Understanding Nigeria’s 2025 Tax Rules for Non-Resident Companies

 

Understanding Nigeria’s 2025 Tax Rules for Non-Resident Companies

In today’s global economy, businesses don’t always need to be physically present in a country to earn income there. This is especially true in Nigeria, where both traditional and digital businesses often reach customers without opening local offices. The Nigeria Tax Act, 2025 sets out clear rules to ensure that when foreign companies or individuals make profits linked to Nigeria, they contribute their fair share of taxes.

Taxing Non-Residents: The Basics

The Act states that income, profits, or gains made by a non-resident person from Nigeria are taxable in Nigeria. This applies whether the income comes from selling goods, providing services, running digital platforms, or even disposing of assets tied to Nigeria.

A non-resident can be taxed in two major ways:

  1. Permanent Establishment – where the foreign business has a physical or long-term presence in Nigeria, such as an office, factory, branch, workshop, or even construction sites.

  2. Significant Economic Presence – where a company has no physical office but earns profits from Nigerian customers through digital platforms, e-commerce, online advertising, app stores, cloud computing, streaming, or similar activities.

How Profits Are Calculated

If a foreign business is deemed to have a permanent establishment or significant economic presence, Nigeria will tax the portion of profits connected to Nigerian activities. The law requires these profits to be calculated in a way that reflects the actual Nigerian contribution. For instance, if a company sells goods to Nigerian customers or provides services locally, those profits are attributed to Nigeria.

Certain deductions, such as costs directly tied to earning Nigerian income, are allowed. However, payments like royalties or management fees sent back to the parent company abroad generally cannot be deducted. If it is difficult to calculate profits precisely, Nigeria can instead apply the company’s global profit margin to the income earned from Nigeria.

To prevent under-taxation, the law ensures that the tax collected will never be less than the withholding tax already deducted at source. Where no withholding applies, at least 4% of the gross Nigerian income will be taxed.

Why Digital Businesses Are Included

One of the most significant updates in the 2025 Act is the explicit inclusion of digital and technology-driven businesses. This means companies offering online gaming, e-commerce, social media advertising, streaming services, cloud data storage, and even digital teaching platforms can all be taxed in Nigeria if their activities generate profits linked to Nigerian users.

This shift is crucial because Nigeria, like many other countries, is expanding its tax net to capture revenue from the fast-growing digital economy. The law makes it clear: even without a physical office, if profits flow from Nigerian customers, taxes must follow.

What This Means for Businesses

For foreign businesses operating in Nigeria, directly or digitally, compliance is no longer optional. Understanding whether you fall under the definition of a permanent establishment or significant economic presence is the first step. Proper tax planning, accurate profit attribution, and clear documentation are essential to avoid disputes with the tax authorities.

At Bahas Books, we believe knowledge is power for business owners, investors, and professionals. Whether you’re a Nigerian company partnering with foreign firms, or an international business eyeing the Nigerian market, knowing the tax obligations under the 2025 Act helps you stay compliant and competitive.

👉 For more insights on accounting, taxation, and financial management, visit bahasbooks.com.

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