Sofekun Moyosore Esther: Name: Matric No: 170411175 Law of Taxation Lecturer In-Charge Prof M.T. Abdulrazaq

Name : Sofekun Moyosore Esther
Matric No: 170411175
LAW OF TAXATION
Lecturer in–charge: PROF M.T. ABDULRAZAQ
Explain the Basis of the Taxation of a Non – Resident Parent Company and
its Subsidiaries in Nigeria
Non – Resident Companies (NRCs) refer to the companies that are not incorporated in Nigeria.
Historically, non – resident companies doing business in Nigeria prepare and pay their income
taxes using the deemed profit basis. When filing returns under the deemed profit regime,
calculations accompanied with a statement of the turnover derived from Nigeria.
Every company, resident and non – resident is liable to company’s income tax in Nigeria if its
income is liable to tax under the provision of the Companies Income Tax. According to section 9
of the CITA, the tax is payable on the profits of any company accruing in, derived from, brought
into, or received in Nigeria. Although exemption from incorporation does not confer exemption
from payment of tax on any company.
However, for the profits of a non – resident company or corporation to be deemed to have
been derived from Nigeria in line with section 13 (2) of the CITA 2004 for the purpose of
imposition of the company’s income tax in Nigeria, any of the following four conditions must
have been met :
 The non – resident company has a fixed base of business in Nigeria to the extent that the
profit is attributable to the fixed base
 The non – resident company or any of its associate habitually operates a trade or
business through a person in Nigeria
 The trade or business or activities involves a single contract for surveys, deliveries,
installation or construction
 The trade or business or activities is between the company and a related party which is
considered at arm’s length
This Section 13 (2) is seen as the widely accepted view because prior to the Federal High Court
decision in JGC v Federal Inland Revenue Service to the effect that the taxation of the income of
non-resident companies in Nigeria will be determined based on section 13(2) of CITA, the tax
authority had on some occasions, purportedly relying on the charging provision in section 9 of
CITA, suggested that notwithstanding the absence of any of the criteria set out in section 13(2), a
non-resident company which earned income in Nigeria would be subject to CIT in Nigeria,
regardless.
This is notwithstanding the age long decision in Taoufic Karan v. Commissioner for Income
Tax, where a provision similar to section 9 of CITA was construed and it was held that the words
“accruing in” and “received in” (also used in section 9 of CITA) import a clear territorial
limitation to Nigeria, such that only the income of Nigerian resident companies would be caught.
The Court further stated that the words “derived from” appear to be designed to meet amongst
other things, cases where profits arise from transactions carried out in Nigeria by a non-resident
tax payer.
Tax Liability of Non – Resident Companies in Nigeria:

 Passive Income
 Treatment of Real Expenses
 Fixed Base of Business
 Agency Relationships
 Profits from a Single Contract
Nigerian Branch of a Non – Resident Company:

 Subsidiaries and its Parent Company
- The Concept of Permanent Establishment in Double Taxation Agreements (DTAs)

When a non – resident company is a resident of a country with which Nigeria has a
Double Taxation agreement, such company will be treated under the provisions of that
agreement i.e ‘DTAs’.
- Concept of “ deemed permanent establishment”

Despite the definition of permanent establishment as a fixed place for business, there
are instances where a foreign company that is resident in a treaty country will not have a
fixed place of business in Nigeria but the foreign company will be deemed to have a
permanent establishment in Nigeria under the tax agreement.
- Taxation of Professionals under the DTAs

The article on ‘Independent Personal Service’, the Nigeria’s DTAs makes establishment
of a fixed base in Nigeria the condition for liability of tax of the income of professional
and vocational sevices like lawyers, doctors etc.
- Remittance of funds out of Nigeria

All remittance of funds out of Nigeria requires a Tax Clearance Certificate to show that
relevant taxes has been paid on the fund to be remitted or that the funds is not liable to
Nigerian tax.
Difference between a Nigerian Branch of a Non- Resident Company and Nigerian
Subsidiary of a Non-Resident company
A Nigerian branch of a foreign entity is considered as a fixed base of the non-resident company
under Section 13(2) of CITA or PE under the tax treaties. On the other hand, a Nigerian
subsidiary of a non-resident company is a resident of Nigeria and operates as a separate legal
entity from the parent. Such a subsidiary company is liable to tax in Nigeria on its worldwide
income. Unlike a branch, the presence of a subsidiary of a foreign parent company in Nigeria
does not in itself create a taxable presence for that parent company in Nigeria. However, the
foreign parent company will be liable to tax in Nigeria where any of its profits is derived from
Nigeria through the subsidiary company. For example, where the foreign company:
i. Uses the premises or facilities of the subsidiary for its own business to the extent that
the premises or facilities of the subsidiary constitutes its fixed base or PE
ii. Authorizes the subsidiary to wholly or partly carry out its business in Nigeria on its
behalf to the extent that the subsidiary company is deemed to be its agent or
iii. Carries on business jointly with the subsidiary or any other entity in Nigeria.

Sofekun Moyosore Esther: Name: Matric No: 170411175 Law of Taxation Lecturer In-Charge Prof M.T. Abdulrazaq

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Sofekun Moyosore Esther: Name: Matric No: 170411175 Law of Taxation Lecturer In-Charge Prof M.T. Abdulrazaq

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Name : Sofekun Moyosore Esther

Matric No: 170411175

Lecturer in–charge: PROF M.T. ABDULRAZAQ

Tax Liability of Non – Resident Companies in Nigeria:

Nigerian Branch of a Non – Resident Company:

- The Concept of Permanent Establishment in Double Taxation Agreements (DTAs)

- Concept of “ deemed permanent establishment”

- Taxation of Professionals under the DTAs

- Remittance of funds out of Nigeria

Difference between a Nigerian Branch of a Non- Resident Company and Nigerian

Subsidiary of a Non-Resident company

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