Africa FA Law Nigeria Tax

Significant economic presence and the taxation of non-resident companies in Nigeria

On the 3rd of February 2020, the Minister of Finance, Budget and National Planning issued the Companies Income Tax (Significant Economic Presence) Order 2020 (the “Order”).

The Order was published on the 29th of May 2020 in furtherance of the powers conferred upon the Minister by Section 13(4) of the Companies Income Tax Act (CITA), Cap C21 Laws of the Federation of Nigeria, 2004 (as amended).

The Finance Act, 2020 (“the Finance Act”) expanded the scope for taxation of Non-Resident Companies (NRCs) in Nigeria by amending certain sections of the CITA. Prior to the Finance Act, NRCs were taxed if they could be seen as having a fixed base (having facilities, carrying out business activities, or providing services in connection with business activities) in Nigeria; carrying out business through an agent who executes transactions on their behalf; executing a turnkey project; or engaging in transactions with affiliated companies in a manner not being one that is at arms-length.

The Finance Act included the concept of Significant Economic Presence (SEP) by which NRCs would be assessed for tax purposes. If found to have SEP in Nigeria, NRCs would be liable to pay tax in Nigeria. At the time the Finance Act came into force, the criteria for determining what constitutes SEP had not been established. The Order now states the various ways NRCs would be deemed to have SEP in Nigeria.

What Constitutes Significant Economic Presence in Nigeria?

The Order targets two broad categories of NRCs. These are companies carrying out digital services and companies involved in technical, professional, management, or consultancy services.

  • NRCs involved in digital services would have SEP in Nigeria if:
    1. they derive a gross turnover of more than ₦25,000,000 (Twenty Five Million) or its equivalent in other currencies in a financial year from digital activities in Nigeria;
    2. they use a Nigerian domain name (.ng) or register a website in Nigeria; or
    3. have a purposeful and sustained interaction with persons in Nigeria by customizing their digital pages or platforms to target persons in Nigeria, including reflecting the prices of their products or services in Naira or charging fees for their products/services in Naira.

In addition, the Order identifies the nature of digital services which would be assessed for SEP. These services include streaming or downloading services, provision of goods and services through digital platforms, and services which link suppliers and buyers through a digital platform, amongst others.

The application of SEP to digital services is broad and captures a wide array of digital services that cater to Nigerians.

  • NRCs which provide technical, professional, management, or consulting services would be deemed to have SEP in Nigeria if they earn income or receive payment from:
    1. a person resident in Nigeria; or
    2. a fixed base or agent of an NRC.

The Order defines a technical service as services of a specialized nature including advertising, training, and the provision of personnel (but not including professional, management, or consulting services. What constitutes these services was however not defined).


Including the digital economy in the now expanded tax net is the main thrust of the Order. It is evident that the government appreciates the economic value of taxing the digital economy which would result in a much-needed rise in its income.

It however remains to be seen how the Federal Inland Revenue Service (FIRS) will give effect to the Order by levying taxes against NRCs which have no physical presence in Nigeria coupled with the fact that transactions are performed digitally and may not be easily monitored by the tax authorities.

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