Navigating Cross-Border Tax for African Businesses and Diaspora Investors

For businesses and investors operating across Nigeria, the UK, and other jurisdictions, tax is rarely a single-country question. Income earned in one country may be taxable in another. Fees paid to a foreign parent may attract withholding tax. A director travelling between offices may inadvertently create a permanent establishment. The complexity compounds quickly — and the penalties for getting it wrong are significant.

The Nigeria-UK Tax Treaty: What It Does and Does Not Cover

Nigeria and the United Kingdom have a Double Tax Agreement (DTA) in force that allocates taxing rights between the two countries on various categories of income: dividends, interest, royalties, business profits, and employment income. Understanding which article of the treaty applies to a specific income stream — and how to claim relief — is the starting point for any cross-border structure.

Importantly, the treaty does not eliminate all double taxation risks. Anti-avoidance provisions, beneficial ownership requirements, and the Principal Purpose Test introduced under the OECD BEPS framework mean that treaty benefits are not automatic. They must be actively claimed and properly documented.

Transfer Pricing: Nigeria's Tightening Regime

Nigeria's transfer pricing regulations, enforced by the Federal Inland Revenue Service (FIRS), require that transactions between related parties be conducted on arm's length terms. Businesses with intercompany loans, management fees, or service agreements between a Nigerian entity and a foreign affiliate must maintain contemporaneous transfer pricing documentation — and be prepared to defend pricing positions on audit.

The FIRS has increased its audit activity materially since 2022, with particular focus on companies in oil and gas, telecoms, and financial services. But the risk extends to any multinational group with Nigerian operations. The penalty for non-compliance — which can include disallowance of deductions and interest charges — is increasingly difficult to ignore.

Permanent Establishment Risk

A permanent establishment (PE) is a taxable presence in a country that arises when a business has a fixed place of business there, or when an agent habitually concludes contracts on its behalf. For diaspora entrepreneurs and foreign companies with Nigerian operations, PE risk is often underestimated. A director who regularly returns to Nigeria to negotiate contracts, a local employee with authority to bind the company, or a dedicated office used by a foreign entity can each trigger a PE — and with it, a Nigerian corporate tax liability on profits attributable to that presence.

Tax Planning for Diaspora Investors

For Nigerian diaspora professionals investing in Nigeria from the UK or US, the key questions are: how is the investment held (directly, through a UK company, or through a Nigerian entity), how are returns extracted (dividends, interest, or capital gains), and what withholding taxes apply at source. Each combination produces a different effective tax rate, and the optimal structure depends on the investor's residence, domicile, and long-term intentions.

Structured correctly, cross-border investment into Nigeria can be highly tax-efficient. Structured poorly, it can result in double taxation on every distribution and capital gains exposure on exit that could have been avoided entirely.

GECA's tax advisory team works with businesses and individuals at every stage of cross-border planning — from initial structuring through ongoing compliance and dispute resolution. If you have cross-border tax exposure that needs professional attention, we invite you to reach out for a confidential discussion.