With the passage of the Finance Act bill, the federal government has outlined plans to subject multinational digital companies operating abroad but with significant economic presence in Nigeria to taxation under the new Act.
Some of these multinational digital companies include Facebook, Google, Amazon, YouTube and many other digital businesses with sizeable market in Nigeria but don’t have a physical structure for their operations.
Vice President Yemi Osinbajo who disclosed this on Monday explained that only companies that have a physical presence in the country were being taxed previously, adding that the new law had changed this.
He said, “So, most digital and multinational technology companies do not have a physical presence in Nigeria, yet make significant income in Nigeria from online activities.
“Under the new Act, once you have a significant economic presence in Nigeria, you are liable to tax whether you are resident here or not,” he noted, adding that non-residents, who previously had no fixed address would now be taxed under the new Act.
These companies are known to prefer situating their companies in tax havens where taxes are low compared to other African and European countries. Ireland and Bermuda are some of the tax havens for these multinational companies.
But according to Osinbajo, the period of making gains from their operation in Nigeria without paying tax is over.
He said, “Let me also briefly mention the new provisions on Taxation of Digital Economy and Non-Resident Companies. This is a very important aspect of our taxation policy. Before the Finance Act, only companies that had a physical presence or a fixed base in Nigeria could be taxed.
He added that, “Under the Finance Act, once you have a Significant Economic Presence (SEP) in Nigeria, you are liable to tax. Whether you are a resident here or you are not resident as a company, as long as your economic presence is significant, you are liable to tax. If you are streaming online, advertising using Google adverts, whether you are resident here or not, you are now subject to tax.
“So, non-residents who previously had no fixed base and no Nigerian tax liability will now be liable to tax based on the SEP criterion. The Minister of Finance is empowered to issue a regulation defining what Significant Economic Presence means. So, she just defines the scope of what we will be looking out for in terms of Significant Economic Presence.”
Nigeria is not the only country trying to tax the technology companies. The European Union (EU) has also been coming after them for taxes.
The EU stated that if the technology companies were making economic gains through their operation despite the lack of physical presence in several European countries, then they should be taxed.