Before the inception of the Finance Act 2019, Section 13 of the CITA contained provisions relating to taxation of economic value derived in Nigeria by Non-Resident Companies (NRCs). Under this provision, an NRC was deemed to have derived taxable economic value in Nigeria only if such company has a fixed base of business in Nigeria under any of the following circumstances:

  • It has a dependent agent who habitually executes contracts on its behalf in Nigeria;
  • It maintains stock of goods or merchandise in Nigeria from which supplies are made;
  • It executes a single contract for surveys, deliveries, installations or construction in Nigeria; and
  • It is deemed to have carried out an artificial or fictitious transaction with related parties in Nigeria.

The taxable profit in Nigeria, in any of the above instances, is the profit attributable to that fixed base. Thus, with technologically-propelled changes in business models, it was obvious that the nexus and taxation rules in the then CITA were not primed for the digital economy.

One of the main challenges with taxation of the digital economy is the continual increase in the potential of digital technologies and the reduced need for physical presence in order to carry on business. Secondly, the growth in sophistication of information technologies has permitted companies in the digital economy to gather and use information across borders to an unprecedented level.

However, the Finance Act 2019 which was passed into law by the President in January 2020, has amended the above provision of the Companies Income Tax Act to include the Digital Economy.  Section 13 was expanded to make companies with electronic or online business within the spheres of Nigeria and having some significant economic presence in Nigeria taxable. The concept of significant Economic Presence (SEP) has therefore expanded the scope of Nigerian tax on foreign companies deriving income from their activities in the country which were hitherto not captured in the tax net.

What then is Significant Economic Presence?

The concept of SEP means that a non-resident company would create a taxable presence in a country when it has a significant economic presence in that country based on factors that indicate a deliberate and sustained interaction with the economy of that country via technology and other automated tools.

Factors in Determining the Existence of SEP

On the 3rd of February 2020, the Minister of Finance, Budget and National Planning issued the Companies Income Tax (Significant Economic Presence) Order 2020 (the “Order”).

The Order targets two broad categories of Non-Resident Companies. These are companies carrying out digital services and companies involved in technical, professional, management, or consultancy services.

Non-Resident Companies involved in digital services would have Significant Economic Presence (SEP) in Nigeria if:

  1. Derives N25 million annual gross turnover or its equivalent in other currencies from any or combination of the following digital activities: streaming or downloading services of digital contents, including but not limited to movies, videos, music, applications, games and e-books to any person in Nigeria; or transmission of data collected about Nigerian users which has been generated from such users’ activities on a digital interface including website or mobile applications; or provision of goods or services other than those under sub-paragraph 5 of the Order, directly or indirectly through a digital platform to Nigeria; or provision of inter-mediation services through a digital platform, website or other online applications that link suppliers and customers in Nigeria;
  2. Uses a Nigerian domain name (i.e., .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 or services in Nigerian currency or providing options for billing or payment in Nigerian currency.

SEP and activities carried out by connected persons

The Order provides that the activities carried out by connected persons in any accounting year shall be aggregated in order to determine whether the N25 million annual gross turnover threshold was met. The Order also defines connected persons as:

  1. Persons that are “associates” as defined in the Companies and Allied Matters Act, Cap C20, LFN 2004 (as amended) [CAMA]; or
  2. Persons that are business associates in any form, such that one person participates directly or indirectly in the management, control or in the capital of the other, or the same person or persons participate directly or indirectly in the management, control or in the capital of both enterprises.

Determination of SEP for Technical, Professional, Management and Consultancy Services

NRCs which provide technical, professional, management, or consulting services would be deemed to have SEP in Nigeria if they earn income or receive payment from

  1. A person resident in Nigeria; or
  2. A fixed base or agent of an NRC

The Order defines a technical service as services of a specialized nature including advertising, training, and the provision of personnel (but not including professional, management, or consulting services).


The introduction of taxation of the Digital Economy is a commendable move made by the Federal Government as Nigeria has joined countries, such as India and Israel, that have codified the SEP rule into their income tax laws. Most digital and Multinational Technology Companies do not have a physical presence in Nigeria, yet make significant income in Nigeria from online activities, they pay no tax to Nigeria because they do have a physical presence in Nigeria, but now with the introduction of the concept of SEP, we will no longer rely solely on physical presence.

Author: Ijeoma
bangsajp slot777