Permanent Establishment and Transfer Pricing in Nigeria

Fidelis Chukwu, Manager, Pedabo – Morison KSi’s member in Nigeria discusses Transfer Pricing and Profit Attribution to Permanent Establishments (PE)


he definitions of what constitute a PE in tax laws/ tax treaties are crucial in determining whether a non-resident company (NRC) is liable to tax in a state. The business environment is becoming more dynamic by the day and there are stirring cases of taxes not accruing to countries in which profits are generated because multinationals do not create a PE in those territories.

The global tax environment is beginning to pay apt attention to definitions of PE due to increased globalisation, advancement in technology and digital businesses. Tax authorities across countries are beginning to create avenues for business, persons or enterprises to account for their profits where value has been created. With its existing tax laws and novel Finance Act 2019 and 2020, Nigeria is also adopting ways to ensure revenue and income earned within its jurisdiction are subject to appropriate taxes.

Fidelis Chukwu, Manager, Pedabo, Morison KSi member in Nigeria

Permanent Establishments in Nigeria

There is no specific definition of what constitutes a permanent establishment in the Nigerian tax law, however there are factors that creates a taxable presence for non-resident companies in Nigeria.

The Companies Income Tax Act (CITA) states that the profits of a company other than a Nigeria company from any trade or business shall be deemed to be derived from Nigeria if:

  • the company has a fixed base in Nigeria to the extent that the profit is attributable to the fixed base
  • it habitually operates a trade or business through a person in Nigeria authorised to conclude contracts on its behalf or on behalf of some other companies controlled by it or which have controlling interest in it;
  • that trade or business involves a single contract deliveries, installations or construction; the profit from that contract
  • the trade or business or activity is between the company and another person controlled by it and such arrangement is deemed to be artificial or fictitious: so much of the profits adjusted by the board to reflect an arm’s length transaction

Recognising the Effect of the Digital Economy - Significant Economic Presence (SEP)

As a result of the ongoing works on taxation of the digital economy, the Finance Act 2019 expanded the conditions under which the income of NRCs would be taxable in Nigeria.

An NRC transacting business in Nigeria via a digital platform will create an SEP and is therefore taxable in Nigeria when it:

  • earns revenues in excess of N25 million from specific activities including streaming or downloading of digital content, transmitting data generated by Nigerian users on websites or mobile applications; direct and indirect sales of goods and services through a digital platform; and providing intermediation services like online marketplaces.
  • uses a Nigerian domain name (.ng) or registers a website.
  • has a purposeful and sustained interaction with Nigerian customers by customizing its website or digital platform to target persons in Nigeria.

An NRC providing technical (including training, advertising, supply of personnel), professional, management or consultancy services 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 in Nigeria.

Profit Attribution to PE - Nigeria’s Perspective 

NRCs carrying on businesses in Nigeria are assessed to tax on their income from Nigeria but not less than 6% of turnover (i.e. tax on a deemed profit of 20% of turnover at the corporate tax rate of 30%). For NRCs providing TPMC services, withholding tax at a rate of 10% shall apply on their income and this will be the final tax where such an NRC does not have an SEP in Nigeria. NRCs are now required to register and file income tax returns to the Federal Inland Revenue Service (FIRS) as appropriate. Where withholding tax is the final tax, the NRC does not need to register for and file income tax returns in Nigeria.

For TP purposes, Regulation 3(2) of the Nigeria Income Tax (Transfer Pricing) Regulation 2018, states that the PE and its Head Office are treated as separate entities who are connected persons and any transaction or dealing between a PE and its head office or other connected persons shall be considered to be a controlled transaction. Hence, all transactions must be at arm’s length and they must follow the provisions of the TP Regulations.


Income earned by Non-Resident Companies (NRC) having a taxable presence in Nigeria are subject to tax in line with the provisions of Section 13(2) of the Companies Income Tax Act (CITA) and all profit allocation must be done at arm’s length to comply with the provisions of the Transfer Pricing Regulation when such transactions are with connected persons.