From the new order, it is now clear that a company does not have to be physically present in Nigeria to pay income tax. Presence in the digital and tech space and access to the Nigerian market now qualifies a company to pay income tax to the government.
The amendment in the Companies Income Tax (Significant Economic Presence) Order, 2020, listed out criteria other than physical presence which constitutes a significant economic presence in the country.
So what constitutes the points of consideration?
The company gets to pay an income tax, as long as:
- The company gets paid for services rendered in Nigeria and to Nigerians
- The company derives a gross turnover or income of more than 25 million Naira or its equivalent in other currencies, in any fiscal year from its services.
- The company streams or downloads services of digital content, including but not limited to movies, videos, music, applications, games and e-books to any person in Nigeria
- The company transmits data collected about Nigerian users, where such data has been generated from such users activities on the digital interface including website or mobile applications
- The company provides goods or services of any nature in Nigeria, directly or indirectly through a digital platform
- The company provides intermediation services through digital platforms, a website or any other online application that links suppliers and customers in Nigeria
- The company uses a Nigerian domain name (.ng), or registered the website address in Nigeria;
- The company has a platform targeted at Nigerians and has reflected the price of its products and services in the Nigerian currency (Naira)
- The company has provided billing and payment options in Nigerian currency
- The company received payment from a Nigerian resident during the accounting year;
- The company has a purposeful and sustained interaction with Nigerian residents and has customized its digital page or platform to target Nigerians;
- The company furnished services of a technical, professional, management and consultancy nature including advertising
- The company offers training to Nigerian residents for a fee
- The company offered its products or services through satellites.
The company’s activities for a financial year are to be aggregated to determine whether or not it reaches the threshold.
However, the document also spells out a couple of exemptions.
Companies that are covered under a multilateral agreement or consensus agreement to which Nigeria is a party, shall be treated in accordance with that arrangement.
A company that makes payment to employee(s) under an employment contract shall not be considered to have a significant economic presence.
Companies like Google, Facebook, Twitter, YouTube are now, under this amendment, compelled to pay income taxes to the Nigerian government as well since they offer streamed content and advertising services to Nigerians.
Also from the points of consideration, it is clear that companies like Alibaba, Amazon, Wish and other e-commerce service providers who make money from Nigeria by collecting, processing, and transmitting funds from their Nigerian users are now subject to taxes.
This amendment means that companies that have social media platforms operational in Nigeria, where messages and services are targeted at Nigerians, will now be expected to file annual returns generated in Nigeria to pay income tax to the Nigerian government.
This is only the most recent move to tax the digital sector though it is not yet clear how the Nigerian government intends to enforce this given the present structure. These tech companies already pay taxes in the countries where the products (digital and otherwise) are created and hosted.
Nigerian companies dealing with companies that fall into this category may now be held accountable for not withholding tax on payments made.