Nigeria has signed a new tax treaty with ECOWAS countries to eliminate double taxation on income, capital, and inheritance. This comes through an Order signed by the Minister of Finance on 1st May 2023 and is in addition to the 16 Double Tax Treaty Agreements that Nigeria has in force.
Effective from January 1, 2024, the treaty applies to various taxes like Personal Income Tax, Companies Income Tax, and Petroleum Profits Tax, Capital Gains Tax, Tertiary Education Tax, and National Information Technology Development Levy.
Key points include:
- Permanent Establishment (PE) rules: The treaty sets a 6-month threshold for creating a Permanent Establishment (PE) in Nigeria for construction and technical services. It also introduces rules for withholding tax on technical service fees at 5% for individuals and 10% for companies.
- Withholding Tax: Technical services will face a withholding tax of up to 5% for individuals and 10% for companies.
- Passive Income: Dividends and royalties paid to beneficial owners in member countries will have a maximum 10% withholding tax.
- Transport Profits: Shipping, airline, and road transport profits will only be taxed in the operator's home country.
- Capital Gains Tax: Tax on share sales will be due only in the shareholder's country unless the company's value is mostly from property.
- Non-Discrimination: Nationals of any member state won’t face more burdensome taxes in another member state than would apply to nationals of that state in the same circumstances.
This treaty promotes regional trade and investment, aligning with the African Continental Free Trade Area (AfCFTA) Agreement. This treaty has been gazetted, although it is uncertain if ratification by Nigeria’s National Assembly has happened. However, it appears unlikely that the tax authorities would dispute the effectiveness of a gazetted instrument.
Download Tax Alert – Nigeria enters Tax treaty agreement with ECOWAS member countries