Taxation of Expatriates and Foreign Companies

in Nigeria

Taxation of Expatriates and Foreign Companies in Nigeria

CONTENTS
List of Abbreviations
Table of Cases
Table of Statutes
1. Introduction
2. Who is an Expatriate?
3. The Scope of Expatriate Taxation under PITA
3.1

Source

3.2

Residence

4. Taxation of Expatriate Income

4.1 Taxing an Expatriate in Business (Direct Assessment)
4.2 Taxing an Expatriate in Paid Employment (Indirect Assessment)
5. Deemed Income
6. Taxing Expatriate Employees of Foreign Employers
7. Taxation of Foreign Companies in Nigeria
8. The Scope of Physical Presence Required
8.1 Permanent Establishments
8.2 Withholding Tax Income
9. Aluminium Industries v Federal Board of Inland Revenue
9.1 Analysis
10. Conclusion

Taxation of Expatriates and Foreign Companies in Nigeria

List of Abbreviations
All NTC

All Nigerian Tax Cases

CAMA

Companies and Allied Matters Act

CITA

Companies Income Tax Act

FBIR

Federal Board of Inland Revenue

PITA

Personal Income Tax Act

Taxation of Expatriates and Foreign Companies in Nigeria

Table of Cases

C.I.R. v. Lever Brothers and Unilever Ltd

Coltness Iron Coy v Black [1881] 9 TC 287, 307

Reiss & Co (Nigeria) Limited v Federal Board of Inland Revenue

Aluminium Industries v Federal Board of Inland Revenue

Taxation of Expatriates and Foreign Companies in Nigeria

Table of Statutes
Companies Income Tax Act
Personal Income Tax Act

Taxation of Expatriates and Foreign Companies in Nigeria

Taxation of Expatriates and Foreign Companies in Nigeria

Introduction
The taxation of expatriates under the Nigerian tax laws is a challenge to revenue
authorities and most lawyers. Indeed this area of taxation is widely litigated upon in
Nigeria. A lot of the confusion stems from the idea that under the Personal Income Tax
Act (PITA)the principal Nigerian legislation on income taxationdifferent sets of
rules applyies to the taxation of expatriates and Nigerians. So, there is a general
conception that under PITA the provisions for the taxing expatriates are different from
those applying to non-expatriates. But this is not correct.
In this article, I will examine the charging section and other relevant sections of PITA
imposing tax on income. Through careful analysis of various sections in PITA, I will
show that there are no separate rules applying to expatriates and non-expatriates.
I will also consider the taxation of foreign companies in Nigeria. Questions such as
whether the law draws a distinction between foreign companies and Nigerian
companies for tax purposes will be answered. If there are distinctions, the distinctions
will be pointed out and discussed.
Who is an expatriate?
An expatriate is a person who does business in a country other than the country of his
residence, for himself or as an employee. Akinyele Oladeji points out that [a]n
expatriate is a foreign individual working in Nigeria, either in business for himself or
under paid employment.1
The Scope of Expatriates Taxation under PITA
The legal framework for the taxation of income in Nigeria is the PITA. To understand
the rules regulating expatriate taxation, certain sections of PITA need to be highlighted
and discussed. PITA splits the administration of income tax into three: Direct
Assessment, Pay-As-You-Earn Scheme, and Withholding tax. The purpose of this divide
is to afford easy implementation and accountability.

1 Akinyele Oladeji Taxation of Expatriate Income An Abridged Presentation to the

Tax Class, The Faculty of Law, University of Lagos 8

Taxation of Expatriates and Foreign Companies in Nigeria

Under PITA, tax is imposed on the income paid to individuals and communities and
families. Tax is also imposed on the income paid or due to trustees or estate. 2 In
imposing tax on income, Ssection 1 does not distinguish between expatriates and
Nigerians, the Ssection 1 uses the terms individuals, communities, families, trustees,
and estate. Income paid to any of these persons in Nigeria is taxable.
Section 2 of PITA goes on to list taxable persons. The list includes every individual and
persons resident outside Nigeria who derives income or profit from Nigeria.
Under Ssection 3, tax is imposed on the total income (that income derived from inside or
outside Nigeria) of every taxable person. This means that persons who live in Nigeria
(residents) are taxable on global income3income derived within or outside Nigeria.
But non-residents are taxable only on income derived from Nigeria or from Nigerian
investments. This distinction is important because, [i]ncome tax is imposed based on
source and residency rules. Residents are subject to tax on their worldwide income
whereas nonresidents are subject to tax on their income derived from Nigeria. 4 Since
income tax is based on source and residency rules, the scope of both concepts are
examined later.
HoweverBut first, I would like it is pertinent to first point out the distinction between
expatriates doing business in Nigeria from their home state and expatriates employed in
Nigeria. Section 6 of PITA regulates the first instance, if an individual outside Nigeria
does business or trade partially in Nigeria, any income or gains attributable to Nigeria
will be taxed provided that the individual5:
1. does not have a fixed based in Nigeria;
2. does not habitually operate a trade or business through an agent in Nigeria;
2 Section 1 of PITA
3 Section 3(1) of PITA
4 Navigating New Territory, Internationally mobile employees, Country-Nigeria
PwC, 5
5 Section 6 of PITA

Taxation of Expatriates and Foreign Companies in Nigeria

3. the trade or business in Nigeria does not involve a single contract for surveys,
deliveries, installation or construction;
4. the trade or business is not in the opinion of the tax authority artificial or
fictitious.
Regarding the second instance, that is expatriates in Nigerian employment, Ssection 10
is the guiding provision. Section 10 states that gains from employment will be deemed
to be derived from Nigeria if:
1. the duties of the employment are wholly or partly performed in Nigeria
2. the employer is in Nigeria, or has a fixed base in Nigeria.
Once an individual (expatriate or not) falls into any of the two categories above, the
individual becomes taxable. But an individual will not be taxable even though the
duties of employment are wholly or partly performed in Nigeria, if:
1. the employer is outside Nigeria and the remuneration due to the individual is
not borne by the fixed base in Nigeria;
2. the individual is not in Nigeria for 183 days or more in any 12 month period
starting in a year and ending the same year or the following year; and
3. the individuals remuneration is liable to tax in another country.
These conditions are conjunctive. Only persons who meet all three criteria will be
relieved from paying the tax.
Source
Tax is territorial. The implication is that tax is imposed only on income derived from
Nigeria. That is income from employment done or performed in Nigeria or from
Nigerian investments.
The concept of source poses the question: was the income derived from Nigeria?
In ascertaining an expatriates tax liability, revenue authorities must determine whether
the income was derived from Nigeria. Under PITA, employment income is deemed to be
derived from Nigeria if6:

6 Section 10(1),(2),(3), and (4) of PITA

Taxation of Expatriates and Foreign Companies in Nigeria

1. the duties of the employment are wholly or partly performed in Nigeria.

2. the employer is in Nigeria or has a fixed base in Nigeria.
3. in an employment by the government, the employee performs the duties of the
employment in a country having an agreement or diplomatic usage exempting
the employee from tax on those income.
4. the employment is exercised in Nigeria despite where the gains from the
employment was received.
5. the duties of the employment are wholly or partly performed in Nigeria. Then
the gains from the employment are deemed to be derived from Nigeria including
gains received during the employees period of leave or temporary absence from
Nigeria.
Once a person falls under any of the categories above, the income from the employment
will be taxable under PITA.
The above provisions pose two possible situations regarding the source of income. First,
income may be paid to a non-resident in Nigeria for work done in Nigeria. Second,
income may be paid to a non-resident outside Nigeria for work done in Nigeria. These
indicate two sources from which income can be derived: geographical source and casual
source (originating cause)7.
The geographical source is the place the income was received. The place of payment is
what is examined when considering the geographical source of income. The casual
source on the other hand is the place the work or employment that gave rise to the
income was done. In certain cases, the geographical source and casual source might be
different. In Nigeria, if the geographical source and the casual source of income are
different, the casual source usually takes preeminence.
As stated earlier, the determinant of whether profit was derived from Nigeria is the
casual source. Once it is established that the income is derived from Nigerian
employment, the income becomes taxable here. This was the position of the court in
C.I.R. v. Lever Brothers and Unilever Ltd.8 Watermayer CJ., held that
7 Ade Ipaye, Taxation of Foreign persons and Business under the Nigerian Law, 6
8 [1946] SATA 441 (South Africa), cited in Ade Ipaye, Taxation of Foreign persons
and Business under the Nigerian Law, 5

Taxation of Expatriates and Foreign Companies in Nigeria

the source of receipts, received as income, is not the quarter whence they
came, but the originating cause is the work which the taxpayer does to earn
them, the quid pro quo which he gives in return for which he receives them. The
work which he does may be business which he carries on, or an enterprise which
he undertakes, or an activity in which he engages and it may take the form of
personal exertion, mental or physical, or it may take the form of employment of
capital either by using it to earn income or by letting its use to someone else.
Often the work is some combination of these. 9
An income may have multiple derivations in such a way that apportionment becomes
difficult. In that instance, sticking to the immediate source is preferred to considering
remote sources.10
Under PITA once the duties of an employment are wholly or partly performed in
Nigeria, a non-resident will be liable to tax unless11:
i.

the duties are performed on behalf of an employer who is not in Nigeria and the

ii.

employees remuneration is not borne by a fixed based in Nigeria;

the employee is not in Nigeria for 183 days or more in any 12 month period

iii.

starting in a year and ending the same year or the following year; and
the employees remuneration is liable to tax in another country under the
avoidance of double taxation treaty.

Also, the income from employment will be taxed in Nigeria if the employer is in Nigeria
or has fixed based in Nigeria.
Residence
Residence also determines tax liability. Once it is established that an individual is
resident in Nigeria, the individual becomes chargeable to tax here. As mentioned
earlier a resident is subject to tax on global income.
9 C.I.R case (fn 8)
10 Ade Ipaye, Taxation of Foreign persons and Business under the Nigerian Law,8
11 Section 10(1)(a)of PITA

Taxation of Expatriates and Foreign Companies in Nigeria

Presence determines residency status not nationality. A person is resident in Nigeria if

the person is domiciled in Nigeriathat is, lives in Nigeria or is present in Nigeria for
183 days or more in any 12 month period starting in a year and ending that year or the
next year.12
For a non-resident, his tax liability is determined by source. Thus only the income
attributable or derived from Nigeria is subject to tax.
Taxation of Expatriates Income
Recall that an expatriate is a foreigner who works in a place other than his home
country for himself or others. Thus there are two streams of expatriate incomeincome
from personal investment and income from paid employment. The mode of taxing these
streams of income and the challenges involved are different. Assessment of the first is
direct while assessment of the second is indirect 13.
Let us pause and clarify what income is.
Section 3 of PITA describes income as including gains or profit, salary, wage, fee,
allowance, or other gains from employment including compensation, bonuses,
premiums, and benefits. Thus PITA adopts the general principles of income tax: that
everything of the nature of income shall be assessed, from what source soever [sic] it
may be derived, whether from invested capital, or from skill and labour, or from a
combination of both, and whether temporary or permanent, steady or fluctuating,
precarious or secure.14
Taxing an expatriate in business (Direct Assessment)

12
13 Akinyele Oladeji, Taxation of Expatriate Income An Abridged Presentation to
the Tax Class, The Faculty of Law, University of Lagos 9
14 Coltness Iron Coy v Black [1881] 9 TC 287, 307 (Lord President) cited in Ade
Ipaye, Taxation of Foreign persons and Business under the Nigerian Law, 4-5

Taxation of Expatriates and Foreign Companies in Nigeria

Here, the expatriate is required to file returns with the state revenue service directly. But
there are certain challenges associated with direct assessment. Akinyele identified some
of the challenges below15:
1. Profit under-declaration:.
A non-resident can easily understate business profit.
2. Ttumefying of expenses.
A non-resident may blow up expenses incurred in a tax year in order to reduce
the amount payable as tax.
3. Ttrimming income.
It is also easy for the non-resident to trim income in his documentation to the
revenue authority.
4. Ffalsification of documents.
The challenges faced by revenue authorities usually come with falsification of
documents.
5. Ccreative accounting.
This involves manipulating financial figures usually within the letter of the rules
of law and standard accounting practices. But creative accounting deviates from
the spirit of those rules and certainly do not provide the true and fair view of
accounts.16
To address these challenges, revenue authorities came up with concepts such as best-ofjudgment assessment17 and creation of high net-worth individual unit.18
Taxation of Expatriate in Paid Employment (Indirect Assessment)
15 Akinyele Oladeji, Taxation of Expatriate Income An Abridged Presentation to
the Tax Class, The Faculty of Law, University of Lagos 10
16 Wikipedia available at https://en.wikipedia.org/wiki/Creative_accounting (Last
accessed 13 September 2016 insert time the website was accessed)
17 Best-of judgment assessment allows revenue authority to determine a taxable
persons income and assessment according to its best of judgment. For further
study, read Kome Oruade Salient Points About Tax Assessments in Nigeria: BOJ,
NORA ETC, 1, (available at http://ssrn.com/abstract=2763728)
18 Akinyele Oladeji Taxation of Expatriate Income An Abridged Presentation to
the Tax Class, The Faculty of Law, University of Lagos 10

Taxation of Expatriates and Foreign Companies in Nigeria

Akinyele classifies expatriates in paid employment into two: Foreign Nnational and
Nigerian National.19 A foreign national is an expatriate employed to work wholly or
partly in Nigeria.
Unless the foreign national is an ECOWAS citizen, he or she needs a work permit. An
expatriate working for 90 days or less requires a Temporary Work Permit (TWP). This
allows the expatriate to work on projects or special assignments undertaken by a
Nigerian subsidiary or business partner. Expatriates undertaking long term assignments
require expatriate quota. The Expatriate will come into Nigeria on a Subject to
Regularization (STR) visa. Upon arrival, the employer will apply for resident permit
known as Combined Expatriate Resident Permit and Alien Card (CERPAC). Re-entry
Visas are no longer required.20
A Nigerian national is a Nigerian employed by a Nigerian organization and whose
employment duties are performed wholly or partly in Nigeria. But the employee is
seconded or the conditions of service determined by foreign affiliated organizations.
Nigeria operates a Pay-As-You-Earn (PAYE) scheme. Under this scheme, income tax
payable by employees is deducted from employees income on a monthly basis 21. The
tax is deducted from the first month of employment. The tax deducted is then remitted
to the relevant tax authority by the employer on or before the 10 th day of the month
following the payment of salary. This makes the employer the tax agent of the
government. But there are some difficulties regarding enforcement. Akinyele highlights
some of these difficulties below22:
1. Nnon-remittance, under remittance and late remittance of PAYE and other taxes.
19 Akinyele Oladeji Taxation of Expatriate Income An Abridged Presentation to
the Tax Class, The Faculty of Law, University of Lagos 11
20 Navigating new territory Internationally Mobile Employees Country Nigeria, PwC
9-10.
21 Section 81(1) of PITA
22 Akinyele Oladeji Taxation of Expatriate Income An Abridged Presentation to
the Tax Class, The Faculty of Law, University of Lagos 14-15

Taxation of Expatriates and Foreign Companies in Nigeria

2. Ddeliberately under-taxing employees income through the design and

implementation of various schemes aimed at tax evasion. For example, refund of
tax paid -tax on tax; country based -hazard index allowance; non-disclosure of
offshore

income

arising

from

the

Nigerian

employment;

house

ownership/building loans with no repayment plan or clause, acquisition of fixed

assets in the names of the employees, willful non-disclosure of employees total
taxable income, allowances and other perquisites e.g. children school fees, utility
bills paid on behalf of the employees etc.
3. Rrefusal to provide contract of employment of expatriate employees for tax
purposes. Even where the employment contract is provided it is usually vague
and ambiguous.
4. Ddisclosing unrealistic/unacceptable income for the expatriate employees. The
result is revenue authorities estimation of expatriate income using deemed
income. Deemed income is based on the nationality of the expatriate staff, the
industry employment, and the employment cadre.
5. Aabuse of the Nigerian court process. For instance, obtaining court order
restraining enforcement of warrant of distrain based on spurious reasons.
To deal with some of these challenges, revenue authoritiesy came up with concepts like
deemed income.
Deemed Income
The concept of deemed income is encapsulated in Ssection 17 of PITA. Under Ssection
17, if a tax authority is of the opinion that any disposition is artificial or any transaction
that reduces or would reduce the amount payable as tax is artificial, the tax authority
may disregards the disposition or direct that such adjustments be made to the income
that would counteract the reduction of liability to tax.
(Give an example with case law).
Taxing Nonresident Employees of Foreign Employers
A non-resident employee becomes liable to tax in Nigeria once the duties or part of the
duties of the employment is performed in Nigeria. 23 This is because the income from the
23 Section 10(1)(a) of PITA

Taxation of Expatriates and Foreign Companies in Nigeria

employment is derived from Nigeria. This is clear. But dust will usually arise when the
question of apportionment is raised, that is, where only part of the duty is performed in
Nigeria. Would the entire income be taxed?
Although Ssection 10 says nothing of apportionment, tax would apply only to the part
of the profit attributed to Nigeria.
Still, a difficult situation can arise where the total income is liable to tax in another
country. For example, a foreign company engaged to carry on installation projects in
Nigeria may deploy some of its employees to execute the project in Nigeria. Upon
completion of the project, the employees return to their country and are paid there. Are
these employees liable to tax in Nigeria?
Under Section 10(1)(a), gains or profit from an employment are deemed to be derived
from Nigeria and therefore taxable if the duties of the employment are wholly or partly
performed in Nigeria. But those gains or profit will not be taxed if, the employer is not
in Nigeria and the employees income is not paid by a fixed based of the employer in
Nigeria; the employee is not in Nigeria for more than 183 days in any 12 months period
starting in a year and ending that year or the following year; and the employees income
is to be taxed in another country 24. The employees in the scenario are taxable unless they
fulfill the criteria listed above.

Taxation of Foreign Companies in Nigeria

24 Section 10(1)(a)(i)-(iii) of PITA

Taxation of Expatriates and Foreign Companies in Nigeria

Under the Companies Income Tax Act (CITA), a foreign company is one established by
or under any law in force outside Nigeria. A Nigerian company on the other hand, is
one incorporated under the Companies and Allied Matters Act (CAMA)25.
Under CITA, the extent of a companys tax liability is determined by incorporation
that is, whether the company was incorporated under CAMA. The profit of a company
incorporated under CAMA, is deemed to arise from Nigeria, in spite of where the profit
actually arose and whether the profit was brought into or received in Nigeria. 26 This
means that a Nigerian company is liable to tax on global income.
But a foreign company is only liable tax on income derived from Nigeria . Aand the
profit of a foreign company will be deemed to be derived from Nigeria if 27:
1. the company has a fixed based in Nigeria and the profit is attributable to the
fixed based;
2. the company habitually operates a trade or business through a person authorized
to conduct business on its behalf in Nigeria or the company maintains a stock of
goods or merchandise in Nigeria from which deliveries are regularly made on its
behalf (as long as the profit is attributed to the business or trade or activities
carried on through that person);
3. the company carries on trade or business or activities in Nigeria involving a
single contract for surveys, deliveries, installations or construction, then the
profit from that contract;
4. trade, business, or activities is between the company and a person in control of it
or who has a controlling interest in it and conditions are made or imposed
between the company and the person in their commercial and financial relations
which the revenue authorities considers artificial or fictitious.
On the importance of bearing this distinction in mind, a renowned law professor writes
that, [t]his distinction is important in relation to profits, which are deemed to be
derived from Nigeria, and is therefore subject to Nigerian tax under section 8(1). Thus
25 Section 105 of CITA
26 Section 13(1) of CITA
27 Section 13(2) of CITA

Taxation of Expatriates and Foreign Companies in Nigeria

the profits of a Nigerian company are deemed to accrue in Nigeria wherever they arise
and whether or not they have been brought into or received in Nigeria. On the other
hand the profits of a company, other than a Nigerian company, are only deemed to be
derived from Nigeria to the extent that they are attributable to some part of the
operations of the company carried on within Nigeria. 28
The Scope of Physical Presence Required
Only a foreign company or an expatriate operating in and deriving profit from Nigeria
can be taxed.
To be taxable, it is not enough that a foreign company is present in Nigeria. The foreign
company must carry on a business or activity in Nigeria that yields profit.
The existence of an agency relationship between a foreign company and a Nigerian
company is not sufficient to tax the entire profit arising from the agency relationship.
Only the part of the profit that was derived from Nigeria can be taxed. This was the
courts position in Reiss & Co (Nigeria) Limited v Federal Board of Inland Revenue 29. In this
case, the Appellant a Nigerian company was an agent of Reiss Amsterdam, a foreign
company in Holland. Under the agency arrangement, the Appellant would introduce
Nigerian buyers to Reiss Amsterdam, accept orders and deposits from the buyers, and
transfer the orders and deposits to Reiss Amsterdam. Reiss Amsterdam had the power
to accept or reject the orders transferred to it. If Reiss Amsterdam accepts the orders, it
would charge the buyers for the goods and pay the Appellant a mutually agreed
percentage for its agency services. Reiss Amsterdam would then send the invoice of the
transaction to each buyer and to the Appellant. FBIR charged the Appellant to tax on
the value of the transactions appearing on the invoice. The Appellant objected stating
that only the percentage due to it as agent should be taxed. The Appellant argued that
Reiss Amsterdam sent the invoice to it merely for record purposes and not because the
sum contained in the invoice was paid to them.
28 M. T. Abdulrasaq, Nigerian Revenue Law, (2005) Malthouse Law Books, 123
quoted in Lanre Akinsola The Law and Practice of Taxation of Foreign Entities in
Nigeria 3
29 [1922-2014] 2 All NTC 307 (FRC) 333-334 paragraphs 10-40

Taxation of Expatriates and Foreign Companies in Nigeria

In deciding that the Appellant was not liable to tax on the entire sum, the court stated
that apart from introducing buyers to the Reiss Amsterdam, no part of the transaction
was carried on in Nigeria. The court opined that whenever profitable contract is done by
or for foreigners with persons in a country, the foreigners are exercising a profitable
trade in the country. This is so even though everything regarding fulfilling the contract
is done abroad. But the court stated that the result is not the same when the foreigner
employs an agent and does not come into the country. The court held that this
emphasized two circumstances: trading in a country and carrying on trade within a
country. Since Reiss Amsterdam did not carry on trade within Nigeria, the court held
that the taxable income was that paid to the Appellant as agents.
When is a foreign company said to carry on trade or business within Nigeria?
This question brings to mind the concept of economic nexus. For a foreign company to be
liable to tax in Nigeria, it must be shown that the company carried on sufficient business
activities in Nigeria and derived profit from those business activities. The nexus
determines whether a business has enough of a presence in a country to become
subject to its taxes. It refers to the extent of physical presence in a country that triggers a
company's tax liability in that country. The concept of economic nexus holds that tax
nexus exists whenever a business has derived revenue or income from a customer in a
country, even if the business has no property, employees or other significant physical
presence in that territory.30 The implication therefore is that the extent of a foreign
companys tax liability is determined not by physical presence alone but by the income
attributable to the activities carried on by the company in Nigeria. Thus [i]f the
presence of a foreign company in Nigeria is merely auxiliary or preparatory in nature
and there is no profit attributable to such presence, tax liability does not arise. 31
Where a foreign company derives income from Nigeria, there are two ways of taxing the
income: creating permanent establishments and withholding tax in Nigeria source
income.
30 K. R. Girish and R. Venkatesan, Economic nexus- based taxation available at
http://www.thehindubusinessline.com/todays-paper/tp-mentor/economicnexusbased-taxation/article1686966.ece (accessed 15 August 2016)
31 Lanre Akinsola The Law and Practice of Taxation of Foreign Entities in Nigeria 4

Taxation of Expatriates and Foreign Companies in Nigeria

These concepts are briefly explained below.

Permanent Establishment
A company is said to have a Permanent Establishment where it has a branch carrying on
business for profit in a country other the place where it was incorporated. The
implication is that the profit attributable to the branch would be taxed by the revenue
authority in the state where it does business for profit. It is the taxable presence of a
foreign company carrying out activities in Nigeria. 32
Article 7 of the Double Taxation Agreement between Nigeria and United Kingdom of
Great Britain and Northern Ireland explains the concept as follows: [t]he profits of an
enterprise of a Contracting State shall be taxable only in that State unless the enterprise
carries on business in the other Contracting State through a permanent establishment
situated therein. If the enterprise carries on business as aforesaid, the profit of the
enterprise may be taxed in the other State but only so much of them as is attributable
that permanent establishment.
There are two types of permanent establishments: physical presence permanent
establishment and dependent agent permanent establishment.
Physical presence permanent establishment requires the company to have a fixed based
in Nigeria. Any profit attributable to the fixed base in Nigeria will be subject to Nigerian
tax. Statutorily, this is provided for in section 15(1) of CITA.
An agency permanent establishment, on the other hand, is what is contemplated under
section 15(2) of CITA. Here, any profit from the activities of a person authorised to act
on behalf of a foreign company in Nigeria is taxable in Nigeria.
Aluminium Industries v Federal Board of Inland Revenue33
Having established the position of the law above, I will consider the judgment of the
Supreme Court in Aluminium Industries.

32 Lanre Akinsola The Law and Practice of Taxation of Foreign Entities in Nigeria 4
33 [1922-2014] 1 ALL NTC 297 (SC) 297 (Lewis JSC)

Taxation of Expatriates and Foreign Companies in Nigeria

The facts were that Aluminium Industries, a company registered and resident in
Switzerland was the beneficial owner of all the issued share capital of Aluminium
Manufacturing Company of Nigeria (ALUMACO). ALUMACO is a company
incorporated in Nigeria. Aluminium Industries invested in ALUMACO from the time of
its incorporation including granting a loan to ALUMACO. Both companies entered into
the loan agreement in Zurich and agreed that the loan granted in Swiss francs currency
would be repaid in that currency. It was also agreed that the interest on the loan was
5% per annum. FBIR charged Aluminium Industries to tax on the 5% interest paid on
the loan. Aluminium Industries objected to the assessment and appealed to the body of
Appeal Commissioners. Aluminium Industries argued that the interest payable on the
loan was not derived from Nigeria because it did not carry on business or trade in
Nigeria; the loan was to be paid in Swiss franc; and the loan agreement was not entered
into in Nigeria. FBIR relied solely on the deeming provision of Ssection 17 of CITA,
1961. The appeal was upheld and FBIR appealed to the high court.
At the high court, Sowemimo J., gave judgment for FBIR. In holding that the 5% interest
was subject to tax, Sowemimo J. points out that
[i]t is immaterial whether the agreed interest should be paid in Swiss francs or
not, the interest to be paid is out of the profit made in Nigeria. The money was
invested in Nigeria therefore whatever profits are derived from such investment
by way of interest must be subject to tax in Nigeria. 34
Aluminium Industries appealed. The Supreme Court found that the sole issue, based on
Ssection 17 of CITA, 1960 was: does Aluminium Industries have a right to payment of
the interest in Nigeria? Aluminium Industries argued that the loan agreement was to
pay the loan in Swiss franc in Switzerland. Aluminium Industries also argued that if
ALUMACO had failed to pay the loan, it was only before Swiss courts that it could sue
ALUMACO to obtain judgment in Swiss currency. This is because a Nigerian court
could only award damages in Nigerian currency.
FBIR relied only on the deeming provision of Ssection 17 and maintained that the 5%
interest was taxable in Nigeria.
The Supreme Court upheld Aluminium Industries argument and held as follows:
34 Aluminium Industries (fn 18) paragraph 5

Taxation of Expatriates and Foreign Companies in Nigeria

1. the source of the debt obligation was the agreement made in Zurich between the
Aluminium Industries and ALUMACO;
2. the obligation itself was for ALUMACO to pay the principal and interest on the
loan to Aluminium Industries in Zurich and in Swiss currency;
3. neither the source of the obligation nor the obligation itself arose in Nigeria;
4. section 17 deems interest to be derived from Nigeria only if the right to payment
of the interest is in Nigeria and in this case it is not.
Analysis
A good place to begin this analysis is Ssection 17 of CITA, 1961.
Section 17 states that [t]he tax shall, subject to the provisions of this Act, be payable at
the rate hereinafter specified for each year of assessment upon the profits of any
company accruing in, derived from, brought into, or received in, Nigeria in respect of:(a) Any trade or business for whatever period of time such trade or business may have
been carried on;
(b) Rent or any premium arising from a right granted to any other person for the use or
occupation of any property;
(c) Dividends, interest, discounts, charges or annuities;
(d) Any source of annual profits or gains not falling within the preceding categories
(e) Any amount deemed to be income or profits under a provision of this Act or, with
respect to any benefit arising from a pension or provident fund, of the Income Tax
Management Act, 1961.
For the purposes of this section, interest shall be deemed to be derived from Nigeria if:(i) there is a right to payment of the interest in Nigeria;
(ii) the interest is by deed, will or otherwise be charged upon or reserved out of real or
personal estate situate in Nigeria the property of the person paying the same, or as a
personal debt or obligation by virtue of any contract which is entered into in Nigeria or

Taxation of Expatriates and Foreign Companies in Nigeria

(iii) in the case of money lent to a Nigerian company, the loan is evidenced by mortgage,
debenture, loan or other stock, whether secured or unsecured, issued by the company in
recognition of its debts.
The relevant section here is Ssection 17. Section 17 makes no mention of the source of a
debt obligation as made out by the Supreme Court. In fact Ssection 17 does not concern
itself with the source of a debt obligation rather it stipulates that tax must paid on the
profit derived from Nigeria in respect of interests. Section 17 goes further to define
interest derived from Nigeria under proviso (i). Section 17 never intended for a foreign
company to be able to charge interest on loan given to its Nigerian counterpart without
paying tax on it. Nor did section 17 intend for the Aluminium Industries to be able to
conduct tax-free transactions. The Supreme Court decision resulted in a classic case of
double-non taxation. The judgment of the Ccourt of Aappeal should have been upheld.
This is because [t]he money was invested in Nigeria therefore whatever profits are
derived from such investments by way of interest must be subject to tax in Nigeria.35
If, as was argued by the Aluminium Industries, ALUMACO had defaulted in paying
the loan, would Aluminium Industries not be entitled to sue for the loan and damages
in Nigeria? If the answer is no, how would Aluminium industries enforce the judgment
of a Zzurich court in Nigeria? If the interest to be paid on the loan was not derived from
Nigeria, then where? If as the Court held the interest is not taxable in Nigeria, where is
the interest to be taxed? If the tax on the loan interest was not paid to FBIR, then to
whom was it paid? If the interest paid on the loan was not derived from business
activities done in Nigeria, then from where was it derived?
The problem created by this case would appear to have been resolved by CITA 2007.
Section 9(2) of CITA, 2007 deems interest to be derived from Nigeria if:
(a) there is a liability to payment of the interest by a Nigerian company or a
company in Nigeria regardless of where or in what form the payment is made; or
(b) the interest accrues to a foreign company or person from a Nigerian company or
a company in Nigeria regardless of whichever way the interest may have
accrued.
Conclusion
35 Aluminium Industries ( fn 18) 304, paragraph 5