Treaty Based Method

The article on elimination of double taxation under an applicable tax treaty entered into by Nigeria enables it to relieve the issue of double taxation by providing a credit for the foreign taxes paid by a Nigerian resident. Generally, full tax credits are provided for in the tax treaties. Foreign tax credit can be carried forward indefinitely, provided the claim for the credit is made within 2 years from the fiscal year to which it relates.

Unilateral Method

Nigeria unilaterally provides a foreign tax credit on income subject to tax in a Commonwealth country or the Republic of Ireland (Commonwealth tax relief). Previously, the Commonwealth tax relief allowed was the lower of the Commonwealth tax or 50% of the Nigerian tax. The Federal Inland Revenue Service (FIRS) issued an Information Circular, effective from 1 July 2022, that provides guidance on the claim of the Commonwealth tax relief.

For Nigerian companies, the rate at which Commonwealth tax relief is available is as follows:

The Commonwealth tax rate: if the Commonwealth tax rate is less than 50% of the Nigerian tax rate; and
50% of the Nigerian tax rate: in any other case.

For companies other than Nigerian companies, the rate at which commonwealth tax relief is available is as follows:

50% of the Commonwealth tax rate: if the Commonwealth tax rate is less than the Nigerian tax rate; and
The Nigerian tax rate in excess of 50% of the Commonwealth tax rate: if the Commonwealth tax rate exceeds the Nigerian tax rate.

The taxpayer’s eligibility to claim a Commonwealth tax relief is subject to the fulfillment of the following conditions:

The income or profit is derived from a country within the Commonwealth or in the Republic of Ireland, which does not have a tax treaty with Nigeria;
A corresponding reciprocal relief is available in the other country to both residents and non-residents, including Nigerian residents;
The taxpayer is able to submit necessary evidence of the foreign tax paid;
The claim for the tax relief for any year of assessment is made within six years from the year in which the tax was incurred; and
The tax relief is available for set-off against the tax which the taxpayer is liable to pay for that fiscal year.

Below is a summary of the available methods for various income tax streams based on domestic law.

Royalty Copyright	OC
Capital Gains	ND
Dividends	OC
Interest	OC
Royalty Patent	OC
Sales	OC
Service Management	OC
Service Technical	OC
Royalty Trademark	OC

The credit column shows the type of foreign tax credit granted when the receiving country receives a payment. Four abbreviations are used for the type of foreign tax credit available:

NC means no credit but foreign withholding taxes can be deducted.
OC means ordinary credit, i.e., credit for foreign withholding taxes (e.g., withholding taxes).
IC means indirect credit, i.e., credit for underlying corporate taxes as well as foreign withholding taxes.
ND means no credit and no deduction for any foreign withholding taxes incurred.

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