Permanent Establishment in Nigeria

The Nigeria Tax Act 2025 has clarified and expanded the legal definition of permanent establishment and the rules regarding the attribution of income and profits to a permanent establishment. We discuss some of the key principles below.

A. Permanent Establishment under the Nigeria Tax Act

Under the Nigeria Tax Act 2025, a permanent establishment is the taxable presence of a non-resident person in Nigeria. A non-resident person is deemed to have a permanent establishment in Nigeria where it:

1. Maintains a fixed place in Nigeria through which its business is wholly or partly carried on, or which is at its disposal for business purposes.

2. Operates a trade or business through an agent or representative in Nigeria who is authorised to act on its behalf or on behalf of connected persons.

3. Keeps a stock of goods or merchandise in Nigeria from which deliveries are made by an agent or employee.

4. Executes, alone or with others, a project in Nigeria involving surveys, design, delivery, construction, assembly, installation, commissioning, decommissioning, or supervisory activities, regardless of whether only part of the project occurs in Nigeria.

5. Provides services in Nigeria through employees, agents, subcontractors, or other engaged persons.

B. Attribution of Income and Profits to a Permanent Establishment under the Nigeria Tax Act.

Under the Nigeria Tax Act, income, profits, or gains attributable to a permanent establishment in Nigeria are determined as follows:

1. The permanent establishment in Nigeria is deemed to have the same credit rating, equity, and loan capital as the non-resident company.

2. Taxable profits will include (a) Income from the sale of goods or merchandise of the same or similar kind sold through the PE, including sales made directly to Nigeria by the non-resident or connected persons (b) Income from services or other business activities of the same or similar kind provided in Nigeria by the non-resident or connected persons.

3. Only costs incurred to generate the permanent establishment's taxable profits are deductible.

4. Payments by a permanent establishment to the non-resident or connected persons for royalties, fees, or use of patents/rights are not deductible, except for reimbursement of actual expenses.

5. Where profits cannot be ascertained, the profits of the permanent establishment are determined by applying the non-resident’s profit margin to total income generated from Nigeria.

6. The tax payable cannot be less than tax withheld at source or, if no withholding applies, 4% of total Nigerian income.

This publication is based on the authors' independent analysis, observations, and experience advising clients on regulatory and compliance matters. It is provided solely for informational purposes. The views expressed herein do not constitute legal advice or an official recommendation, nor do they represent the position of any institution or client. Readers should seek specific professional advice before relying on any part of this publication.