Tax watch - July 2014

Matters arising from deemed profit basis of taxation and the way forward. The Companies Income Tax Act (CITA) defines a “Nigerian company” as any company incorporated under the Companies and Allied Matters Act or any enactment replaced by that Act. A “foreign company” means any company established under any law in force in a territory or country outside Nigeria. Such foreign companies are generally referred to as nonresident entities. While a Nigerian company is taxable on itsworldwide income, a non-resident entity is liable to tax in Nigeria on its profit attributable to the business or trade carried on in Nigeria.

Although there are legal questions regarding what a foreign company can and cannot do in Nigeria without incorporating a Nigerian company, it is nonetheless legally possible for anon-resident company to directly derive business income from Nigeria. In any case, the CITA imposes tax on an investment (passive) income earned by a non-resident company such as dividend, interest, royalty and rent by way of withholding tax being the final tax.