Lawyer Monthly Magazine - February 2019 Edition

FEB 2019 71 Doing Business In... www. lawyer-monthly .com been the subject of recent litigation. The provision effectively operates by way of a deemed self-supply for VAT purposes by the local business. The non- resident company is required to add VAT (5%) when invoicing the local business who then withholds the VAT element from the amount to be paid to the non-resident company for remittance to the tax authorities. Are there any specific regulations or aspects clients are unaware about, when regarding double tax treaties? What jurisdictional relations are strong with Nigeria in regards to this? Nigeria has entered Double Taxation Treaties with several countries most of which are formulated in line with the OECD (Organisation for Economic Cooperation and Development) Model Tax Convention. Specifically, Nigeria has entered into Double tax treaties with several countries including amongst others, Belgium, France, Canada, United Kingdom, Singapore, China, Mauritius, Spain. Nigeria has no Double Tax treaty with the United States of America, despite the cordial relationship between the countries and the fact that many American companies rents, royalties, directors’ fees) as opposed to one-off payments by way of sale and purchase. However, the recent recession has forced a new level of tax vigilance on the government which has recently extended the list of prescribed payments (see table below). In most cases it is clear and obvious whether a payment does or does not fall within the prescribed categories, however, the drafting can sometimes leave something to be desired with the possibility of fees falling into more than one category. In situations that involve the manufacturer delivering its normal products to its distributors and dealers for sale, the monies due to the manufacturer will not be liable to withholding tax, because such payments are regarded as transactions in the ordinary course of business of the manufacturer. On the other hand, the commission earned by the distributors and or dealers are subject to withholding tax. Does a foreign company have to register for VAT? The Nigerian VAT Act requires a non-resident company that “carries on business in Nigeria” to register for VAT using the address of the local business with which it is trading as its correspondence address. This requirement has conduct business in Nigeria and the high population of Nigerians resident in the United States. The taxes typically covered by the Double Tax treaties are the familiar ones of Personal Income Tax, the Companies Income Tax, the Petroleum Profits Tax and the Capital Gains Tax. However, the education tax or Tertiary Education Tax was included in the treaties entered with Spain, China, South Africa, Mauritius, and in the case of Singapore, the information technology levy was also included. However, most of the other countries identify few taxes as their existing taxes. Only the United Kingdom identified taxes similar to that of Nigeria i.e. Income tax, corporation tax, Capital gains tax, Petroleum revenue tax. Where a Double Tax treaty applies the rate of withholding tax to be charged on incomes derived from dividends, interest and royalties that accrue to persons and companies in counterparty countries, is the reduced rate of 7.5%. However, in some treaties, this reduction might be subject to restrictions. For example, the recipient of a dividend may be required to hold directly at least 10% of the capital of the company paying the dividends in order to qualify for the reduced withholding tax. To summarise… The need to reverse decades of infrastructural under-investment and internal governance roadblocks has been identified by the present administration. With the adoption of World Bank indicators and some home-grown initiatives, Nigeria climbed 24 places in the World Bank ease of doing business rankings and it presently occupies number 145. The goal is to reach top 100 status by the year 2020 and top 50 by the year 2025. All of these factors suggest that this is a good time to do business with Nigeria. LM -------- About Dele Ogun ------- Dele Ogun is a Partner, and Idowu Ibrahim is an Associate, at OGUN The Law Firm who are experts in the tax and inward investment laws of Nigeria. Dele Ogun was called to the Bar in 1985 and has been in practice as a Solicitor since 1995.He obtained his LLB from London Metropolitan University in 1984 and his LL.M in Company and Commercial Law from the London School of Economics in 1987. He attended the Inns of Court School of Law for his call to the English Bar in 1985 and the Chartered Institute of Taxation to become a Chartered Taxation Practitioner. -------- Contact ------- OGUN The Law Firm Emmanuel Akinlade Chambers 16A Babatunde Kuboye St Lekki 1, Lagos, Nigeria Tel: +234(0)12931085 Mob :+234(0)8096669262 www.ogun.com Nature of Payment Companies (%) Individuals (%) Interest, dividends and rents (includes payments for hire of equipment) Directors fees Royalties Commission, consultancy, technical, professional, Management service fees Construction/building and related services All types of contracts and agency arrangement other than outright sale in the ordinary course of business 10 10 10 10 5 5 10 10 5 5 5 5