Federal high court has clarified rules surrounding taxation of foreign companies

According to Nigeria tax law, a resident person (individual or corporate) is accessible on the global income. This means that the taxpayer is liable to tax on the income or profits “accruing in, derived from, brought into, or received in Nigeria.”

Recently,the Federal High Court clarified the rules on taxation of foreign companies operating through a fixed base or permanent establishment in Nigeria. In the past, the Nigerian tax authorities had taken the position in some instances that the business profits of foreign companies are derived from (and therefore taxable in) Nigeria regardless of whether the foreign company had a fixed base in Nigeria. Also in other instances where the FIRS established the existence of a fixed base, it imposed tax on the entire profits from the contract executed by the foreign company rather than only the profits attributable to the fixed base.

In this judgment the Court held that payments sourced from Nigeria without a tax presence in-country is not subject to Nigerian income tax. To be liable to tax, the foreign company must have a fixed base in Nigeria and the profits to be taxed are those attributable to the fixed base.

The judgment as given by the federal high court in a ruling between JGC corporation and FIRS here


Source: PWC