Nigeria

Corporate - Significant developments

Last reviewed - 28 January 2020

President Muhammadu Buhari has signed the 2019 Finance Bill into law

President of the Federal Republic of Nigeria, Muhammadu Buhari, has signed the Nigerian Tax and Fiscal Law (Amendment) Bill 2019 otherwise known as the Finance Bill into law. The Finance Act 2019 has five (5) objectives i.e promoting fiscal equity by mitigating instances of regressive taxation, Reforming domestic tax laws to align with global best practices, Introducing tax incentives for infrastructure and capital markets, Supporting small businesses in line with the ongoing Ease of doing business reforms and Raising revenues for the Government by various fiscal measures

A bill to amend the Production Sharing Contract Act in the Petroleum Industry has been signed into law

President Muhammadu Buhari today signed into law, a Bill to amend the Deep Offshore (and Inland Basin Production Sharing Contract) Act.

Production Sharing Contract (PSC) is a contractual arrangement for exploration and production of petroleum resources where the contractor undertakes all the financial, technical and operational risks associated with petroleum operation in return for a share of profit oil after payment of royalty, cost and tax oil.

The arrangement was introduced during the 1991 licensing round while the PSC Act became effective on 1 January 1993. The price of oil per barrel at the time was around US$13 per barrel. It was considered that certain incentives were necessary to encourage activities in the deep offshore which requires significant investment and technology.

The new amendment now introduces the following key changes:

  1. Field based royalty rates of 10% for deep offshore (>200m water depth) and 7.5% for frontier/inland basin operation 
  2. Introduction of incremental royalty rate based on the price of oil
  3. Periodic review of the PSC arrangement every 8 years
  4. Significant penalty for offences including imprisonment

The federal government estimates that the changes will generate about $500m in additional revenues for the government in 2020, and over $1bn from 2021. The changes are expected to take effect from fiscal year 2020.

Tax Appeal Tribunal issues controversial judgement regarding VAT on exporting services

A Nigerian subsidiary of a South African entity entered into an agreement to provide marketing services in Nigeria to promote the “Fund” of the South African entity. The issue in contention was whether or not the marketing services provided by the Nigerian entity qualify as exported services that are exempt from VAT.

The VAT Act defines exported services as those “performed by a Nigerian resident or a Nigerian company to a person outside Nigeria.”

The TAT ruled that the marketing services are liable to VAT in Nigeria on the basis that the services were performed to Nigerian customers, for and on behalf of the foreign entity. The TAT mentioned that the basis for charging VAT in cross-border transactions is “where the service was performed and not the location of the consumer”. Therefore, since the services were performed in Nigeria, such services were not exported and should be subject to VAT. 

The FIRS has published Regulations on Common Reporting Standard

The Federal Inland Revenue Service (FIRS) has issued the Income Tax (Common Reporting Standard) Regulations, 2019 (CRS Regulations).

This follows Nigeria’s signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information, signed by Nigeria on 17 August 2017.

Fundamentally, the CRS Regulations and the various agreements signed by the FIRS will allow it to receive specified information on the bank accounts held by Nigerian tax residents in up to 105 countries. In exchange, the FIRS will be obligated to provide similar information to these other countries.   

The CRS Regulations have an effective date of 1 July 2019 and require qualifying Nigerian Financial Institutions to submit an electronic information return (i.e. a return that reports specified financial account information of certain persons) to the FIRS on an annual basis. 

Companies operating in Nigeria to pay a new Police Fund Levy

The Nigerian Police Trust Fund Act (the “Act”) was passed by the National Assembly in April 2019 and signed into law by the President on 2 July 2019.

The Act establishes a Fund and imposes a new tax on the net profits of companies operating businesses in Nigeria at the rate of 0.005%. This and other sources of funds are expected to help fund capacity building and procurement of security equipment for the Nigerian Police.

TAT says it is illegal to impose tax based on Taxes and Levies Act without a primary taxing law and an assessment that does not follow due process is invalid

The Tax Appeal Tribunal (TAT or Tribunal), in Polaris Bank v. Abia State Board of Internal Revenue has made pronouncements on a number of different tax matters including:

  1. that the Taxes and Levies (Approved List for Collection) Act is not a primary tax legislation, it merely allocates taxing rights between the three levels of government. Therefore, it cannot be used as a basis to impose a tax without an enabling tax law;
  2. the tax authority cannot conduct a back-duty assessment for a period beyond 6 years, regardless of whether it is called an audit or investigation unless there is fraud, wilful default or neglect; and
  3. an assessment is not valid unless the tax authority follows the procedure established in the tax laws including observing the statutory timeframe for objection and payment of undisputed tax liability.

Court of Appeal decision on value-added tax (VAT) on foreign services

An appeal against the judgement of the Federal High Court (FHC) ruled that VAT was payable on satellite bandwidth as an imported service. The Court of Appeal (COA) upheld the decision of the FHC on the applicability of VAT on services received by Vodacom from a foreign service provider (FSP). The court held that in so far as the bandwidth capacities are supplied in Nigeria, the foreign company carried on business in Nigeria within the meaning of S10(1) of the VAT Act. The location of the supplier is not relevant. The Court also held that the duty to remit VAT by the recipient is separate from the duty of the foreign company to register and charge VAT and not a condition precedent. The Court ruled in favour of the Federal Inland Revenue Service (FIRS), saying that the 'destination principle' promoted by the Organisation for Economic Co-operation and Development (OECD) stipulates that goods imported from a state are exempted from VAT and are instead taxed in the destination state in which the goods are imported.

FIRS issues guidelines on Mutual Agreement Procedure (MAP)

The FIRS has issued guidelines on accessing MAP in Nigeria. The guidelines provide guidance to taxpayers on the process for accessing MAP as a means of dispute resolutions as contained in the various avoidance of Double Taxation Treaties (DTTs) between Nigeria and other countries.

FIRS releases and begins enforcement of country-by-country (CbC) reporting

Nigeria formally released the Income Tax (Country-by-Country Reporting) Regulations in 2018. This follows Nigeria’s signing of the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of CbC reports in January 2016 and subsequent ratification in August 2016.

Groups headquartered in Nigeria will be required to prepare and file a CbC report with the FIRS annually. Other relevant provisions are as follows:

  • Effective date:  Accounting years beginning on or after 1 January 2018.
  • Threshold and exemptions:  Groups with consolidated revenue less than 160 billion Nigerian naira (NGN) in the previous reporting period are exempted.
  • Filing deadlines:  No later than 12 months after the last day of the multinational enterprise (MNE) group’s accounting year-end.
  • Notification deadline:  Affected entities must make an appropriate notification to the FIRS no later than the last day of the group’s accounting year-end.

Members of multinational groups that meet the CbC reporting threshold have an obligation to notify the FIRS of the identity and tax residence of the member of the group responsible for making the CbC reporting disclosure on behalf of the group.

Notification is due before the last day of the group's accounting year-end for which the CbC report relates. For taxpayers with a 31 December group reporting date, the first deadline for filing the notification was 31 December 2018. The penalty for failing to file the notification is NGN 5 million in the first instance and NGN 10,000 for every day of default.

Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Order

President Muhammadu Buhari, on 25 January 2019, signed a 10-page Executive Order No. 007 known as the Companies Income Tax (Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme) Order, 2019 described as a public-private partnership intervention to enable government leverage private sector funding in a manner that creates value for money through private sector discipline.

According to the President, the Scheme will enable companies that are willing and able to spend their own funds on constructing roads to their factories or farms, to recover their full construction costs as tax credits, over a period.