Review of The Significant Economic Presence Order For Digital And Non-Resident Companies -By Akin Akorede Folarin


Noteworthy amongst the host of praiseworthy changes introduced to the Nigerian tax regime by the Finance Act 2019 (“the Act”) is the attempt to delineate a standard structure for the taxation of the digital economy and non-resident companies (NRCs) that provide technical, professional, management, or consultancy services in Nigeria, in order to combat base erosion and profit shifting (BEPS). To do this, the Act introduced what is called “significant economic presence” (SEP) as a test to establish a tax bracket for these digital economy entities and NRCs. However, the Act did not provide the basis for establishing whether/when such entities have an SEP in Nigeria but left it to the discretion of the Minister of Finance.

Pursuant to this power given under Section 13(4) of the Companies Income Tax Act (as amended by the Act) [CITA], the Honourable Minister of Finance, Mrs. Zainab S. Ahmed, has now, by an order dated 3rd of February, 2020, published, in the Federal Government Official Gazette No. 21, Vol. 107 of 10 February 2020, the Companies Income Tax (Significant Economic Presence) Order, 2020. The Order defines “significant economic presence” (SEP) with regards to the taxable income of NRCs under Section 13(2) (c) and (e) of CITA (as amended).

In this newsletter, we review the imports of the Order and the attendant changes it brings to the regime for the taxation of the digital economy and NRCs in Nigeria.


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The highlights/imports of the order can be seen from the lens of two broad headings as the Order itself provides in its paragraphs (1) and (2), that is, digital economy activities and services provided by non-resident companies.


The Order provides in Paragraph (1) for the meaning of significant economic presence (SEP) with regards to the taxable profits of entities operating digitally under S. 13 (2) (c) of the CITA (as amended). It provides that a foreign entity involved in digital transactions will be deemed to have created an SEP in Nigeria and, therefore, liable to tax if it:

  1. Derives gross turnover or income of more than NGN 25 million or its equivalent in other currencies in the accounting year from any combination of the following:
    1. streaming or downloading services of digital content, including but not limited to movies, videos, music, applications, games, and e-books to any person in Nigeria;
    2. transmission of data collected about Nigerian users that has been generated from such users’ activities on a digital interface, including websites or mobile applications;
    3. provision of goods or services directly or indirectly through a digital platform to Nigeria; or
    4. provision of intermediation services through a digital platform, website, or other online applications that link suppliers and customers in Nigeria;
  2. Uses a Nigerian domain name (.ng) or registers a website address in Nigeria; or
  3. Has a purposeful and sustained interaction with persons in Nigeria by customizing its digital page or platform to target persons in Nigeria, including reflecting the prices of its products in Nigerian currency or providing options for billing of payment in Nigerian currency.


As such, the Order recognizes an NRC to have taxable significant economic presence in Nigeria if it (1) it makes more than NGN25 million through its digital platforms accessible and in use in Nigeria; (2) uses a domain name (.ng) or registers a website in Nigeria; or (3) has a “purposeful and sustained” digital interaction with Nigerians.

To determine if/when the NGN25 million threshold in (1) above is exceeded, the Order provides that activities carried out by connected persons (with such digital activities) in that year will be aggregated. The Order defines these “connected persons” as associates or business associates where one person is involved in the management, control or capital of the other or where both people are involved in the management, control or capital of both enterprises.

However, the Order states that any foreign company covered under any multilateral or consensus agreement to address the tax challenges arising from the digitalization of the economy and to which Nigeria is a party will be treated in accordance with those agreements or arrangements from the date it took effect in Nigeria.



Section 13(2)(e) of the CITA (as amended) provides that an NRC providing technical, professional, management or consultancy services in Nigeria is liable to tax if such company has SEP in Nigeria.

The Order now clarifies that such NRC shall have an SEP in Nigeria in any accounting year if it earns any income or receives any payment from a person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria. The Order also particularly clarifies that technical services relate to any service of a specialized nature, including advertising, training, or supply of personnel.

Notwithstanding the foregoing, the Order also provides that a foreign company will not have SEP in relation to any payment made:

  1. to an employee of the person making payment under an employment contract; or
  2. for teaching in or by an educational institution; or
  3. by a foreign fixed base of a Nigeria company.



Considering the uncertainty engendered by SEP not being defined in the Finance Act upon its passage into law, the recent publication of the Companies Income Tax (Significant Economic Presence) Order, 2020 is a praiseworthy development. The tax regime for digital economy entities and NRCs is now clearer going forward. The recent establishment of the Non-residents tax office at the Federal Inland Revenue Service (FIRS) will also definitely ease compliance and enforcement.


Also, even though we foresee a certain level of difficulty in assessing exactly the taxable profits attributable to the economic activities of digital entities and NRCs in Nigeria, this problem is not insurmountable with a few further orders or directions here and there. Nigeria could, for instance, adopt India’s proposed Fractional Apportionment model or an Advance Pricing Arrangement/Mutual Agreement Procedure model where the tax authorities agree with affected companies in advance as regards how their revenue and profits will be determined and taxed in Nigeria. The Federal Government could also employ state of the art technological infrastructure to track the income generated from Nigeria by these foreign entities to ascertain when the revenue threshold is met or payment is received, or establish close working relationship between tax authorities and financial institutions to that end.


Overall, the coming into being of the Order means that Nigeria can now reasonably profit from the taxation of its enviable and rapidly-developing digital economy and technical and consultancy services demand.

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