The Federal Inland Revenue Service is the agency created by the Government to access, collect and account for taxes across various sectors in Nigeria, one of this sectors is Shipping under the Maritime Industry. This agent of the Federal Government is appointed to monitor the tax liability of agents of foreign shipping companies.
By virtue of Section 14(1) and 15 of the Companies Income Tax Act, the earnings of foreign shipping companies from the carriage of passengers, mails, livestock or goods shipped or loaded into their ships, owned or chartered in Nigeria are deemed to be derived from Nigeria and are therefore subject to be taxed. Accordingly, Section 14 of CITA contain specific rules dealing with the taxation of profits of non-Nigerian companies arising from the operation of business of transport by ships or aircrafts in Nigeria.
Section 9(1)(a) CITA 2004 also provides that earnings or profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of any trade or business for whatever period of time such trade or business have been carried on are chargeable earnings or profits and are therefore liable to Nigeria Tax. Section 40(1) CITA 2004 makes it obligatory for every company carrying on a trade or business in Nigeria to file with the Revenue Board, a return together with tax computations at least once every year.
Several foreign lines have agents in Nigeria. In 1978 section 26(1) of the Companies Income Tax Act 1961 and all treaties, which exempted the earnings of foreign shipping companies from tax were abrogated.
The question that now arises is whether the agents of such foreign lines are liable to pay taxes or make tax returns on behalf of their foreign principals? There is nothing in the Companies Income Tax Act, 1990, that creates an express obligation on an agent to remit taxes or file returns on behalf of her foreign principals. However, section 47 of the CITA provides that a company shall be chargeable to tax in its own name; or in the name of any agent or representative of the company in Nigeria in like manner and to like amount as such company would be chargeable or in the name of an agent or representative thereof in Nigeria.
From the foregoing provision, it can be deduced that the tax liability of such company has been further extended to the respective agents who act on behalf of such companies.
It is important to note that by virtue of the Nigerian Double Taxation Treaty (DTA) there are two broad categories of Nigerian DTAs as regards the treatment of companies engaged in shipping or air transport. These are DTAs that grant unconditional tax exemption to shipping or airlines of tax treaty partners and those that provide only conditional (based on reciprocity) exemption.
With respect to tax treaties that grant unconditional tax exemption, the companies engaged in shipping or air transport are exempt from Nigerian income tax if they are residents (as defined by the DTA) of the treaty partner. With respect to DTAs (Double Taxation Agreements) that grant conditional tax exemption, treaty benefits are granted in either of the following ways:
a) Where there is Reciprocity:
Reciprocity clause, in the Article dealing with shipping and air transport, means that ships or aircrafts operated in international traffic by Nigerian companies call at the ports of a treaty partner and ships or aircrafts operated in international traffic by companies of the treaty partner also call at Nigerian ports in a given year of assessment. In such a case, the foreign company will not pay tax in Nigeria and the Nigerian company will not pay tax in the other country. The profits of the companies will only be taxable in their respective home countries.
b) Where there is no Reciprocity:
This is where companies of a Nigeria’s tax treaty partner operate ships or aircrafts in international traffic calling at Nigerian ports in a given year of assessment, without any corresponding operation of ships or aircrafts of Nigerian companies in international traffic calling at the ports of that treaty partner. Consequently, the foreign companies of the treaty partner are assessable to tax in Nigeria in respect of income arising from such operations. However, Nigerian tax shall be at the rate specified in the respective DTAs.
https://firs.gov.ng/wp-content/uploads/2021/06/TAXATION-OF-COMPANIES-ENGAGED-IN-SHIPPING-AIR-TRANSPORT-AND-CABLE-UNDERTAKINGS.pdf
The FIRS has also recently released a circular, (Circular 2021/14) on the taxation of companies engaged in shipping, air transport, and cable undertakings addresses various areas of the above subject matter.
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