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Nigeria imposes N25m taxation threshold for foreign companies with Significant Economic Presence

The Federal Government has published the Companies Income Tax (Significant Economic Presence) Order, 2020 (“the Order”) in its Official Gazette as it seeks to broaden the tax base and make collection more efficient.

The order published in Gazette No. 21, Vol 107 of 10 February 2020 and signed by the Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed is pursuant to her powers under Section 13(4) of the Companies Income Tax Act, 2004 (as amended) [CITA], commenced on 3 February 2020.

According to an analysis by KPMG, the order provides guidance on the definition of significant economic presence (SEP) in relation to taxable income derived by any company other than a Nigerian company (“foreign company”) in Nigeria, based on Section 13(2)(c) and (e) of CITA.

The Order stipulates a ₦25 million turnover threshold for a foreign company deriving income in Nigeria through digital means for the purpose of significant economic presence, SEP.

According to the order, foreign companies involved in the provision of technical, professional, management or consultancy services shall be deemed to have SEP in Nigeria where such companies receive any payment from a person resident in Nigeria or a fixed base or agent of a foreign company in Nigeria.

Other key highlights of the Order include:

• exemption of payments made under a contract of employment, teaching in, or by, an educational institution and payment by a foreign fixed base of a Nigerian company.

• definition of terms, such as connected persons, technical services, and wireless and electronic apparatus, for SEP purpose.

The issuance of the Order signals the operationalization of the provisions of Section 13(2)(c) and (e) of the CITA introduced by the Finance Act, 2019.

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