Nigeria Tax for Foreign Businesses: The Five Things That Catch People Out

The compliance landscape has changed

FIRS enforcement has intensified significantly since 2022. The introduction of the Finance Acts 2020, 2021, and 2023 expanded the tax base, closed several planning structures, and gave FIRS broader audit and enforcement powers. Foreign businesses that operated with light-touch compliance in earlier years are now being caught.

Here are the five issues we see most often.

1. Permanent establishment — created inadvertently

Nigeria's tax treaties generally follow the OECD model, but the domestic Income Tax Act has a broader definition of taxable presence. A foreign company can create a taxable permanent establishment (PE) in Nigeria through:

• A Nigerian employee who habitually concludes contracts on behalf of the foreign parent
• A dependent agent arrangement
• A construction project lasting more than 12 months (6 months under some treaties)
• A services PE where personnel are present for more than 183 days in a 12-month period

Many foreign companies operating through Nigerian subsidiaries inadvertently create PE exposure for the parent entity as well — resulting in double taxation at the Nigerian level. PE analysis should be conducted before any operational structure is finalised.

2. Transfer pricing — documentation, not structuring

Nigeria adopted OECD-aligned transfer pricing regulations in 2012 (updated in 2018). FIRS now has a dedicated Transfer Pricing Unit that actively reviews related-party transactions.

The most common failure is not the pricing itself — it is the documentation. FIRS requires contemporaneous transfer pricing documentation (Master File, Local File, and Country-by-Country Report for large groups). The absence of documentation shifts the burden of proof to the taxpayer and opens the door to FIRS adjustments.

Management fees, intercompany loans, and royalty payments are the highest-risk transaction categories.

3. Withholding tax on service fees

Nigeria applies withholding tax (WHT) at 10% on management fees, technical fees, and consultancy fees paid to non-resident companies (reduced rates apply under relevant tax treaties). The obligation rests with the Nigerian payer.

The failure mode: a Nigerian subsidiary pays a foreign parent for management services without deducting and remitting WHT. This is a common audit finding. FIRS can assess the WHT on a gross-up basis, plus interest and penalties.

4. PAYE and employee compliance

State-level PAYE is administered by the relevant State Internal Revenue Service (LIRS in Lagos; ABIRS in Abuja). Compliance requires:

• Monthly PAYE remittance (by the 10th of the following month)
• Annual employer's tax returns
• Annual employee income tax returns (Form A)

Many foreign-owned businesses underestimate state tax authority enforcement capacity. Lagos IRS in particular is active in employer audits.

Expatriate employees are taxable on Nigerian-source income regardless of remittance basis claims. The Nigeria–UK, Nigeria–France, and Nigeria–South Africa tax treaties provide some relief, but the mechanics require careful implementation.

5. VAT on imported services

Under the Finance Act 2020, VAT at 7.5% is due on services consumed in Nigeria — including services imported from foreign service providers. The Nigerian recipient is required to self-account for VAT on imported services (reverse charge).

This is consistently underimplemented. FIRS is increasingly focusing on the technology sector, where large imported service fees (SaaS subscriptions, cloud services, consulting) generate significant VAT exposure.

The filing calendar

For a typical Nigerian subsidiary, the annual compliance calendar includes:

Filing	Deadline
Monthly VAT returns	21st of the following month
Monthly PAYE remittance	10th of the following month
Monthly WHT remittance	21st of the following month
CIT annual return	6 months after year end
Annual PAYE returns	31 January
Transfer pricing documentation	With CIT return

The aggregate compliance burden is substantial. Managing it through a monthly retainer — rather than attempting to handle it in-house — is typically more cost-effective for businesses below 50 FTE in Nigeria.