Tax & Business Matters - Nigeria

Nigeria issues Order on Significant Economic Presence

The Finance Act 2019 introduced an amendment to the Companies Income Tax Act to impose tax on a foreign entity with respect to certain services or digital transactions if it has a Significant Economic Presence (SEP) in Nigeria. It further provides that the finance minister may by order, determine what constitutes SEP in Nigeria. Consequently, the finance minister has now issued an order with an effective date of 3 February 2020.

Digital transactions

A foreign entity involved in digital transactions will be deemed to have created an SEP in Nigeria and therefore liable to tax if it:

1. derives income of N25m or equivalent in other currencies from Nigeria in a year
2. uses Nigerian domain name (.ng) or registers a website address in Nigeria
3. has a purposeful and sustained interactions with persons in Nigeria by customizing its digital platform to target persons in Nigeria e.g. by stating the prices of its products or services in Naira

For the purposes of (1) above, revenue derived from Nigeria include those in respect of:

• Streaming or downloading of digital contents
• Transmission of data collected about users in Nigeria
• Provision of goods or services directly or through a digital platform
• Intermediation services that link suppliers and customers in Nigeria

Activities carried out by connected persons shall be aggregated to determine the N25m threshold (where applicable).

Any company covered under any multilateral agreement to which Nigeria is a party will be treated in accordance with those agreements from the effective date in Nigeria.

Services

A foreign entity providing technical (including training, advertising, supply of personnel), professional, management or consultancy services shall have an SEP in Nigeria in any accounting year if it earns any income or receives any payment from a person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria.

Payments to employees of a foreign entity or for teaching in an education institution are exempted.

Download PwC Tax Alert_Significant Economic Presence Order_May2020

Download Companies Income Tax (Significant Economic Presence) Order 2020

FIRS has established a new Large Tax Office

The Federal Inland Revenue Service (FIRS) has established a new Large Tax Office (LTO) located in Apapa, Lagos effective from 15 May, 2020.

The new LTO will focus on the following companies based in Lagos with annual revenue above N2 billion:

1. domestic aviation companies
2. construction companies
3. domestic shipping companies
4. logistics, haulage and transportation companies
5. concessionaires at the Lagos Ports.

News Flash: FIRS Extends the filing deadline for Common Reporting Standard

 

 

The Federal Inland Revenue Services (FIRS) on May 19, 2020, issued a public notice on the extension of the reporting deadline for Reportable Financial Institutions (RFIs), under the Common Reporting Standard (CRS) Regulations. The extension which is effectively for 4 months moves the compliance deadline from 31 May 2020 to 30 September 2020.

 

This extension is in recognition of the challenges arising from Covid-19 which affect many Reportable Financial Institutions and their ability to meet their filing obligations. The FIRS has asked that the Reportable Financial Institutions take advantage of this extension to collate the necessary information as required by the CRS Regulations and Guidelines.

 

The extension is expected to give both the FIRS and RFIs enough time to fine-tune their preparedness for the compliance deadline. We hope that the FIRS will release guidelines / information on the jurisdictions which RFIs are to report on, and launch a portal for the filing of the information return as envisaged by the CRS Regulations.

 

Nigeria’s Ministry of Finance has issued a new VAT Modification Order to clarify VAT exempt items

Further to the Finance Act (FA), 2019 which amended a number of provisions in the Value Added Tax (VAT) Act, the Federal Ministry of Finance has issued a Value Added Tax (Modification) Order, 2020 (the “Order”) with a commencement date of 3 February 2020.

The Order clarifies and expands the list of exempt items as contained in the First Schedule of the VAT Act including basic food items, baby products, medical products and services. It also introduces new exempt items including road transportation, rent by individuals, and petroleum products.

Read our alert and a copy of the Order below for details:

Download PwC Tax Alert - VAT Modification Order 2020_Detailed List of Exempt Items

Download VAT MODIFICATION ORDER 2020 (DETAILED LIST VAT EXEMPTS)

Download FIRS public notice_VAT Modification

FIRS Finance Act Circular: Taxation of insurance companies

Highlights of the Circular include:

Non-life Insurance 

• Reserves for unexpired risks will now be determined on a time-apportionment basis. This means that tax-deduction will only be available for reserves relating to the relevant year.
• Estimated claims and outgoings can now be deducted in each year. This includes verified but unpaid claims and an estimate for unverified claims received in the period. Such estimated claims deducted will be treated as taxable in the following year. Effectively only the net movement in estimates is taxable or deductible.
• Insurance companies are to keep supporting documentation like detail policies or risks accepted and the associated unexpired risks.
• Minimum tax will apply at 0.5% of gross premium. Gross premium is defined as total premium received or receivable (excluding premium returned to the insured).

Life Insurance Business

• Taxable “investment income” is restricted to income derived from investment of shareholder funds.
• Minimum tax will apply at 0.5% of gross income. Gross income is defined as all investment income, fees, commissions and income from other sources or assets.

Further details available in our alert and a copy of the FIRS Circular below:

Download PwC Tax Alert_FIRS Finance Act Circular - Taxation of insurance companies

Download FIRS Info. Circular on FA 2019 in Insurance Industry

 

FIRS Finance Act Circular: Clarifications on sundry changes to the Companies Income Tax Act

The Federal Inland Revenue Service (FIRS) has issued a circular to clarify some of the changes to the Companies Income Tax Act (CITA) introduced by the Finance Act (FA) 2019.

The circular provides clarifications on a number of changes including:

1. Excess Dividends Tax
2. CIT exemption for Small Companies
3. Exemption of Export Proceeds
4. Thin Capitalisation (Thin Cap) rules
5. Expenses incurred in generating exempt income
6. Taxes or penalties borne on behalf of another person
7. Finance Act transition
8. Minimum Tax
9. Gas utilisation incentive
10. Rate of tax
11. Filing and payment of CIT
12. WHT on construction contracts
13. WHT relief for foreign loans

Our alert and a copy of the circular are below:

Download PwC Tax Alert_FIRS Finance Act Circular - Sundry changes to CITA

Download 2019 FA Information Circular_Sundry CITA Provisions

FIRS Finance Act Circular: Amendments to the Stamp Duties Act

The FIRS Circular reproduces some of the amendments to the SDA, such as the inclusion of electronic documents as instrument liable to stamp duties, electronic stamping and denoting of documents, and updates to the definition of certain terms.

In the circular, the FIRS clarifies that stamp duties apply on written, printed or electronic dutiable documents and receipts, and provides examples such as e-mails, short message service (sms), instant messages (IM), documents on website or cloud-based platforms, POS receipts, and Automated Teller Machine (ATM) print-outs.

Read our alert and a copy of the circular for more information.

Download PwC Tax Alert_FIRS Finance Act Circular - Amendments to the Stamp Duties Act

Download FIRS Information Circular 2019 FA_Stamp Duties

FIRS Finance Act Circular: Real Estate Investment Companies

The FIRS circular on the taxation of Real Estate Investment Companies (REICs) is further to the recent amendments made by the Finance Act (FA), 2019 to the Companies Income Tax Act (CITA).

The FA 2019 defines a REIC as a Company duly approved by the Securities and Exchange Commission (SEC) to operate a Real Estate Investment Scheme (REIS) in Nigeria. It further clarifies the applicable tax regime and eligibility for tax exemptions.

Our alert and a copy of the FIRS Circular are below for more information.

Download PwC Tax Alert_FIRS Finance Act Circular - Real Estate Investment Companies (‘REICs’)

Download FIRS Information Circular FA 2019_REIC

FIRS Finance Act Circular: Business reorganisation, commencement and cessation rules

The Federal Inland and Revenue Service (FIRS) has issued an information circular on:

Commencement and cessation rules - The FIRS clarified that a company that commences business should apply the Preceding Year Basis (PYB) for all the years of assessment during commencement. In respect of cessation, the final tax year is from the beginning of the last accounting period to the date of cessation. The cessation returns are to be filed 6 months after the cessation date.

Business reorganisation - The FIRS clarified that, subject to meeting prescribed conditions:

1. Commencement and cessation rules will not apply
2. Assets would be transferred at Tax Written Down Value (TWDV), i.e. there will be no balancing adjustments.
3. Capital Gains Tax (CGT) will not apply on the assets transferred.
4. Value Added Tax (VAT) will not apply on the assets transferred.

Read our alert and the FIRS circular for details:

Download PwC Tax Alert_FIRS Finance Act Circular - Business reorganisation commencement and cessation rules

Download FIRS-Circular-on-FA-2019-Commencement cessation & reorganisation

 

FIRS Finance Act Circular: Regulated securities lending

The Federal Inland Revenue Services (FIRS) has issued a circular on the tax implications of regulated securities lending (RSL) transactions in Nigeria.

Key issues addressed include:

1. Companies Income Tax – generally not applicable as many of the transaction flows are exempted.
2. Withholding Tax – this is designed to avoid multiple layers of WHT so it is not applicable on various transactions except on interests paid by Lender to Borrower
3. Personal Income Tax - the amendments relating to RSL only affect entities taxable under the CITA. Therefore, individuals that participate in RSL will continue to be taxed in line with existing provisions of the PIT Act.

Read our alert and the FIRS Circular below:

Download PwC Tax Alert_FIRS Finance Act Circular_Regulated securities lending transactions

Download FIRS Information Circular 2019 FA_Security Lending