The Finance Act, 2019 amended Section 13 of the Companies Income Tax Act Cap C21 LFN 2004 (as amended) on the taxability of a foreign entity in Nigeria. One of the new provisions in the Act is that:
The profit of a company other than a Nigerian company from any trade or business shall be deemed to be derived from Nigeria, if it transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic of wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity.
The Act further empowers the Minister of Finance to, by an order, determine what constitutes the significant economic presence of a company other than a Nigerian company. The Minister has now exercised the power by issuing an order in an official gazette with an effective date of February 3, 2020. The Order is titled Companies Income Tax (Significance Economic Presence) Order, 2020.
The order provides that a foreign entity shall have a significant economic presence in Nigeria in any accounting year, where it:
- Derive gross turnover of more than N25million or its equivalent in other currencies, in that year, from any or combination of the following:
- Streaming or downloading services of digital contents, including but not limited to movies, videos, music, applications, games and e-books to any person in Nigeria
- Transmission of data collected about Nigerian users which has been generated from such users’ activities on a digital interface including website or mobile applications
- Provision of goods or services directly or indirectly through a digital platform to Nigeria
- Provision of intermediation services through a digital platform, website or other online applications that link suppliers and customers in Nigeria
2. Uses a Nigerian domain name (.ng) or registers a website address in Nigeria
3. Has a purposeful and sustained interaction with persons in Nigeria by customizing its digital page or platform to target persons in Nigeria, including reflecting the prices of its products or services in Nigerian currency or providing options for billing or payment in Nigerian currency.
In addition, activities of connected persons will be aggregated to ascertain the threshold of N25million gross turnover.
A non-resident entity carrying on a trade or business comprising of furnishing of services of technical (including training, advertising, supply of personnel), professional, management or consultancy in nature, shall have significance economic presence in Nigeria in any accounting year, if it earns any income or receives any payment from person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria.
The Order however provided for some exemptions from the definition of a significant economic presence in Nigeria.