NIGERIA Law and Practice Contributed by: Theophilus Emuwa, Jibrin Dasun, Perpetua Onyeukwu and Tubosiya Ibama, ǼLEX
are subject to tax if the transfer results in a change in the ownership or control of the Nigerian company, and more than 50% of the value of the disposed shares is derived from the Nigerian company. The gains from a direct or indirect disposal would be exempt if: • the total disposal proceeds are less than NGN150 million, and the chargeable gain does not exceed NGN10 million within any 12-month period; or • the proceeds are reinvested in shares of Nigerian companies in the year of disposal of the shares. The treatment of gains arising from the direct or indi - rect transfer of shares under a DTA depends on the precise wording of the particular DTA. In practice, however, Nigeria’s DTAs generally do not eliminate taxation on such gains. 5.4 Tax Implications of Change of Control See 5.3 Capital Gains of Non-Residents . 5.5 Formula-Based Income Attribution There are no special formulas for determining the tax - able income of foreign-owned local affiliates. Howev - er, formulas are used to determine the taxable income of NRCs derived from Nigeria, where an NRC: • has a PE in Nigeria; • has an SEP in Nigeria; and • carries on the business of transport (by sea or air). Profits attributable to a PE/SEP are primarily com - puted based on Nigerian-sourced income less only expenses wholly and exclusively incurred in generat - ing the PE/SEP’s profits, with deductions disallowed for royalties, fees or similar payments to the non-res - ident head office or connected persons, except as reimbursement of actual costs. Where profits cannot be reliably determined on this basis, the tax authority may apply the NRC’s global profit margin to Nigeri - an-sourced income. Where profits are determinable under the primary rule, the taxable profit will be the higher of that amount and the margin-based amount. Nonetheless, the tax payable cannot be less than tax withheld at source or, where withholding does not apply, 4% of total Nigerian-sourced income.
For NRCs carrying on the business of transport by sea or air, the NRS is entitled to tax on a turnover basis. In practice, 20% of turnover is deemed as profit, which is then taxed at the income tax rate of 30%, resulting in an effective tax of 6% of turnover. 5.6 Deductibility of Intra-Group Management and Administrative Charges Payments by local affiliates to non-local affiliates for management and administrative expenses incurred in the production of the taxable profits are attributable to the PE and consistent with the arm’s length principle. Also, management and service agreements between local affiliates and non-local affiliates are required to be registered with the National Office for Technology Acquisition and Promotion (NOTAP). Failure to register such agreements with NOTAP hinders the local affili - ates’ ability to remit payments pursuant to the agree - ments through licensed banks. 5.7 Restraints on Related-Party Borrowing Related-party borrowing must comply with the arm’s length principle. The thin capitalisation rules discussed under 2.5 Deduction of Interest will also apply. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions The foreign income of a local corporation is not exempt from corporate tax, as a Nigerian company is taxed on its worldwide income. However, dividends, inter - est, rents and royalties earned abroad and brought into Nigeria through the commercial banks are exempt from tax. 6.2 Non-Deductible Local Expenses Expenses that are attributable to foreign income would be deductible to the extent that they were incurred wholly and exclusively for the purposes of making a company’s profits. 6.3 Dividends From Foreign Subsidiaries Dividends earned from foreign subsidiaries of local corporations would be subject to income tax unless they were brought into Nigeria through any of the commercial banks. Such dividends would enjoy any
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