Nigeria: Updates in international corporate tax

The ever-evolving nature of tax law in Nigeria results in regular updates in Nigeria’s ICT regime. Here, we consider some of the recent and proposed changes to Nigeria’s ICT laws.

Reversal of the unilateral withholding tax (WHT) rate

Since 1999, Nigeria has unilaterally implemented a WHT rate of 7.5% on dividends, interest and royalties (DIR) paid by residents of Nigeria and beneficial owners of DIR resident in countries which are double taxation treaty partners to Nigeria. With effect from 1 July 2022, the Federal Inland Revenue Service (FIRS) announced the discontinuation of this policy and implementation of a WHT rate of 10% on DIR, and 5% on royalties payable to individuals except in respect of certain relevant treaty countries. In essence, the rates specified in the tax laws shall apply, except where it exceeds the maximum rate specified in the tax treaty; in which case, the rate specified in the tax treaty shall apply.

The Nigerian Startup Act 2022

In October 2022, the Nigerian President assented to the Nigerian Startup Act 2022. The act makes provisions for the exemption of qualified startups from the payment of income tax for a total period of five years. Notably, the act also encourages foreign and local investment in the ownership of a qualified startup. It provides that any person, angel investor (local or foreign), venture capitalists, private equity funds, etc. who invests in a qualified startup is entitled to an investment tax credit equivalent to 30% of the investment provided that such credit shall be applied to any gains on investment which are subject to tax.

Furthermore, qualified startups which are involved in the export of products and services are deemed eligible to export incentives and financial assistance under the Export (Incentives and Miscellaneous Provisions) Act. Significantly, upon disposal of assets by an investor, the gains which accrue to such investor are exempt from capital gains tax, provided the assets have been held in Nigeria for a minimum of 24 months.

The Sentinel Payment Gateway

The FIRS announced the automation of tax payments on online gaming using the Sentinel National Payment Gateway and Electronic Solution. The gateway is a transaction processing system that enables integrated payment service providers to deduct taxes at transaction points and remit the tax deducted directly to the government. Significantly, while it is not mandatory for non-resident companies offering online gaming services in Nigeria to be registered in Nigeria, they must connect to the gateway for the purpose of collecting and remitting taxes for online gaming activities.

Relevant proposed changes to the Finance Bill 2022

Finally, the Finance Bill seeks to codify the taxation of companies which derive revenue from gaming or lottery businesses. Also, in line with Nigeria’s climate change and Green Growth commitment at the United Nations Climate Change Conference, the Bill proposes on the one hand to incentivise companies utilising associated and non-associated gas by offering a 50% investment tax credit on their qualifying investment for the purposes of research and development and, on the other hand, to deter gas flaring by providing that medium and large companies that flare gas in Nigeria would be liable to 50% corporate tax, above the 30% nominal income tax rate.

Read the WTS Global International Corporate Tax Newsletter here.