Nigeria

Corporate - Significant developments

Last reviewed - 28 July 2022

The Federal High Court (FHC) rules that Finance Act amendments should not apply to income earned prior to enactment

The Finance Act 2019 (FA 19) was signed into law on 13 January 2020. One of the FA 19 amendments was the removal of the minimum tax exemption previously granted in the Companies Income Tax Act (CITA) to companies with at least 25% foreign ownership. The question that then arose was how to determine the accounting period covered by FA 19.

Accugas Limited ('Accugas'), a company with at least 25% foreign ownership and with a January to December financial year (FY), filed its 2019 FY returns in June 2020. On this basis, Accugas wrote to the Federal Inland Revenue Service (FIRS) to confirm that the minimum tax exemption still applied to its 2019 FY returns since the amendments became effective in January 2020. The FIRS refused the request, stating that the law change affects returns due after the effective date, notwithstanding that the FY was before the amendment. To avoid interest and penalties, Accugas filed its tax return and paid the minimum tax. Accugas thereafter filed an appeal at the FHC.

The FHC ruled that FA 19 did not apply to income earned before its enactment and that, as the intention of the legislature was not to make FA 19 apply retroactively, FA 19 could not be given retroactive effect. Therefore, Accugas could still enjoy the pre-FA 19 minimum tax exemption to its 2019 FY returns filed in 2020.

The judgement raises interesting questions with respect to the application of FA changes, especially with respect to CIT. Companies are encouraged to review how the judgement could impact their historic tax returns and what their approach should be if the FIRS appeals the judgement.

Court of Appeal upholds the FIRS’ powers to collect value-added tax (VAT) on goods and services consumed in hotels, restaurants, and event centres

On 1 July 2022, the Court of Appeal (CoA) affirmed the authority of the FIRS to collect VAT from all taxpayers, including for goods and services consumed in hotels, restaurants, and event centres. In doing this, the CoA set aside the FHC judgement of 2019, where the FHC had issued a converse judgement.

The CoA judgement aligns with the reasoning of the Supreme Court in Attorney General of Lagos State v. Eko Hotels Limited & Federal Board of Inland Revenue in 2017, where the Supreme Court held that the VAT Act had covered the field of consumption tax, and so any similar tax would be invalid and result in double taxation.

The continued legal tussle over consumption tax vis-a-vis VAT is not good for business, as it creates uncertainty and adversely impacts the ease of doing business in Nigeria. Unfortunately, the decision of the CoA may not be the end of the disputes.

Nigeria’s 2022 Fiscal Policy Measures

The federal government of Nigeria has approved the implementation of the 2022 Fiscal Policy Measures and Tariffs Amendments (FPM 2022), with an effective date of 1 April 2022.The FPM 2022 replaces the FPM 2021 and, among other changes:

  • introduces Import Adjusted Tax (IAT) on 172 tariff lines and prohibits certain goods originating from non-Economic Community of West African States (ECOWAS) member states, and
  • sets out excise duty rates on non-alcoholic beverages and telecommunication services following the recent tax law amendments and updated excise duties on alcoholic beverages, cigarettes, and tobacco products (a grace period till 1 June 2022 was given for the implementation of the new excise duty rates).

Deadline extended for filing 2022 income tax returns

The FIRS has extended the deadline for the filing of CIT returns that are due to be filed between 30 June 2022 and 31 August 2022. These returns are now to be filed not later than 31 August 2022.

Also, the time required for tax payment has been extended accordingly. Therefore, there will be no penalty for late returns and payment for 2022 in respect of the relevant tax returns that are filed by 31 August 2022. The extension only applies to CIT returns, so other taxes, such as VAT and withholding taxes (WHTs), are not covered.

    Changes to tax treaty benefits

    The FIRS has issued public notices regarding major changes to the tax treaty benefits and procedures to claim such benefits.

    Key changes include the following:

    • Effective 1 July 2022, the WHT rate on dividends, interest, and royalties paid to residents of treaty countries will be the rate in the domestic law or the treaty, whichever is lower.
    • This effectively means that the WHT rate of 7.5% will increase to 10% with respect to dividends, interest, and royalties.
    • Royalties excludes rental income on immovable property, such as land, for the purpose of the reduced treaty WHT rate.
    • Countries affected include Belgium, Canada, Czech Republic, France, the Netherlands, Pakistan, the Philippines, Romania, Slovakia, and the United Kingdom.
    • This effectively means there is no difference in the WHT rate for treaty and non-treaty countries except in respect of relatively recent treaties concluded with China, Singapore, South Africa, Spain, and Sweden, which contain the lower WHT rate.
    • Any claim for tax credit in respect of profits taxable in Nigeria must be made not later than two years after the end of the year of assessment in which the foreign tax was paid.
    • The circular also includes conditions for a company to claim the commonwealth tax relief.

    The FIRS demands Certificate of Acceptance for eligibility to claim capital allowance on assets

    The FIRS has issued a Public Notice directing all companies that enjoyed capital allowances on their assets between the 2016 and 2021 years of assessment to submit their Certificates of Acceptance no later than 31 October 2022.Below are the key points in the Public Notice:

    • Any company that incurred Qualifying Capital Expenditure (QCE) of 500,000 Nigerian naira (NGN) and above must obtain the Certificate of Acceptance in respect of the QCE from the Industrial Inspectorate Division of the Federal Ministry of Industries, Trade, and Investment.  
    • All companies that enjoyed capital allowances on QCE between the 2016 and 2021 years of assessment are to submit their Certificate of Acceptance to the FIRS no later than 31 October 2022.
    • Any company that fails to submit the relevant Certificate of Acceptance will have its capital allowances for the period withdrawn by the FIRS, resulting in additional tax assessment to the defaulting company.

    The FHC declares payments to Nigeria Police Trust Fund unconstitutional

    The FHC has ruled as unconstitutional Section 4(1)(b) of the Nigeria Police Trust Fund (Establishment) Act, 2019, which provides for an amount constituting 0.5% of the total revenue accruing to the Federation Account and a levy of 0.005% of the net profit of companies operating in Nigeria to be remitted to the Nigeria Police Trust Fund.

    The FIRS reinstates local filing of Country-by-Country (CbC) reports in Nigeria

    In May 2021, the FIRS suspended the local filing of CbC reports by Nigerian subsidiaries and permanent establishments (PEs) whose headquarters are not in Nigeria. In January 2022, the FIRS issued a public notice reinstating the local filing of CbC reports by such entities. The public notice has an effective date of 1 January 2022, and all constituent entities of foreign multinational groups that meet the relevant conditions are expected to comply going forward. Taxpayers must ensure they prepare well in advance to avoid the penalties for non-compliance.

    The FIRS issues simplified VAT regime for non-resident suppliers

    Further to the Finance Act 2020, non-residents that make taxable supplies of goods and services to Nigerian customers are now required to register for VAT, include VAT on their invoices, and file returns. This is even if they do not have any fixed connection with Nigeria.

    The FIRS has subsequently issued a circular to simplify the VAT regime and ease the adoption of the new VAT requirements for non-residents. The circular is effective from January 2022 for the supply of services and intangibles to Nigerian customers and from January 2024 for the supply of goods.