The continuous expansion of the world
economy and acceleration of international trade have led to an unprecedented
mobility of people, goods and services, exchange of information and ideas
across national boundaries. The importance of double taxation agreements or
treaties(“DTA”) in such cross border transactions cannot be overemphasized
as in addition to its primary aim of arresting the incidences of double
taxation and double non-taxation in such transactions also have far reaching
benefits. In Nigeria specifically, some of the notable benefits residents of
other Contracting States (i.e. countries that have DTAs with Nigeria) will
enjoy due to the existence of such treaties include amongst others:


1.     Avoidance of Double
Taxation: This generally ensures that the income of a resident of a
Contracting State which has already suffered tax in that State is not taxed
twice in Nigeria and vice versa.
2.     Lower Withholding
Tax Rate: Ordinarily, the rate of withholding tax on royalty,
interest and dividend is 10% for corporate recipients while in the case of
individuals, interest and dividend is 10% and 5% for royalty. However, under
the DTA regime, the rate is reduced to 7.5% for corporate recipients that are
residents in a DTA country while for individuals, 7.5% is applied on dividend
and interest and 5% on royalty.
3.     Permanent
Establishment to Form the Basis of Taxation as against Fixed Base:Essentially,
a non-resident enterprise/person that derives income from Nigeria becomes
taxable in Nigeria when it/he creates a permanent establishment (“PE”) and/or
fixed base in Nigeria amongst other criteria. The PE concept is applicable
where the enterprise/person is a resident of a Contracting State while on the
other hand, fixed base is applicable where the enterprise/person is a resident
of a non-DTA country. The benefit of PE concept is that in some cases, PE is
only created/triggered where the activity of the non-resident enterprise/person
exceeds more than 3 months in Nigeria while on the other hand, a 1-day activity
can create a fixed base for the non-resident enterprise/person in Nigeria.
4.     Friendly Rule on
Taxation of Expatriate Employees: All expatriate employees from non-DTA
countries are liable to Nigerian personal income tax on the remuneration they
derived in respect of employments exercised in Nigeria (whether partly or
wholly) without further ado. On the other hand, an expatriate employee,
resident in a DTA country in the same position is only liable to Nigerian tax
where any of the following joint conditions is present
in his/her case: (a) the employee/expatriate is present in Nigeria
for a period or periods exceeding in the aggregate 183 days in any 12
consecutive months (French/Nigeria DTA); and(b) the remuneration is paid
by, or on behalf of, an employer who is a Nigerian resident, and(c) the
remuneration is borne by a PE or a fixed base which the employer has in
The Nigerian President, Muhammadu Buhari,
on Friday, the 26th of January, 2018 signed the Avoidance of Double
Taxation Agreement between the Federal Republic of Nigeria and the Kingdom of
Spain (Domestication and Enforcement) Act, 2018 into law amongst several
other Bills that were signed into law that day. The signing of this DTA into
law has increased the number of the DTAs Nigeria has with other countries to
14. Currently, Nigeria has DTAs for taxes on income and capital gains with United
Kingdom, Belgium, Philippines, Canada, Netherlands, Czech Republic, France,
Pakistan, China, Romania, Slovakia, South Africa
 and Spain and
a shipping and air transport DTA with Italy.
On the other hand, Nigeria’s DTAs with Kenya,
Sweden, South Korea, Mauritius, Poland, Kuwait, Singapore, Qatar
the United Arab Emirate are pending and yet to be ratified.
It is however pertinent to noted that these
14 extant DTAs Nigeria has with other countries is a far cry compared to the
numbers of DTAs many countries have signed up with their trading partners. For
instance, United Kingdom has double taxation treaties with more than 130
countries, India with over 80 countries, Cyrus with over 40 countries amongst
many others.
The existence of limited bilateral tax
treaties between Nigeria and other countries is definitely militating against
the increased in flow of foreign investment in the country as many investors
from non-DTA countries see this as a disincentive for doing business in Nigeria
due to what is perceived as high tax exposure inherent in local transactions.
Therefore, to circumvent the harsh effects of such an exposure, several tax
planning schemes are deployed by some investors with a view to mitigating their
tax exposures in Nigeria. A typical example is the outsourcing or
subcontracting of the Nigerian work scopes to related or non-related
persons/enterprises that are Nigerian residents or come from DTA countries
which nevertheless has an attendant foreign exchange exposure amongst other
disincentives for such practice. Consequently, Nigeria’s negotiation and
entering into DTAs with more countries should definitely make the country the
preferred investment destination in the West African sub region and in fact
African as a whole considering its huge population and potentials. Spanish
investors are therefore encouraged to take advantage of this new legal order to
invest in Nigeria whose market typically guarantees greater profit margin.
Anthony Ezeamama is a corporate commercial
lawyer and tax specialist.