Executive summary

The International Tax Department, under the Non-Resident Person's Tax Office of the Federal Inland Revenue Service (FIRS), has begun intensified efforts to enforce tax compliance among nonresident companies (NRCs) that operate in or derive income from Nigeria.

As part of its initiative, this special tax-operations group of the FIRS has engaged in strategic collaborations with Nigerian regulators to gain deeper insights on operations of NRCs within Nigeria.

In this regard, the FIRS has begun reaching out directly to NRCs and their tax advisors, requesting compliance with the relevant tax disclosure and payment obligations. Notably, NRCs that derive capital gains from Nigeria, or have a taxable presence (via physical or virtual/digital means) in Nigeria, are required to regularize their capital gains tax, corporate tax and other tax filings, as applicable.

In addition, a new tax bill (currently under legislative review) has introduced certain changes in law that are expected to affect NRC compliance obligations upon the bill's enactment.

General compliance requirements for NRCs — a refresher

Corporate income tax (CIT)

The taxation of NRCs in Nigeria generally depends on whether the companies' activities create a taxable presence in Nigeria, whether via a physical presence (fixed base or agency arrangement), under the Permanent Establishment (PE) concept, or a digital/virtual presence, under the Significant Economic Presence (SEP) concept.

If a taxable presence is created, the NRC must comply with the relevant tax registration and filing requirements in Nigeria. Applicable key obligations are highlighted below.

Income tax registration

An NRC is required to register for income tax as soon as a taxable presence in Nigeria is established.

Basis of income taxation

NRCs operating in Nigeria are subject to income tax on an actual profit basis (i.e., net income after deductible expenses and other relevant tax adjustments). This income is to be attributed to the SEP/PE in line with the prescribed transfer pricing (TP) methods and considerations.

However, if actual profits cannot be readily ascertained or reflectively computed, the FIRS has discretion to determine "deemed profit" such that an NRC may be subject to income tax on a deemed-profit basis.

Filing income tax returns

In line with the relevant laws, NRCs should file their income tax returns no later than six months after the end of its first accounting year-end. Annual NRC tax returns (for an actual profit basis for filing) should include the NRC's:

• Global audited financial statements
• Localized financial statements for their Nigerian operations attested to by an independent qualified or certified accountant in Nigeria
• Tax computation schedules based on the profits attributable to the Nigerian operation
• True and correct statement in writing, containing the amounts of profits from every source in Nigeria
• Duly completed income tax self-assessment forms

Failure to timely file income tax returns should attract a penalty on the first month of default, and for each subsequent month in which the failure continues.

Payment of income tax

NRCs are required to remit income tax payable for the relevant year of assessment by the company's due date of filing income tax returns.

Noncompliance with this provision should attract a penalty of 10% of the outstanding income tax liability, plus interest at the prevailing commercial rate plus spread.

TP filing requirements

An NRC that is deemed to have a PE or SEP in Nigeria or has any intercompany transaction (deemed or hypothesized) affecting Nigerian-sourced profits must comply with the filing and disclosure requirements of the Nigerian TP regulations.

These compliance obligations include filing of annual TP returns with the FIRS and preparation of contemporaneous TP documentation. The TP returns are to be submitted alongside the income tax returns of the NRC, as noted above.

Note that the TP rules provide for several material penalties for noncompliance and incorrect disclosures relating such TP returns.

Withholding tax (WHT)

Generally, WHT is an advance payment of income tax. However, WHT should apply as the final tax on an NRC's passive income (e.g., dividends, interest, rent, royalties), provided that the NRC does not have a PE in Nigeria.

Similarly, WHT also applies (as a final tax) on income that an NRC derives from Nigeria when providing certain services virtually (e.g., management, technical, consultancy, or professional services).

Capital gains tax (CGT)

Under the CGT rules, if an NRC derives gain from the disposal of a chargeable (capital) asset deemed to be situated in Nigeria, the gains should be subject to CGT in Nigeria, subject to relevant exemptions provided in the law.

Under filing requirements for an NRC's chargeable gains in Nigeria, CGT returns should be submitted to the FIRS by 30 June/and 31 December, depending on the period to which the disposal relates.

Gain from disposal of shares in a Nigerian company was previously not subject to CGT in Nigeria. However, effective January 2022, gains arising from the direct disposal of shares are taxable, subject to certain thresholds and conditions.

Indirect transfer of shares (i.e., offshore disposal involving Nigerian subsidiaries) is currently not expressly covered in scope of the extant CGT rules. Nonetheless, it is important to note that this is likely to change after the enactment of the tax bill currently under legislative review.

Value-added tax (VAT)

Transactions relating to the supply goods and services consumed in Nigeria should be liable for VAT (provided that the goods/services are not VAT-exempt or zero-rated). NRCs making taxable supplies are expected register for VAT in Nigeria, include VAT on their invoice and comply with the relevant/monthly filings requirements, as stipulated by the law.

In line with the law, NRCs may by mutual agreement appoint a Nigerian company as a representative for the purpose of ensuring compliance with their obligations in Nigeria. Nonetheless, note that the ultimate responsibility for VAT compliance remains with the NRCs.

For services rendered by an NRC to Nigeria, the service recipient is expected to self-account for VAT and then remit the requisite VAT payment to the FIRS, unless the FIRS has specifically appointed the NRC to collect the VAT. Specifically, for services that NRCs provide to Nigeria via digital/electronic means, the FIRS has appointed the NRCs to collect and remit the VAT.

Potential changes in tax laws — key provisions of the Nigerian tax bill that may affect NRCs

A tax bill proposing significant reforms to Nigeria's tax framework is currently under legislative review. Notably, the bill recently passed its final reading at the National Assembly and is now being compiled and prepared for presentation to the President for assent. Though the bill has not yet been enacted into law, the legislative process is at an advanced stage and passage may be expected in soon. An updated Alert will highlight the changes introduced by the new bill, upon its enactment into law.

Following is a summary of key changes as they pertain to NRCs.

CIT

If actual taxable profits attributable to an NRC's PE or SEP in Nigeria cannot be accurately computed, these profits can be calculated by applying the NRC's "profit margin" on its total income generated from Nigeria. ("Profit margin" is the ratio of earnings before interest and tax (EBIT) to income or revenue from a person's audited financial statement.)

A minimum CIT is to apply on NRCs deriving income from Nigerian operations, at an amount not less than the WHT already deducted on such Nigerian income or, if WHT does not apply, at 4% of the gross turnover derived from Nigeria.

The concept of SEP is expected to address only digital services (including those provided via digital platforms) that an NRC renders to residents of Nigeria.

Income tax is to apply on gains/profits derived from transactions in digital or virtual assets.

NRCs engaged in international air and shipping transport are expected to file monthly returns with the FIRS.

CGT

The CGT rate would align with CIT rate, such that applicable gains may be taxed at 30%, rather than at the current CGT rate of 10%. Indirect transfer of shares in Nigeria subsidiaries are to be subject to CGT.

VAT

An electronic invoicing and fiscalized system would be implemented for real-time tracking of VAT. In this regard, the FIRS has taken a step forward by rolling out its e-Invoicing platform, beginning from July 2025. The new platform is designed to enhance tax compliance, improve data transparency and reduce revenue leakages. (For background, see EY Global Tax Alert, Nigeria's Federal Inland Revenue Service rolls out e-Invoicing platform, dated 20 May 2025.)

Services are expected to qualify for input VAT recovery (not only goods for resale or stock in trade).

Next steps for NRCs

In light of the FIRS's recent drive for tax compliance targeted at NRCs, NRCs are encouraged to respond by proactively evaluating their exposures and obligations in Nigeria and then regularize their tax compliance status. This is to help avoid accumulation of interest and penalties for delayed compliance or noncompliance.