Jan 30, 2018

Nigeria Signs Her Double Taxation Agreement With Spain Into Law – What Spanish Investors Stand To Gain | Anthony Ezeamama

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 Nigeria.


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 and 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.