Global technology companies are under siege as nations rush to compose digital economy taxation laws. Multinational digital firms such as Facebook, Uber, Bolt, and Netflix which have no physical presence in many African nations have become targeted.
Governments are looking for new tax revenue streams and digital firms have borne the blunt. Nigeria is the latest African nation to institute tax policies that aim to have a piece of the profits repatriated abroad by Digital Non Resident Companies.
Nigeria’s finance minister Zainab Ahmed had issued the Companies Income Tax (Significant Economic Presence) Order, 2020. The SEP order stipulates the conditions under which non-resident companies (NRC) providing digital services to Nigerian users will be liable to corporate tax in Nigeria.
The SEP order is an amendment to the Finance Act 2019 that gave the finance minister the mandate to impose a tax on a foreign entity with respect to certain services or digital transactions if it has a Significant Economic Presence (SEP) in Nigeria. FA 2019 further states that the finance minister may by order, determine what constitutes SEP in Nigeria.
A foreign entity involved in digital transactions will be deemed to have created an SEP in Nigeria and therefore liable to tax if it:
- Derives income of N25m or equivalent in other currencies from Nigeria in a year
- Uses Nigerian domain name (.ng) or registers a website address in Nigeria
- Has a purposeful and sustained interactions with persons in Nigeria by customizing its digital platform to target persons in Nigeria e.g. by stating the prices of its products or services in Naira, providing options for bill payment in Naira
In this case, revenue derived from Nigeria include those in respect of:
- Streaming or downloading of digital contents such as movies, videos, music, applications, games, and e-books
- Transmission of data collected about users in Nigeria generated from users’ activities on mobile applications and websites
- Provision of goods or services directly or through a digital platform
- Intermediation services that link suppliers and customers in Nigeria.
NRC offering technical (including training, advertising, the supply of personnel), professional, management, or consultancy services shall have a SEP in Nigeria shall be liable to pay tax. In an accounting year, the firms will pay taxes for incomes earned or payment received from Nigerians, or a fixed base, or agent.
PWC Nigeria says that the affected NRCs will have to register for income taxes and file annual returns even if they do not have a physical presence in Nigeria. However, PwC Nigeria analysts agree that Nigeria may struggle to enforce compliance as a number of firms affected are outside its territorial jurisdiction. In addition, firms without any form of presence in the West African nation may struggle to comply.