Non-Resident Companies – NBC Institute

ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

Question

“The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction.”

Background:
Gen Power Incorporated, an international power plant company based in New York, USA, has subsidiary outlets in many parts of the world, including Kem Limited in Lagos, Nigeria. In 2018, Gen Power Incorporated was awarded a contract for US $3 million by the Nigerian government to construct a power plant. The project was executed by Kem Limited, and the following expenses were incurred:

Expense Description	Amount (₦’000)
Materials and other direct inputs	320,800
Hire of special equipment	31,500
Foreign experts cost and emoluments	65,300
Personnel costs	110,400
Administrative expenses	52,000
Depreciation of assets	60,700
Repairs and maintenance	7,200
Fuel and oil	8,200
Miscellaneous expenses	27,100

Other Relevant Information:

The exchange rate is ₦362 to US $1.
A similar special equipment could be hired for ₦25 million.
Administrative expenses include ₦12 million transferred to revenue reserve.
Breakdown of repairs and maintenance:

Repairs and Maintenance Breakdown	Amount (₦’000)
Maintenance of vehicles	2,000
Improvement to the office building	1,700
Repairs of equipment	2,100
Renewals of tools and implements	1,400
Total	7,200

Miscellaneous expenses include ₦4 million as loss on exchange for imported materials.
Capital allowances agreed with the tax authorities: ₦57 million.

Required:

a. Describe FIVE circumstances under which a non-resident company will be assessable to tax in Nigeria. (5 Marks)

b. Compute the tax liabilities of Gen Power Incorporated for the relevant year of assessment. (15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contract Taxation, Non-Resident Companies, Tax Jurisdiction, Tax liabilities
Level: Level 3

Topic: Taxation of Non-Resident Companies and Individuals

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

Question

The recent trade tariff war on goods exported between the United States and China has opened a vista for corporate players in the two countries and their allies to venture into new areas considered to be business-friendly.

Sunchi Limited, Shanghai, is a computer accessories company that was incorporated in China in 2003. The company established its subsidiary outlet, Sunchi West Africa Holdings, in Ibadan, Nigeria, on January 1, 2018. The Nigerian company adopted December 31, annually (same as the parent company) as its end of financial year.

The first set of consolidated accounts was audited by a reputable audit firm based in China. Taxes for both business operations were also paid in China.

The Nigerian tax inspectors from the Federal Inland Revenue Service demanded for annual returns and tax computations from the subsidiary company but the General Manager of the company claimed that the company had paid personal income tax of its employees and directors, value-added tax on imported equipment, and relevant custom duties. Furthermore, since the parent company is not registered in Nigeria, there is no reason why it should be liable to companies’ income tax. The issue is yet to be resolved.

The Managing Director of the subsidiary company in Nigeria, with the permission of the head office in China, appointed you as the company‘s tax consultant to help unravel the issue of payment of companies’ income tax by resident and non-resident companies operating in Nigeria. He also submitted to you the statement of profit or loss for the year ended December 31, 2018, after conversion of the transactions in head office‘s Chinese currency (Yuan) to Nigerian Naira.

(i) Miscellaneous income:
This consists of income realised from the sale of component parts to the head office. The transaction was made at open market price.

(ii) Legal expenses comprise:

Description	Amount (N’000)
Debt collection	800
Preliminary expenses	2,100
Land acquisition	550
Retainership fee	750
Total	4,200

Required:
As the company‘s tax consultant, you are to prepare a report to the management of Sunchi Limited taking into consideration the following:
a. Resident and non-resident companies (4 Marks)
b. Circumstances under which profit of a non-resident company will be liable to tax in Nigeria. (10 Marks)
c. Relationship between a:

Nigeria branch and the parent company (3 Marks)
Nigeria subsidiary and the parent company (3 Marks)
d. Overseas branch of a Nigerian company (3 Marks)
e. Overseas subsidiary of a Nigerian company (3 Marks)
f. Advise on, if any, the companies income tax payable by the two business operations in Nigeria. (14 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Tax, Income Tax, Non-Resident Companies, Tax Compliance
Level: Level 3

Topic: Taxation of Companies

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

Question

Chief Bonny Chizaram is the Chairman/CEO of Chizaram group of companies. The conglomerate operates in several states of Nigeria, with business interests in supply of building materials, transport, and banking.

In 2012, under the Chairman’s directive, the group decided to diversify its business into some African countries by establishing Obi Airlines Limited, incorporated in Ethiopia.

On May 25, 2016, as Chief Chizaram was in the executive lounge of Murtala Mohammed International Airport, Lagos, awaiting departure, he met his long-time friend and business colleague, Chief Roger Menkiti, who is also an entrepreneur.

During their discussion, Chief Menkiti expressed interest in understanding the benefits of investing in Ethiopia, with concerns about Companies Income Tax and Tertiary Education Tax payable in Nigeria if he started an airline business in Ethiopia.

The financial results of Obi Airlines Limited for the year ended December 31, 2015, are as follows:

Description	Amount (₦)
Income from passenger flights on other routes	213,668,750
Income from cargo loaded into aircraft on other routes	218,280,000
Income from passenger flights from Nigeria	54,401,275
Income from cargo loaded into aircraft from Nigeria	49,938,180
Total Income	536,288,205
Deduct:
Depreciation	1,974,125
Staff salaries	14,373,968
General provision	215,050
Other expenses	579,913
Total Deductions	17,143,056
Net Profit	519,145,149

Additional Information:

Capital allowances were agreed with the relevant authority at 110% of the depreciation charged.
Other expenses include disallowable expenses amounting to ₦425,000.

Required:

As the Tax Consultant, prepare computations showing:

a. Total Profits of Obi Airlines Limited for Nigerian tax purposes. (12 Marks)
b. Companies Income Tax Liability for the relevant year of assessment. (2 Marks)
c. Tertiary Education Tax Liability. (1 Mark)

(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Airline Taxation, Companies Income Tax, Non-Resident Companies, Tax Liability, Tertiary Education Tax
Level: Level 3

Topic: Companies Income Tax (CIT)
Series: MAY 2018

ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

Question

“The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction.”

Expense Description	Amount (₦’000)
Materials and other direct inputs	320,800
Hire of special equipment	31,500
Foreign experts cost and emoluments	65,300
Personnel costs	110,400
Administrative expenses	52,000
Depreciation of assets	60,700
Repairs and maintenance	7,200
Fuel and oil	8,200
Miscellaneous expenses	27,100

Other Relevant Information:

The exchange rate is ₦362 to US $1.
A similar special equipment could be hired for ₦25 million.
Administrative expenses include ₦12 million transferred to revenue reserve.
Breakdown of repairs and maintenance:

Repairs and Maintenance Breakdown	Amount (₦’000)
Maintenance of vehicles	2,000
Improvement to the office building	1,700
Repairs of equipment	2,100
Renewals of tools and implements	1,400
Total	7,200

Miscellaneous expenses include ₦4 million as loss on exchange for imported materials.
Capital allowances agreed with the tax authorities: ₦57 million.

Required:

a. Describe FIVE circumstances under which a non-resident company will be assessable to tax in Nigeria. (5 Marks)

b. Compute the tax liabilities of Gen Power Incorporated for the relevant year of assessment. (15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contract Taxation, Non-Resident Companies, Tax Jurisdiction, Tax liabilities
Level: Level 3

Topic: Taxation of Non-Resident Companies and Individuals

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

Question

The first set of consolidated accounts was audited by a reputable audit firm based in China. Taxes for both business operations were also paid in China.

(i) Miscellaneous income:
This consists of income realised from the sale of component parts to the head office. The transaction was made at open market price.

(ii) Legal expenses comprise:

Description	Amount (N’000)
Debt collection	800
Preliminary expenses	2,100
Land acquisition	550
Retainership fee	750
Total	4,200

Nigeria branch and the parent company (3 Marks)
Nigeria subsidiary and the parent company (3 Marks)
d. Overseas branch of a Nigerian company (3 Marks)
e. Overseas subsidiary of a Nigerian company (3 Marks)
f. Advise on, if any, the companies income tax payable by the two business operations in Nigeria. (14 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Tax, Income Tax, Non-Resident Companies, Tax Compliance
Level: Level 3

Topic: Taxation of Companies

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

Question

In 2012, under the Chairman’s directive, the group decided to diversify its business into some African countries by establishing Obi Airlines Limited, incorporated in Ethiopia.

The financial results of Obi Airlines Limited for the year ended December 31, 2015, are as follows:

Description	Amount (₦)
Income from passenger flights on other routes	213,668,750
Income from cargo loaded into aircraft on other routes	218,280,000
Income from passenger flights from Nigeria	54,401,275
Income from cargo loaded into aircraft from Nigeria	49,938,180
Total Income	536,288,205
Deduct:
Depreciation	1,974,125
Staff salaries	14,373,968
General provision	215,050
Other expenses	579,913
Total Deductions	17,143,056
Net Profit	519,145,149

Additional Information:

Capital allowances were agreed with the relevant authority at 110% of the depreciation charged.
Other expenses include disallowable expenses amounting to ₦425,000.

Required:

As the Tax Consultant, prepare computations showing:

(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Airline Taxation, Companies Income Tax, Non-Resident Companies, Tax Liability, Tertiary Education Tax
Level: Level 3

Topic: Companies Income Tax (CIT)
Series: MAY 2018

Question Tag: Non-Resident Companies

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ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

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ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

You're reporting an error for "ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals"

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

You're reporting an error for "ATAX – Nov 2020 – Q1 – Taxation of Companies"

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

You're reporting an error for "AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)"

ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

You're reporting an error for "ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals"

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

You're reporting an error for "ATAX – Nov 2020 – Q1 – Taxation of Companies"

AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)

Tax computation for Obi Airlines Limited operating in Ethiopia, including Total Profits and tax liabilities in Nigeria for income sourced from Nigeria.

You're reporting an error for "AT – May – 2018 – L3 – SC – Q6 – Companies Income Tax (CIT)"

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