Finance Act 2020: It’s Impingement On The Nigerian Digital Taxation -By Prince Ezeabata Chibuzor

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As a matter of fact, every person, either residing in Nigeria or not is obligated to pay tax, persons in paid employments, asset driven organizations, companies, and businesses operating in Nigeria are liable to pay tax as appropriate. Upon failure to perform tax obligation punitive fines, sanctions and penalties are attracted.


Nigeria, just like other countries generates revenue for the running of the tiers of government and provides infrastructure and amenities to the public. The Nigerian Tax System runs on the three tier of government, namely: The Federal Government, the various States of the Federation and the Local Government, including the Federal Capital Territory. Taxes payable to the Federal Government are administered by the Federal Inland Revenue Service (FIRS), while those payable to the State Government are administered by the State’s Board of Internal Revenue (SBIRs). The Local Government exclusively administers Rates and Levies collectable through their various councils.

A good number of taxes payable by persons, group of persons and individual groups doing business within the jurisdiction of Nigeria includes Companies’ Income Tax, Personal Income Tax, Capital Gains Tax, Value-Added Tax, Education Tax, Technology tax, Stamp duties, and the withholding Tax. A Tax clearance Certificate is often issued when taxes has been duly paid. This article discusses the impinge of the Finance Act 2020 on Non-Residual Companies (NRCs) and the Nigerian Digital Taxation.



Prior to the enactment of the Finance Act 2020 on the January 12, 2020, taxes are only collected from any trade, company or business institution if:

  1. that company has a fixed base in Nigeria to the extent that the profit is attributable to the fixed base; or
  2. If it does not have a fixed base in Nigeria but it habitually operate a trade or business that company has a fix base in Nigeria to the extent that the profit is attributable to the fixed base; or
  • if it does through a person in Nigeria authorized to conclude contracts on its behalf or on behalf of some other companies controlled in it or which have controlling interest in it or habitually maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by a person on behalf of the company to the extent that the profit I attributable to business or trade or activities carried on through that person; or derives profits from that trade or business or activities which involves a single contract for surveys, deliveries installations or constructions or
  1. Where the trade or business or activities is between the company and another person controlled by it or which has a controlling interest in it and the conditions are made or imposed between that company and such persons in their commercial or financial relation which in the opinion of the FIRS is deemed to be artificial or fictitious.1

This did not contemplate the taxation of income derived from digital service, production and practices offered to persons in Nigeria. In this light Multi-National Companies avoids operational physical outlets and structures that amounts to a permanent physical establishment in Nigeria especially when providing digital goods and services, thereby standing without the reach of the law. More so, Non-Residual Companies transacting virtually  in electronic means in Nigeria need not to perpetually conduct business through a dependent agent, representative or retail person in Nigeria where the service are delivered example includes Multichoice Africa. They may not contract for surveys, delivers, installations or constructions in Nigeria to carry on business practice. And thus, taxation did not apply to them. This meant that digital companies providing services and goods without physical presence in Nigeria were not liable to pay income tax in Nigeria.



According to the Nigerian Investment Promotion Commission in 2018, Nigerian digital economy is expected to generate $88 billion and create 3million new jobs by the end of 2021. If this be a fact then there is a need to change the Legal framework on taxation to accommodate digital and electronic service providing NRCs.

Fortunately, The enactment of the Finance Act incurred various changes to the principal tax legislations and agencies in Nigeria, among which are the commencement of a new regime of exposure to Nigerian Companies Income Tax for Non-Residual Companies (NRCs), providing digital services and products to persons in Nigeria, and the imposition of Value Added Tax (VAT) on intangible supplies[1].Under this Act, a Non-residual company’s profit shall be subject to CITin Nigeria where:

It transmits, emit or receive signals, sounds, message, images or data of any kind by cable,radio,electromagnetic system or any other electronic or 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 a significant economic presence in Nigeria and profit can be attributable to such activity.[2]

The new Act also amended section 13(2) of the Companies Income Tax Act (CITA) by introducing a new paragraph(c) which subjects digital and online transactions of Non-residual companies to Companies Income Tax in Nigeria. Specifically, Section 23(2)(C) of the CITA therefore provides that a NRC will be deemed to have derived profits from Nigeria if the company satisfies the following conditions:

It transmits,emit or receive signals, sounds, message, images or data of any kind by cable,radio,electromagnetic system or anyother electronic or 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 a significant economic presence in Nigeria.

The Act introduced the developing digital principle of “Significant Economic Presence” (SEP) as a new basis for taxation of digital and online transaction by Non-residual companies. This is to say, it matters not if you are physically established in Nigeria carrying out business or not, in as much as you are transacting, having an‘economic presence’ you are liable to taxation. This incitement of tax digital transactions emanate from the growing international concurrence that states that, citizens contributes to the profits of digital companies (market jurisdictions) therefore; they should also enjoy taxing rights over those profits.[3]

However, the question is : What constitute SEP under the Nigerian Law for the purpose of tax liability of an NRC?, unfortunately, the Act did not give a definition of SEP. Section 3(d) of the Act however, provides the Minister of Finance with the power by an order to determine what constitutes SEP of an NRC in Nigeria. In the light of this, leading authors of Taxation Law posits that the non-inclusion of a specific definition of what constitutes a SEP is a deliberate strategy to provide for flexibility in the characterization of the new concept, in order to enable alignment of what will constitute SEP with future evolution in business trends.[4]Pursuant to this power, on the 3rd February, 2020, the Hon. Minister of Finance issued the Companies Income Tax (Significant Economic Presence) Order 2020. The “Ministerial Order” provides that a Non-Residual Company (NRC) shall have SEP if it satisfies any of these following conditions:

The company derives a yearly turnover of N25million or its equivalent from the following:

  1. streaming or downloading of books, music, movies, games or applications;
  2. transmission of data collected about Nigerian users generated from the users’ activities;
  • provision of goods and services through a digital platform to Nigeria;
  1. provision of intermediation services through a digital platform, website or online application linking suppliers and customers in Nigeria, or
  2. uses a Nigerian domain name (.ng) or registers a website in Nigeria; or
  3. has a purposeful and sustained interaction with persons in Nigeria by customising its digital page or platform to target persons in Nigeria. This includes pricing its goods and services in Nigerian currency or providing options for payment in Nigerian currency.

It should be noted that for the purpose of determining whether the N25million threshold has been met, activities by connected persons shall be aggregated. The Ministerial Order defines “connected persons” as including “associates” as defined under the Companies and Allied Matters Act, or business associates where the same person participates in the management, control and capital of two companies or one company participates in the management, control and capital of another company





SEP is an emerging principle in International Tax Law. It was formulated by the organization for Economic Cooperation and Development (OECD). The definition and characteristics of the principle are outlined in the OECD Action 1.  2015 final report on addressing the Tax challenges of the Digital Economy (“the OECD Report”). Its introduction in Nigeria will ensure an all rounded tax compliance system between Residual and Non-residual Companies. In addition, it creates a taxable presence in Nigeria for Non-resident enterprise which has a quite an evidence of significant economic presence, as well as aiding a purposeful and sustained interaction with our economy via technological tools.



Prince EzeabataChibuzor is a two hundred level student of the Faculty of Law, University of Abuja.

[1]The impact of the Finance Act on Digital Taxation in Nigeria by DipoKomolafe and OkabonyeChukwuani. [Templars]

[2] Section 4[ii] Finance Act 2020

[3] Digital Taxes,Significant Economic Presence and Tax Implications to Nigeria by OlumayowaOluwole. [TNP]

[4]DipoKomolafe&OkabonyeChukwuani [Templars].The impact of the Finance Act on Digital Taxation in Nigeria.

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