Financial Intermediation

Significant Economic Presence in Nigeria

2 min read

The Nigeria Tax Act 2025 has re-affirmed the legal definition of significant economic presence as a basis for taxation of non-resident persons doing business in Nigeria. The concept of Significant Economic Presence was first introduced in Nigeria in 2019 as the legal basis for taxing non‑resident companies providing digital or remote services in Nigeria. The concept of Significant Economic Presence in Nigeria establishes a taxable nexus for non-resident companies or individuals that derive significant economic benefits from Nigeria, even if they do not have a traditional physical permanent establishment in the country. The concept of Significant Economic Presence is particularly relevant in the digital economy, including e-commerce, cloud computing, online advertising, online platforms, and other electronically mediated services.

Legal Definition of Significant Economic Presence

Under the Nigeria Tax Act 2025, a non-resident person is deemed to have significant economic presence in Nigeria where the person, directly or through another entity, transmits, emits, or sends signals, sounds, messages, images, or data to Nigeria in respect of any activity, including but not limited to:

  1. Electronic commerce and application stores

  2. High-frequency trading

  3. Electronic data storage and cloud computing

  4. Online advertising and participative network platforms

  5. Online payments and supply of user data

  6. Search engines and digital content services

  7. Online gaming and online teaching services

Profits generated from these activities can be attributed to the Significant Economic Presence and are therefore subject to Nigerian taxation.

Key Rules and Clarifications Regarding Significant Economic Presence in Nigeria

  1. Attribution of Income: Income, profits, or gains attributable to Significant Economic Presence are determined similarly to a Permanent Establishment, taking into account activities performed in Nigeria and any connected persons of the non-resident.

  2. Exclusions: A non-resident is not deemed to have Significant Economic Presence or Permanent Establishment solely because it employs individuals in Nigeria, provided that the duties of those employees are not performed primarily for customers in Nigeria. This exemption ensures that ordinary employment or administrative presence in Nigeria does not automatically create a taxable nexus.

Conclusion

The provisions relating to significant economic presence under the Nigeria Tax Act 2025 modernizes Nigeria’s tax framework for the digital economy and complements traditional Permanent Establishment rules, ensuring that modern digital business models cannot avoid taxation solely by operating online and in the absence of a traditional physical presence, while deriving significant economic benefits from Nigeria.

Olu A.

Olu A.

LL.B. (UNILAG), B.L. (Nigeria), LL.M. (UNILAG), LL.M. (Reading, U.K.)

Olu is a Partner in the Firm’s Transactions & Policy Practice. Admitted as a Barrister & Solicitor of the Supreme Court of Nigeria in 2009, he has spent over a decade advising clients on high-value transactions and policy matters at some of Nigeria’s leading law firms.

olu@balogunharold.com
Kunle A.

Kunle A.

LL.B. (UNILAG), B.L. (Nigeria), LL.M. (UNILAG), Barrister & Solicitor (Manitoba)

Kunle is a Partner in the Firm’s Transactions & Policy Practice. Admitted as a Barrister & Solicitor of the Supreme Court of Nigeria in 2009, he has spent over a decade advising clients on high-value transactions and policy matters at some of Nigeria’s leading law firms.

k.adewale@balogunharold.com

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Significant Economic Presence in Nigeria