from bonds issued by sovereign or sub-sovereign entities and those of corporate bodies are exempted from tax in the hands of the bondholder. Proceeds from the disposal of government or corporate bonds are exempt from VAT. These exemptions for corporate bonds are only for a period of 10 years and will lapse in 2022. In addition, the government has increased the tax relief available to companies that incur expenditure on infrastructure or facilities of a public nature. Such companies will now enjoy a 30 per cent uplift in basis for deductibility of the relevant expenditure.

i Holding company regimes

Nigeria does not have any special holding company regimes.

ii IP regimes

Nigeria does not have any special IP regimes.

iii State aid

No state aid is available.

iv General

See Section I.


i Withholding on outward-bound payments (domestic law)

By law, where any amount is payable by one company to another company or person as interest, royalty, rent or dividend, the company making the payment shall first deduct tax at a rate of 10 per cent and pay it to the tax authority. This withholding tax is treated as the final tax when the payment is due to a non-Nigerian company. Where a dividend is paid to a Nigerian company, the amount deducted as withholding tax is treated as franked investment income and is not subject to further tax in the hands of the recipient. In all other cases, such withholding tax qualifies as a credit against CIT liability.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

Withholding tax exemptions are available on outward-bound payments where:

  1. the payment of a dividend is satisfied by an issue of shares of the company paying the dividend;
  2. dividend is paid by a company exempted from tax under the Industrial Development (Income Tax Relief) Act;
  3. dividend is paid out of profits that have been subjected to PPT;
  4. dividend is paid by an enterprise operating within a free zone; or
  5. interest is paid by a Nigerian company on a foreign loan with a tenor of at least seven years.

In all other cases of outbound remittance of payments, tax withheld at source by the company making the payment will be the final tax.

iii Double tax treaties

Nigeria has signed a number of double taxation treaties with countries. Residents of these countries enjoy a preferential withholding tax rate of 7.5 per cent on payments of interest, rent, royalties and dividends. While Nigeria's double taxation treaties mostly employ the credit method for the elimination of double taxation, a few treaties also employ the exemption method.

iv Taxation on receipt

As a general rule, dividends, interest, rent and royalties brought into or received in Nigeria by a Nigerian company do not qualify for a credit against Nigerian CIT in respect of foreign tax or withholding already suffered. Exceptions include when the income in question is liable to Commonwealth income tax or when the income is brought in from a country with a double taxation agreement with Nigeria that allows for such a credit. In an instance where a credit is not allowed, the ordinary treatment for these types of profits is to aggregate them with business profits subject to tax at the applicable rate of CIT (i.e., 30 per cent); however, such profits will be exempt from CIT if they are brought into Nigeria through a commercial bank.


Small and medium-sized businesses are predominantly funded by equity, as most businesses of this size do not have access to long-term debt. On the other hand, most large businesses, including foreign-owned companies, are predominantly funded by debt.

i Thin capitalisation

Nigeria does not have thin capitalisation rules. There are no restrictions on debt-to-equity ratios, although minimum equity capital requirements exist, mainly in the financial services sector. There are, however, anti-avoidance provisions under which the FIRS may disallow the deduction of interest and other financing costs that it deems not to be at arm's length.

ii Deduction of finance costs

Generally, finance costs may be deducted, provided that the relevant test for deductibility of expenses is satisfied. However, as group relief or consolidation is not available, it will be difficult to push acquisition debt down to the target except by, for example, the acquisition financiers directly refinancing target company debt or a mechanism such as post-completion merger.

iii Restrictions on payments

A Nigerian company can only pay dividends out of distributable profits, namely, trading profits, revenue reserves and capital gains. A company shall not declare or pay dividends if its directors are of the opinion that doing so will leave the company in a position where it is unable to meet its liabilities as they fall due.

iv Return of capital

A company may cancel paid-up shares that it considers to represent excess capital and return such capital to its shareholders. A resolution for the cancellation of shares for purposes of returning capital, like all other procedures that reduce share capital, must, however, first receive court sanction. At the discretion of the court considering an application for reduction of capital, creditors of the company making the application may object to the reduction. Before making an order confirming a reduction of capital, the court must be satisfied that the consent of every creditor entitled to object to the reduction has been obtained, or that the debt owed to them has been discharged, determined or secured, and that the company's authorised share capital has not, by reason of the reduction, fallen below the statutory minimum.

A court order confirming reduction of capital must be registered with the Corporate Affairs Commission before it can take effect and repayment can be made. The return of capital using this procedure is tax-neutral, because proceeds from a disposal of shares are not subject to either CIT or CGT.


i Acquisition

Foreign companies acquiring interests in local businesses usually avoid doing so through a local vehicle, unless the circumstances demand it. Instead, most foreign investors prefer to use an investment vehicle located offshore, usually in a low-tax or double taxation treaty country.

It is quite common for acquisitions of this type to be funded by debt or by portfolio investments. Consideration payable to local sellers is usually structured as a cash payment for shares in the local entity. This structure is tax-neutral.

ii Reorganisation

Mergers and other corporate reorganisations that involve the exchange of shares or cash payment for shares are tax-neutral. CGT may be payable where a reorganisation involves the payment of cash for assets.

iii Exit

A foreign investor wishing to liquidate an investment in a Nigerian company may do so by winding up the business or selling its shares in the business. Capital returned in the process of winding up and proceeds from the sale of shares will not be subject to tax in Nigeria.


i General anti-avoidance

Various tax laws contain general anti-avoidance provisions. These provisions allow the FIRS to make necessary adjustments to counteract the reduction in tax that would result from transactions it considers artificial. The FIRS may deem any transaction to be artificial if it finds that its terms have in fact not been effected or, where it is a transaction between related parties, if its terms do not reflect arm's-length dealings.

ii Controlled foreign corporations

There are no rules relating to controlled foreign corporations. There is legislation that empowers the tax authorities to tax undistributed profits of a company where the company is controlled by five persons or fewer.

iii Transfer pricing

The Income Tax (Transfer Pricing) Regulations 2018 provide guidance in the application of the arm's-length principle in related-party transactions. The Regulations allow related parties to adopt any of a number of listed methods as a basis for pricing of controlled transactions. The methods are:

  1. the comparable uncontrolled price method;
  2. the resale price method;
  3. the cost-plus method;
  4. the transactional profit split method; and
  5. the transactional net margin method.

With the approval of the FIRS, a method outside of those listed above may be used. The Regulations also allow for advance pricing agreements with the FIRS. The Regulations replace the Income Tax (Transfer Pricing) Regulations 2012 and incorporate the 2017 updates on the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Companies with related-party transactions of over 300 million naira are obliged to prepare and submit contemporaneous transfer pricing documentation. A transfer pricing declaration form must also be filed with the documentation. The Regulations stipulate punitive administrative penalties for late filing and non-disclosure.

iv Tax clearances and rulings

There are no provisions authorising the FIRS to give tax rulings. In practice, the FIRS does issue circulars and opinions regarding the tax treatment of contentious issues. However, such circulars and opinions have been held to be non-binding.

It is also not possible to obtain an advance ruling from the courts. In Nigeria, the courts will refuse to hear an action based on hypothetical or academic issues. Consequently, the only means of ascertaining the position of the law is to institute an action when a dispute arises between a company and the tax authority.

The parties to a merger, takeover or other corporate reorganisation involving the transfer of business undertakings or assets must obtain directions from the FIRS as to the value at which assets will be transferred. The parties must also obtain clearance from the FIRS in respect of any CGT resulting from the transaction.


To diversify the revenue base, the tiers of government have increased focus on raising revenue through taxes. In February 2017, the Nigerian Federal Executive Council (FEC) approved the National Tax Policy, which among others things, prescribed the following recommendations regarding taxation in Nigeria:

  1. promoting tax culture;
  2. improving tax compliance;
  3. curbing tax evasion; and
  4. widening the tax net as well as improving the tax to GDP ratio as core objectives.

In furtherance of the foregoing, the government at all levels has taken much more aggressive measures to curb tax evasion, widen the tax net, and curb base erosion and profit shifting from Nigeria. In August 2017 the federal government of Nigeria signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) and the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA). The aim of the CRS MCAA is to implement the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS), which would drive delivery of the automatic exchange of information between 101 jurisdictions.

The legal framework for the domestication of the CRS MCAA has now been completed by the introduction of the Income Tax (Country-by-Country Reporting) Regulations 2018 (CbCR Regulations). The objective of the CbCR Regulations is to provide tax authorities with information about multinational enterprises' (MNEs) global activities, profits and taxes by sharing relevant information among tax authorities, thereby improving transparency in tax activities of MNEs and preventing tax avoidance. The CbCR Regulations apply to MNEs with consolidated group revenue of 160 billion naira and above. MNE groups are required to file CbC reports in Nigeria where the ultimate parent entity or constituent entity are resident for tax purposes in Nigeria. The CbC reports summarise the global financial and tax information of all members of the group to the FIRS. The CbCR Regulations define 'group' as enterprises that are related through ownership or control such that it is either required to prepare consolidated financial statements for financial reporting purposes, or would be so required if equity interests in any of the enterprises were traded on a public securities exchange. MNE groups are required to comply with the CbCR Regulations from January 2018.

Furthermore, the FIRS has in June 2018 released the new Income Tax (Transfer Pricing) Regulations 2018 (2018 TP Regulations). The 2018 TP Regulations incorporate the 2017 updates to the OECD's Transfer Pricing Guidelines and introduced a regime of specific administrative penalties for non-compliance with the filing of transfer pricing forms and documentations. Under the 2018 TP Regulations, the obligation to maintain contemporaneous transfer pricing documentation has been relaxed for companies with a controlled transaction value of less than 300 million naira. However, the FIRS may still require such companies to prepare and submit their documentation within 90 days from the date of receipt of the notice. Also exempt from the obligation to file transfer pricing forms and submit documentations are taxpayers whose related-party transactions are covered by an advanced pricing agreement, and taxpayers who price their related-party transactions in line with the requirements of the guidelines issued by the FIRS from time to time. The 2018 TP Regulations stipulate stringent penalties for late filing of the transfer pricing form; 10 million naira or 1 per cent of the related-party transactions' value (whichever is greater) in the first instance, and 10,000 naira for every day the default continues.

Following the release of the 2018 TP Regulations, the FIRS issued a public notice on the Regulations and Guidelines on Transfer Pricing Documentation. The Guidelines are meant to guide taxpayers on the preparation of transfer pricing documentation. The public notice also gives taxpayers a deadline of 31 December 2018 to discharge all outstanding transfer pricing obligations or bear the full penalties contained in the 2018 TP Regulations.

In June 2017 the Federal Ministry of Finance set up the Voluntary Assets and Income Declaration Scheme (the Scheme). The Scheme provided a time frame of 12 months within which persons who had defaulted in paying their taxes would regularise their tax status for the previous tax periods and pay any tax due. In exchange for declaring their assets and income for the preceding six years, the taxpayer would be granted pardon on interests and penalties, and assurances that they would not face tax investigations or criminal prosecution. The period of compliance under the Scheme ended on 30 June 2018 and the federal government has begun the process of going after tax defaulters who did not take advantage of the Scheme.

Owing to the success of the Scheme, the federal government has introduced the Voluntary Offshore Assets Regularisation Scheme (VOARS), which came into effect on 8 October 2018. The VOARS mandates Nigerian taxpayers who hold offshore assets to voluntarily declare those assets within a period of 12 months and pay either a one-time levy of 35 per cent or the applicable taxes plus penalties and interest. Compliance with the VOARS gives the taxpayer immunity from prosecution for tax offences related to the offshore assets. Failure of a defaulting taxpayer to take advantage the VOARS will result in investigation and enforcement procedures against the offshore assets. Persons who are already under investigation for financial crimes in respect of such assets are not eligible under the VOARS.

In addition to other strategies to enforce compliance with tax payment undertaken by the federal government, the FIRS has written letters of substitution to several commercial banks in Nigeria appointing them as collecting agents for the FIRS and directing them to withhold the amounts allegedly owed by taxpayers and remit same to the FIRS' accounts. The letter also directs the banks to halt further transactions on the taxpayer's account until the alleged tax payable is remitted to the FIRS. This was done pursuant to Section 31 of the FIRS Act, which empowers the FIRS to appoint a person as an agent of a taxpayer for the recovery of the tax that is payable by the taxpayer. The appointed agent will be required to pay any tax payable by the taxpayer from any money held by the agent on behalf of the taxpayer. This action of the FIRS has raised a number of concerns, the major one being what will be deemed 'tax payable'? Taxes are only payable when a tax assessment is deemed final and conclusive, after the exhaustion of all objections and appeals in relation to the assessment. How will the banks determine that the alleged tax being demanded by the FIRS has become final and conclusive and not an arbitrary number alleged by the FIRS? It may amount to a breach of the contractual obligations of the bank to its customers to remit any alleged tax payable to the FIRS without an order of the court.

Furthermore, the Federal Executive Council (FEC) has approved two executive orders and five amendment bills touching on key provisions in the Nigerian tax legislations. The approved executive orders and amendment bills are as follows: the Value Added Tax Act (Modification) Order; the Review of Goods Liable to Excise Duties and Applicable Rates Order 2017; the Companies Income Tax Act (Amendment) Bill; the Value Added Tax Act (Amendment) Bill; the Customs, Excise, Tariff etc. (Consolidation) Act (Amendment) Bill; and the Personal Income Tax Act (Amendment) Bill. The major aim of the new executive orders and amendment bills is to improve the ease of doing business in Nigeria by simplifying tax payment. The modifications contained in the executive orders will take effect as specified in the orders while the amendment bills will be enacted by the National Assembly and receive the assent of the President to become the law.

The VAT Act imposes VAT on the supply of all goods and services other than those goods and services expressly stated to be exempt in the Act. The Act also requires the supplier to register with the FIRS before it can charge or collect VAT, which will be remitted to the FIRS. Where a non-resident supplier 'carries on business in Nigeria', the Act requires the supplier to register for VAT and charge VAT on its invoice, while placing the obligation of remitting the tax on its Nigerian customer. The conflicting decisions of two different panels of the Tax Appeal Tribunal (TAT) on this issue for a time created a conflict on the applicable interpretation of the law. In one case, the TAT decided that since a non-resident supplier contracting with a Nigerian company is not necessarily carrying on business in Nigeria, such company is not obliged to register for or charge VAT, and the Nigerian customer is not obliged to remit VAT to the FIRS where the supplier does not issue a VAT invoice. In another case, a different panel of the TAT took the view on the basis of the 'destination principle' that, since the service in question – the supply of bandwidth capacities – was consumed in Nigeria, its supply was subject to VAT in Nigeria, notwithstanding that it was supplied outside Nigeria by a foreign supplier. However, on appeal, the Federal High Court has held in two different cases that a non-resident company will be deemed to be carrying on business in Nigeria if it was providing service to a Nigerian company on an agreed consideration; it was irrelevant that the non-resident company did not have a physical company in Nigeria. The court also held that the statutory requirement for registration is relaxed for non-resident companies, and as such, even where a VAT invoice is not issued, local companies consuming the goods and services are to assess and remit the VAT to FIRS. The conflict on this matter, therefore, seem to be settled for now, until a higher court decides otherwise.

Also worth noting in relation to VAT is the Value Added Tax Act (Modification) Order approved by the Federal Executive Council in June 2018. The VAT Order includes an additional list of goods and services exempt from tax. Some of the services now VAT-exempt include transport services for use by the general public, residential leases or rentals and life insurance premiums. The VAT Order also provides clarity on the applicability of VAT for operators in the Nigeria electricity supply industry. It provides the legal basis for a single point of VAT collection in the electricity supply chain, which is at the point of sale of electricity from distribution companies (DisCos) to final consumers. Included in the list of exempt items under the Order are supply of gas from producing companies to generating companies (GenCos), supply of electricity from GenCos to National Grid/NBET companies, and electricity transmitted by transnational companies of Nigeria to DisCos.

There is also a major drive by state governments to increase internally generated revenue through tax. This can be gleaned from the introduction of consumption tax by some state governments; however, the courts have declared the imposition of consumption tax over the same goods and services that were already subject to VAT as illegal as it amounted to double taxation. The Lagos state government also recently introduced a new Land Use Charge Law in March 2018. The annual land use rate under the law has been increased in some cases within the range of 200 and 500 per cent. The law, it is believed, will serve to increase the internally generated revenue of the state.

Some unresolved issues with regard to the implementation of existing tax legislation include the following:

  1. the CITA sets out rules for taxation of a new trade or business that can result in double taxation of a company's profits in its first three accounting years;
  2. to be deductible, management fees or expenses relating thereto must be approved by the Minister of Finance, while any expenses incurred outside Nigeria are deductible only to the extent allowed by the FIRS;
  3. demergers or reorganisations are not tax-neutral, so there is a disincentive for companies within a group to transfer assets between each other;
  4. tax authorities have taken the view that losses from one line of business cannot be offset against profits from other lines of business of the same company; and
  5. VAT is expected to be paid even when the taxpayer has not received payment for goods or services supplied, resulting in a cash flow challenge. A solution is for the tax authorities to collect these taxes on a cash basis instead of on an accrual basis.

Where a Nigerian parent or holding company redistributes dividends that it has received from a subsidiary, or where any company distributes profits from previous years, the distribution may be subject to further CIT even though such distribution arises from profits from which CIT had already been deducted. The TAT has upheld this interpretation of the law, although it is noteworthy that the lack of evidence by the Nigerian company to reflect that the dividends were paid from retained earnings that had already been subjected to tax was responsible for the decision taken by the TAT in that case.

There are penalties and interest for failing to file a return on time or at the end of an extension. Effective July 2017, the interest rate on unpaid taxes was pegged at 5 per cent over the Central Bank of Nigeria's monetary policy rate (MPR). The Central Bank of Nigeria's MPR currently stands at 14 per cent. The applicable penalty rate remains 10 per cent of tax payable.

On the corporate front, the National Assembly in May 2018 passed the Companies and Allied Matters Act (Amendment) Bill (CAMA Bill) into law. This is in line with the federal government's commitment to improve the ease of doing business in Nigeria in order to attract more foreign investment. Some of the changes introduced by the CAMA Bill include the introduction of single member companies, limited partnerships and limited liability partnerships; removal of unnecessary regulatory hurdles for small companies such as the requirement to appoint a company secretary and hold annual general meetings; and promoting the use of technology in the registration and operation of Nigerian businesses. The CAMA Bill seeks to usher in a corporate framework in Nigeria and, once assented to by the President, is expected to make the Nigerian business environment as competitive as its counterparts around the world.


With a tax-to-GDP ratio of 6 per cent, one of the lowest in the world, and dwindling revenue from oil, the federal government's resolve to increase tax revenue is stronger than ever. Nigeria has entered into a variety of multi-jurisdictional agreements for the automatic exchange of information of taxpayers, such as the Automatic Exchange of Tax Information with a number of countries including the United Kingdom. These agreements will enable tax authorities in Nigeria to receive information from tax authorities in other jurisdictions especially on the overseas assets owned by Nigerians. In addition, the Nigerian government has also completed the last step in the implementation of the CRS MCAA by the introduction of the CbCR Regulations, which enables the government to receive information from over 100 jurisdictions that have committed to exchanging information under the CRS MCAA. On the back of these agreements, the Nigerian government is well equipped to implement the VOARS.

We expect to see more aggressive initiatives from the federal government geared towards widening the tax net, curbing tax evasion and profit shifting by both nationals and foreigners. Of note in this regard is the reconstitution of the tax appeal tribunal (the first step in the resolution of tax disputes) in July 2018 after a lull of two years and commencement of its sittings in November 2018.


1 Theophilus I Emuwa and Chinyerugo Ugoji are partners, Adefolake Adewusi is a senior associate and Chioma Okonkwo is an associate at ÆLEX.