APPLICATION OF VAIDS TO NON-RESIDENTS

In her yesterday’s tweets, the Honourable Minister of Finance, Kemi Adeosun, revealed that the Federal Ministry of Finance (FMF), through its data mining efforts-domiciled in what it calls ‘Project Lighthouse’, has identified a new batch of 130,000 high net worth Nigerian individuals and companies that have potential tax underpayments.

She explained that this data was procured from both overseas and local sources. The overseas data was obtained using the Exchange of Information (EOI) Protocols (this data will be used solely for taxation purposes in line with protocols governing the EOI). Under these protocols, information relating to bank records and financial filings for tax purposes are obtained from tax havens (like British Virgin Islands and Mauritius) that are signatories to the information sharing agreements.

Local sources of the FMF’s new data of 130,000 high net worth Nigerians include land registries of the Governments of Lagos, Kaduna, Kano and Ogun States as well as the Federal capital Territory.

Through the Voluntary Assets and Income Declaration Scheme (VAIDS), the Federal Government is asking these high net worth individuals, companies and non-residents (with taxable presence here in Nigeria) to willingly declare to the relevant tax authorities; their ownership rights to assets and incomes earned from all sources and willingly pay the taxes due on such incomes and assets (restricted to the preceding 6 years of assessment for those who make full and honest declarations).

All taxpayers who are willing to key into the Scheme have been given nine months to 31 March 2018 to come forward and declare/ settle unpaid taxes, with the promise that those who make full and honest declarations within the grace period will be granted waiver of interest and penalty, immunity from prosecution, confidentiality, exemption from tax audits for the periods covered and flexible payment of tax due.

This article seeks to shed more light on the application of the VAIDS scheme to non-resident taxpayers with established tax presence here in Nigeria.

Who are the non-resident Nigerian taxpayers for the purposes of the VAIDS scheme?

The concept of tax residence is a critical factor that determines the extent to which the income of an individual or company is liable to tax in Nigeria or any other country.

A Nigerian resident individual of group of individuals is generally liable to tax on all incomes derived from both within and outside Nigeria, for each year of assessment (subject to certain exemptions). A Nigerian resident company (or company incorporated in Nigeria) is liable to tax on the profits of the company accruing in, derived from, brought into or received in Nigeria.

For non-resident individuals (those living outside the country and not being in the country for up to 183 days in any 12 months period), Nigerian tax will apply to them under the following conditions:

  1. If they have assets here in Nigeria yielding residual incomes such as rents, interest, dividends, they are liable to tax on such incomes.
  2. If they, as individuals, executors or trustees, are carrying on business in Nigeria and in other countries at the same time, they are liable to tax only on the part of the business operations carried on in Nigeria (unless taxable presence in Nigeria is established for any other part of the business carried on outside Nigeria[1]).
  3. If they are in paid employments, they are liable to tax in Nigeria if:
  • their remunerations are borne by fixed business bases of employers here in Nigeria;
  • they are in Nigeria for a period or periods amounting to an aggregate number of 183 days or more (including the employee’s annual leave or temporary periods of absence) in any twelve (12) month period;
  • their remunerations are liable to personal income tax in other countries with which Nigeria does not have a Double Tax Avoidance Treaty ratified by the National Assembly

For non-resident companies (those that are neither operating in Nigeria nor incorporated in Nigeria), they are liable to tax in Nigeria if they are carrying on[2] business in Nigeria under any of the following four conditions:

  1. if that company has a fixed base[3] of business in Nigeria, to the extent that the profit is attributable to the fixed base;
  2. if it does not have such a fixed base in Nigeria but habitually operates a trade or business through a person in Nigeria authorised to conclude contracts on its behalf or on behalf of a related entity (this is usually described as a dependent agency relationship); and if that company maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made;
  3. if that trade or business or activities involves a single contract for surveys, deliveries, installations or construction (this is usually referred to as ‘turnkey project’);
  4. where the trade or business or activities is between related parties and does not satisfy the arm’s length pricing requirement. (Transactions between/among related parties must be priced at arm’s length. This implies that the price of goods and services sold or transferred to related parties must be equal to the same price at which the same or similar goods and services would be sold to unrelated parties). To cater for arm’s length pricing of transactions between/among related parties, the Transfer Pricing Regulation in Nigeria was issued in 2012.

How to Declare

The Nigerian Government has reiterated that it will not extend the duration of the amnesty scheme beyond 31 March 2018. All such non-residents with taxable presence here in Nigeria (as described above) are encouraged to take advantage of the amnesty scheme and either make an online declaration on https://vaids.gov.ng/, or appoint a local agent to make the necessary declaration on their behalf.

There are special guidelines and tax authority publications guiding the determination of Nigerian tax liabilities for non-resident companies in particular. The non-resident companies falling under any of the four conditions listed above are therefore advised to seek out local tax advisors to assist them make their declarations.

Remember, the clock is ticking.

 

 

[1] Taxable presence can be established in Nigeria:

  • if that individual, executor or trustee has a fixed base of business in Nigeria, to the extent that the profit is attributable to the fixed base;
  • if that individual, executor or trustee does not have such a fixed base in Nigeria but habitually operates a trade or business through a person in Nigeria authorised to conclude contracts on its behalf or on behalf of a related entity (this is usually described as a dependent agency relationship);
  • if that individual, executor or trustee maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made;
  • if that trade or business or activities involves a single contract for surveys, deliveries, installations or construction (this is usually referred to as ‘turnkey project’);
  • where the trade or business or activities is between related parties and does not satisfy the arm’s length pricing requirement

[2] Continually over an identifiable and significantly long period of time- in practice, over 3 months.

[3] A fixed base is a semi-permanent or permanent identifiable place of business but does not include facilities used solely for the storage or display of goods or merchandise and for collection of information.

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