Introduction
The business landscape in Nigeria is shaped by intricate legal
frameworks, which includes key legislations: the Companies and
Allied Matters Act (CAMA), Companies Income Tax Act (CITA) and
Petroleum Profit Tax Act (PPTA). These legislations play pivotal
roles in regulating the operations of all companies including
foreign companies that are operating in the country. In this
article, we delve into the provisions of CAMA, specifically
sections 78-83, and examine their implications. Additionally, we
explore how foreign companies often turn to section 13 of CITA and
section 25 of PPTA as an alternative in navigating their tax
obligations.
Legitimacy of a foreign company operating in Nigeria
Chapter 3 of CAMA deals extensively on the legal requirements
for a foreign company to exercise the power of a corporation and
operate in Nigeria. Section 78 of CAMA specifically mandates every
foreign company intending to conduct business in Nigeria to obtain
incorporation as a separate entity within the country. Until such
incorporation is completed, the foreign company is prohibited from
engaging in business activities or exercising registered company
powers; and shall not have a place of business or an address for
service of documents or processes in Nigeria for any purpose other
than the receipt of notices and other documents, as matters
preliminary to incorporation under this Act.
However, a foreign company can be exempted from these
requirements by the Minister charged with the responsibility of
trade under section 80 of CAMA. Also, section 78(3) states that
nothing in this section affects the status of any foreign
company—
(a) which before the commencement of this Act was
granted exemption from compliance under the provisions of any
preceding Companies’ Acts that had been applicable in Nigeria
before the commencement of this Act; and
(b) exempted under any treaty to which Nigeria is a
party.
Any act of a foreign company in violation of these provisions is
deemed void, and non-compliance can result in penalties specified
by the Corporate Affairs Commission (CAC).
Furthermore, section 79 of CAMA imposes penalties on foreign
companies failing to comply with the requirements of section 80.
Both the company and its officers may be liable to prosecution and
penalties, emphasizing the stringent measures in place.
Section 81 provides for the filing of annual report by foreign
company in a manner prescribed by CAC in every calendar year.
Section 82, 83 and 84 provide for Exempted foreign company to
have status of unregistered company,
Penalties for false information and Application of certain
sections to foreign companies respectively.
Taxability of a foreign company in Nigeria
In practice, whilst there are specific provisions for
specialized businesses, companies frequently rely on general
provisions of Section 13 of CITA to grasp the tax implications of
their activities in Nigeria. Section 13(1) delineates that profits
earned by a Nigerian company are deemed to accrue/taxable in
Nigeria, regardless of their sources; section 13(2) stipulates the
circumstances under which profits of non-Nigerian/foreign companies
from any trade or business are regarded as derived from or taxable
in Nigeria.
It is important to note the specific conditions outlined within
this section. Firstly, profits may be considered taxable in Nigeria
if a foreign company maintains a fixed base of business within the
country. This can include physical office spaces, Equipment or
other tangible assets used for conducting business activities.
Additionally, habitual operations through an authorized
person/company in Nigeria can trigger taxation, signifying a
consistent and ongoing business presence within the country.
Furthermore, significant economic presence of any foreign
company in Nigeria for certain activities can also render profits
from such ventures taxable in-country. This concept of Significant
Economic Presence (SEP) encompasses various factors such as the
volume of sales, the extent of digital/virtual presence, or the
magnitude of transactions conducted within the Nigerian market.
It’s crucial to highlight that the Minister has the authority
to determine what constitutes significant economic presence,
providing flexibility in its interpretation and application.
Similarly, section 25 of the PPTA stipulates that “A
company not resident in Nigeria which is or has been engaged in
petroleum operations (hereinafter in this section referred to as a
“non-resident company”) shall be assessable and
chargeable to tax, either directly or in the name of its manager,
or in the name of any other person who is resident in Nigeria,
employed in the management of the petroleum operations carried on
by such non-resident company, as such non-resident company would be
assessed and charged if it were resident in Nigeria”.
Hence, foreign companies engaged in petroleum operations in Nigeria
are subject to taxation either directly or through a designated
individual, such as a manager or resident involved in the
company’s operations in Nigeria. These non-resident companies
are evaluated for tax obligations as if they were resident in
Nigeria, with the designated individual responsible for fulfilling
tax-related requirements and ensuring payment of assessed
taxes.
Harmonizing Statutory Frameworks
Foreign companies turn to CITA or PPTA for guidance on taxation.
However, it is essential to understand that adherence to Section 13
and section 25 of CITA and PPTA, respectively, or any specific
provision therefrom does not in any way preclude compliance with
section 78 of CAMA. The administrative framework for the alignment
of both legislations is crucial to ensure that foreign companies
comply with the legal requirements to validly exercise the power of
a corporation and operate a business in Nigeria.
Furthermore, the CAC is encouraged to strengthen its enforcement
mechanism to ensure that all companies including nonresident
companies comply with the requirement of CAMA irrespective of their
tax status. Registration of businesses is deemed a normal/routine
requirement in every jurisdiction and would not in any way affect
the attractiveness of foreign investors to invest but rather
promote a robust database of all companies operating in Nigeria
from which the Federal Inland Revenue Service (FIRS) can also
leverage on to ensure that companies that are otherwise not
captured by FIRS tax net can be extracted through the CAC’s
database. Through this means the revenue generation of the FIRS can
be further strengthened.
Conclusion
This article sheds light on the inconsistency between regulatory
compliance and operational realities for foreign companies in
Nigeria, drawing from the comprehensive legal frameworks provided
by CAMA and CITA/PPTA. It also highlights the significance of
harmonizing these frameworks to ensure clarity and consistency in
compliance requirements for foreign entities, thereby enhancing the
overall business environment in Nigeria. From a regulatory
perspective, the alignment of CAMA and CITA/PPTA provisions is
essential for promoting compliance and widen the tax database for
revenue generation for Nigeria. Simultaneously, foreign companies
stand to benefit from a clearer understanding of their obligations
and tax implications, fostering greater confidence in navigating
the Nigerian market. By emphasizing the value of harmonization and
recommending proactive measures to address any discrepancies, this
article offers valuable insight for the Minister of Finance to
ensure harmonization of the relevant sections of CITA/PPTA to CAMA
in the next Finance Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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