As part of Olaniwun Ajayi LP’s ‘Deconstructing the Tax Reform Acts’ Series, this article is focused on taxes imposed on Non-Resident Companies (Including Persons Engaged in Shipping and Air Transport Business) under the Tax Reform Acts. It offers a detailed analysis of the significant changes introduced by the Nigeria Tax Act, 2025 and the Nigeria Tax Administration Act, 2025 concerning the taxation of foreign entities operating in Nigeria.
The Article explores, among other provisions of the Acts, the redefined concept of Permanent Establishment (PE) and Significant Economic Presence (SEP), the updated compliance obligations, and the widened tax net applicable to various cross-border transactions. Special attention is also given to the new compliance framework for shipping and air transport businesses, alongside implications for enforcement and risk management.
Why taxing non-resident companies has changed
Section 13(2) of the Companies Income Tax Act (CITA) once set the rules. It taxed a non-resident company with a fixed base of business in Nigeria. It also applied final withholding tax to certain services. However, it left gaps. For example, the concept of a Permanent Establishment (PE) appeared only in double tax treaties, never in Nigerian tax law.
The Nigeria Tax Act 2025 closes those gaps. It widens the range of taxable activities and sets out a more coherent framework for taxing non-resident companies.
When a Permanent Establishment arises
Under the NTA, a non-resident company’s profits are taxable where it has a PE or a Significant Economic Presence (SEP) in Nigeria, to the extent the profits are attributable to it. A PE now arises in five situations.
- A place of business. The NTA replaces “fixed base” with “a place”. That means any location the company owns, rents, leases or can otherwise use, however briefly. In addition, a place “at its disposal” is enough, so control or access counts.
- An authorised agent. Business conducted through a person in Nigeria who habitually acts for the company, or for group entities, creates a PE.
- A stock of goods. Keeping inventory in Nigeria from which someone makes deliveries on the company’s behalf creates a PE.
- Turnkey projects. Surveys, design, construction, installation, commissioning or supervision in Nigeria create a PE. This holds even if the company splits the work across entities or performs part of it abroad. The rule reflects Saipem Contracting Nigeria Limited v FIRS. There, the Court of Appeal treated closely linked offshore and onshore work as one contract.
- Furnishing services. Providing any service in Nigeria through employees, agents or subcontractors creates a PE. As a result, full income tax may apply instead of final withholding tax.
One limit remains, however. Employing Nigerian residents does not, on its own, create a PE or SEP, unless those staff work mainly for customers in Nigeria.
Significant Economic Presence and remote services
A non-resident company has an SEP where it transmits signals, data or content into Nigeria electronically. The activities covered include e-commerce, app stores, online advertising, cloud computing, digital content, online payments, search engines and online teaching.
The NTA also reaches services delivered from abroad. CITA covered only technical, management, consultancy and professional services. The NTA removes that limit, so any service a Nigerian resident pays for may now attract tax. Three exceptions apply: employment contracts, teaching services involving an educational institution, and costs that a Nigerian resident’s foreign PE bears. In each case, withholding tax is the final tax unless the company has a PE or SEP in Nigeria.
Insurance premiums follow the same logic. Suppose a Nigerian company pays a foreign insurer to cover Nigerian risks. Withholding tax is then the final tax, unless the insurer has a PE or SEP linked to that business.
How profits are measured when taxing non-resident companies
The NTA introduces the separate entity principle. The law treats a PE as having its parent’s credit rating. It also assumes the PE holds a reasonable level of equity and loan capital. Consequently, companies cannot shift profit through inflated interest charges or thin capitalisation.
Similarly, a PE cannot deduct royalties or fees it pays its parent, except to reimburse actual expenses. Where the attributable profit is unclear, the company’s profit margin applies to its Nigerian income, and the higher figure prevails.
Shipping and air transport
Non-resident shipping and airline companies still pay tax on profits from carrying goods, passengers and livestock loaded in Nigeria. Goods brought in for transshipment are excluded. The NTA builds on the CITA framework and adds clearer rules for measuring profit. Global ratios remain the primary method, with a profit margin method and a fair percentage method as alternatives.
In short, foreign businesses with any local presence or staff should reassess their exposure now. The threshold for a taxable presence is much lower. Our analyses of how the tax reforms affect M&A transactions and the taxation of manufacturing companies cover other parts of the new regime.
For the full article, download it using the button below.
