Significant economic presence: Nigerian perspective

Significant economic presence: Nigerian perspective

By Kelechi Ugbeva (Managing Partner, Blackwood & Stone, Nigeria)

Existing global tax rules such as, the arm’s length principle and principle of physical presence may not be robust enough to accommodate the peculiarity of digital activities and digital taxation. To this end, the OECD has come up with a few proposals on how digital activities may be taxed.

Notwithstanding the ongoing OECD proposals, countries like France and India and most recently Nigeria have taken proactive steps to tax their digital economies by the use of the Nexus approach. That is, as opposed to the principle of physical presence, companies which carry out digital activities are to be taxed by their Significant Economic Presence (SEP).

This concept was introduced in Nigeria by the Finance Act enacted in January of 2020, and the Minister of Finance, Budget and National Planning (the Minister) pursuant to her powers recently passed the Companies Income Tax (SEP) Order, 2020 (the Order/ the SEP Order) which provides the scope and details of the concept of SEP in Nigeria.

This article summarizes the concept of SEP and the conditions of Nigeria’s recent SEP Order.

Significant economic presence under the Finance Act, 2019

In amending the Companies Income Tax, Act, (CITA), the Finance Act expanded the companies that may be considered taxable by widening its scope to companies other than Nigerian companies (i.e. Non-resident companies) that carry on/ supply digital activities without physical presence. The Finance Act notes that such companies shall only be taxed to the extent that they have Significant Economic Presence (SEP) and profits may be attributed to their activities.

Application of the SEP order

The application of the Order is dependent (i) the specific activities carried out by the companies and (ii) the threshold which companies carrying out the specific activities must meet before they can be taxed in Nigeria.

The specific activities are as follows:

  1. Digital Service Providers: These are non-resident companies whose activities include the following:
  • Streaming or downloading services of digital contents (e.g. movies, videos, music, applications, games and e-books) to people in Nigeria;
  • Transmission of data collected about Nigerian users generated from users’ activities on websites or mobile applications;
  • Provides goods or services through a digital platform to Nigeria; or
  • Provision of intermediation services through digital platforms, websites or other online applications that link suppliers and customers in Nigeria.
  1. Non-Resident Companies that provide technical, professional, management, or consultancy services to Nigerian customers.

The threshold for Companies without physical presence and carrying out the specific activities are classified under two categories as follows:

  1. Digital service providers (DSP):

DSPs will be deemed to have met the SEP threshold in Nigeria, where such DSPs:

  • derive gross turnover or income above ₦ 25 million in a given year from the specific activities listed in the Order, or
  • use Nigerian domain name(s)(.ng) or register website(s) in Nigeria, or
  • have purposeful and sustained interactions with persons in Nigeria by customizing their platform(s) to target persons in Nigeria, including reflecting the prices of their products in Nigerian currency or providing options for payment in Nigerian currency.
  1. Non-residents that provide Technical, Professional, Management and/or Consulting services (TPMC)

TPMCs will trigger SEP in Nigeria if such TPMC earns any income or receives payment from:

  • any person resident in Nigeria, or
  • a fixed base or agent of a non-Nigerian company.

The Order explains that technical services mean any services of a specialized nature, (including advertising services, training, or the provisional of personnel) that are not professional, management, or consultancy services

Note also that for non-resident TPMCs, the withholding tax deducted by the (resident) recipient of the service is the final tax.

Notwithstanding the above, the Order affirms that it’s provisions shall not apply to a company covered by an existing tax treaty, multilateral agreement or consensus agreement addressing the above tax challenges. Thus, companies situate in countries with existing tax treaties with Nigeria will be exempt from the application of the Order.


The Finance Act addresses the digital taxation loophole that previously existed in Nigerian tax laws and the Order provides further clarity on the concept of SEP, however it is expected that Nigeria through the FIRS will establish a workable plan providing practical steps to ensure the ease of compliance.

Significant economic presence: Nigerian perspective


The author is Managing Partner at Blackwood & Stone, Nigeria.