Section 13(2) of the Companies Income Tax Act (CITA) provides for instances where the profits of a non-resident company (NRC) will be liable to tax in Nigeria.

The Finance Act inserted a new paragraph into Section 13(2) which provides that profits from (i) digital activities that a NRC carries on in Nigeria or (ii) technical, management consultancy or professional services that a NRC renders to a person resident in Nigeria are taxable to the extent that the NRC has a “significant economic presence” in Nigeria.

The Finance Act also provides that the Minister may by Order determine what constitutes significant economic presence. The Finance Minister has now issued the Companies Income Tax (Significant Economic Presence) Order 2020 (SEP Order) with a commencement date of February 3, 2020.


By Section 13 of CITA, a foreign company is liable to pay Companies Income Tax on profits it derives in Nigeria from: (i) a fixed base; (ii) a turnkey contract; (iii) business or trade carried on by a dependable agent makes on its behalf; and (iv) related party transactions deemed artificial.

The Federal High Court in cases like JGC v. FIRS and Shell v. FBIR has held that a foreign company must have a fixed base in Nigeria before its profits can be subject to tax. In Shell v FBIR the court held that the profits sourced from Nigeria by foreign companies cannot be taxed; except they have a fixed base and the profits are attributable to that base.

“Fixed Base” was further explained by Paragraph 4.1 of a 2014 Federal Inland Revenue Service Circular to include facilities such as a factory, an office, a branch, a mine, gas or oil, activities such as building, construction, assembly or installation and furnishing of services in connection with the previous.

The Fixed Base requirement has however become an impediment. This is because digitization allows businesses to reach markets in jurisdictions where they have little or no physical presence. The internet, for instance, allows digital companies to make profits in countries where they have no physical presence. Therefore, the Fixed Base requirement causes the source state to collect a reduced amount of tax while the NRC makes significant revenue.


Significant Economic Presence is a direct replacement for Fixed Base. It creates a virtual, intangible basis for taxation and has been a go-to for many best practices.

For instance, the European Union has had conversations to reach an agreement over the taxation of digital companies. The Organization for Economic and Community Development (OECD) published a report titled Addressing the Challenges of the Digital Economy: Action 1 in October 2015 and it is aimed at addressing challenges of the digital economy with a focus on the concept of Permanent Establishment (Fixed Base). Three alternatives to this rigid concept were suggested one of which is a “nexus” test based on the concept of “significant economic presence”.

A few countries have individually implemented a redefinition of Permanent Establishment to include digital presence, or outrightly employed significant economic presence. Israel, India, Italy and Saudi Arabia are good examples.


The SEP order outlines instances where a NRC will be deemed to have significant economic presence in Nigeria.


The SEP Order specifies the two kinds of (non-resident) companies that it concerns. They include the following:

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1 Digital Service Providers: These are non-resident companies whose activities include the following:

a. Streaming or downloading services of digital contents (e.g. movies, videos, music, applications, games and e-books) to people in Nigeria;

b. Transmission of data collected about Nigerian users generated from users’ activities on websites or mobile applications;

c. Provision of goods or services through a digital platform to Nigeria; or

d. Provision of intermediation services through digital platforms, websites or other online applications that link suppliers and customers in Nigeria.

2 Non-Resident Companies that provide technical, professional, management, or consultancy services to Nigerian customers.


The SEP Order does not impact these companies absolutely as it provides for further criteria in the form of thresholds.

1 A non-resident digital service provider will meet the SEP threshold in Nigeria if:

a. It derives gross turnover or income in excess of ₦ 25million in a given year from the activities listed, or

b. It uses a Nigerian domain name (.ng) or registers a website in Nigeria, or

c. It has a purposeful and sustained interaction with persons in Nigeria by customising its platform to target persons in Nigeria.

2. A NRC that provides technical, professional, management or consulting services will have a significant economic presence in Nigeria if it earns any income or receives payment from:

a. a person resident in Nigeria, or

b. a fixed base or agent of a non-Nigerian company.

For this category, the withholding tax deducted by the (resident) recipient of the service is the final tax.

Multilateral/International Agreements

The SEP Order anticipates international agreements that Nigeria may enter into. It provides that if Nigeria enters into such in a bid to address the tax challenges arising from the digitalization of the economy, the provisions of that other agreement will override the provisions of the SEP Order. That is, in relation to any NRC that is covered by that agreement.


Payments for which SEP will not arise are where an NRC makes payment: (i) to its employee under a contract of employment; (ii) for teaching in an educational institution or for teaching by an educational institution; or (iii) where the NRC is a foreign fixed base of a Nigerian company.


Government’s attempt to widen the tax base and generate much needed revenue for the economy is laudable. Teething issues with the implementation of SEP in Nigeria are however inevitable.

The SEP Order impacts on withholding tax obligations of Nigerian companies as they are required to deduct WHT from payments made to NRCs for technical, professional, management or consulting services. Transactions may have long been concluded since the SEP Order commencement date of February 3,2020.

Tracking/ascertaining digital activity or transactions can also get complicated. How possibly/effectively will our tax net catch and hold a fish that has no physical body? It is however anticipated that further clarification is provided by the FIRS, on SEP.


David Akindolire is a dazzling writer and speaker. He remains keen on futuristic areas of law including taxation and media. He is a currently a student of the Nigerian Law School.


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