Tax treaties and double taxation relief: credits under ss. 120 to 122 of the NTA 2025

A firm of architects in Lagos wins work in Ghana. Ghana taxes the fee where it is earned. Nigeria taxes a resident company on its worldwide income, so the same fee is in the Nigerian computation as well. Unless the law gives relief, the firm pays tax twice on one fee.

Nigeria gives that relief in two ways: a credit under the Nigeria Tax Act (NTA) 2025 that needs no agreement, and a credit or reduced rate under a double taxation agreement (DTA) with the other country.

This topic covers unilateral relief (s. 120), treaty relief (ss. 121 and 122), the main features of a Nigerian treaty using the United Kingdom agreement as a model, the countries that have a treaty with Nigeria, withholding tax under treaties, dispute resolution, multilateral treaties and the role of the Vienna Convention. The previous topic covered the digital economy. The next covers transfer pricing.

Key terms in plain English

Syllabus check

This topic is in syllabus area C (international taxation, 20% of marks). It covers:

• double taxation relief, unilateral and under treaties, and the calculation of the credit;
• the features of Nigerian double taxation agreements and the countries with which Nigeria has them;
• the resolution of treaty disputes and the role of the Vienna Convention.

CAMA 2020 and treaty relief

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Why double taxation arises

A country taxes by residence (all income of its residents) and by source (income arising in the country). When two countries each claim the right to tax the same income, the taxpayer is taxed twice. Nigeria relieves this by the credit method: foreign tax is set against Nigerian tax, subject to a ceiling.

Unilateral relief (s. 120 NTA 2025)

Where income of a Nigerian resident from outside Nigeria is charged to tax in the source country and is also chargeable in Nigeria, the foreign tax may be allowed as a credit. The credit is the lower of:

• the Nigerian tax, other than taxes under chapter three of the Act, attributable to the foreign income; and
• the tax paid in the source country.

Nigerian tax attributable to the foreign income = foreign income ÷ total income × Nigerian tax. Relief does not extend to additional tax paid under the global minimum tax rules.

Treaty relief (s. 121 NTA 2025)

• A treaty has effect once the National Assembly ratifies or domesticates it. Before that it must be signed, approved by the Federal Executive Council and ratified by both chambers.
• Relief is for income tax paid under the laws of the treaty partner against income taxes imposed by the NTA.
• Secrecy rules in the NTAA or other law do not stop disclosure of information the treaty requires to be given to an officer of the treaty partner.
• The Minister may make rules to implement a treaty.
• All extant treaties are deemed made under s. 121 and apply throughout Nigeria from 1 January of the year after the date the agreement entered into force.
• A treaty exists to remove double taxation, not to create non-taxation or low taxation through evasion, avoidance or treaty shopping.
• A non-resident benefits only if it is a resident of the treaty partner and the beneficial owner of the income. Benefit is also refused where a principal purpose of the residence, the arrangement or the transaction is to obtain the treaty advantage.

Method of calculating treaty relief (s. 122 NTA 2025)

1. The foreign tax paid to the treaty partner on income chargeable in Nigeria may be set as a credit against Nigerian tax.
2. The credit is the lower of the Nigerian tax attributable to the foreign income and the tax paid to the treaty partner. The credit is not allowed to a person who was not resident in Nigeria in the year.
3. No deduction is allowed for foreign tax in computing chargeable income or assessable profit. Where the income taxed depends on the amount received in Nigeria, the amount is increased by the foreign tax (the gross-up).
4. The credit cannot exceed the Nigerian tax, so there is no cash refund.
5. A claim is made within two years after the end of the year of assessment, and a dispute goes to objection and appeal as with an assessment.
6. If a later change in Nigerian or foreign tax makes the credit too high or too low, the time limits on assessments and claims do not apply. But the claim or assessment must be made within two years of the adjustment.
7. Income exempt under the treaty is still counted in fixing the rate on the rest of the resident’s income.

Features of a double taxation agreement

• The two countries, with the meaning of resident and of person.
• The taxes covered and rates, which may change.
• The transactions covered: business profit, fees, gains and so on.
• Exchange of information between the tax authorities.
• Appeal procedures if there is a dispute.
• Privileges for diplomats.
• Date of entry into force and termination.
• Connected enterprises under common control.
• The split between industrial and commercial profits for an enterprise that works in both countries.
• Profits exempt from tax and the method that removes double taxation.

The agreement with the United Kingdom as a model

A fixed base or PE is a fixed place of business through which business is wholly or partly carried on: a factory, office, branch, mine or oil well, a building, construction, assembly or installation project and related services. A facility used solely for storing or displaying goods or collecting information is not one.

A treaty can also treat a dependent agent, a turnkey project or a related party as a PE, with profit worked out on the arm’s length principle.

Nigeria’s treaties

Agreements with other countries, such as Kenya, Mauritius and Poland, have been signed but are not in force until ratified. An agreement enters into force 30 days after the later of the two notifications that each country has completed its procedures (Article 28(1)). The effective date is the first day of the fiscal year after entry into force, and from that date the citizens of both countries benefit (Article 28(2)).

Withholding tax and treaties

A company in a country with no treaty suffers 10% withholding tax on a dividend, interest or royalty from Nigeria. A treaty can lower the rate; it cannot raise it. From 1999 Nigeria applied a flat 7.5% to treaty partners, and the exam answers in older papers still use it.

The Federal Inland Revenue Service ended that practice on 1 July 2022, and the rate is now the one in the relevant article of the treaty. Many treaties made since 1999 give 7.5% on dividends, interest and royalties; where a treaty cap is above 10%, the domestic 10% applies. The recipient must be the beneficial owner and a resident of the treaty country.

Dispute resolution

Mutual agreement procedure. A resident who thinks the action of one or both countries will tax him against the treaty puts his case to the competent authority of his country. If it finds the objection justified and cannot settle the case itself, it tries to settle with the other competent authority. The authorities also settle doubts on how the treaty applies and may talk to each other directly.

Arbitration. If the MAP has not settled the dispute after two years, the taxpayer may have the case settled by binding arbitration.

Multilateral treaties

A multilateral treaty is a written agreement among three or more states. The OECD’s Multilateral Instrument changes the bilateral treaties of its signatories at once. It adds rules against treaty abuse and improves dispute resolution, and it spares countries from renegotiating each treaty.

The Vienna Convention on the Law of Treaties

• It codifies the rules for drafting, defining, amending and interpreting treaties, so it gives courts one approach.
• Article 31(1) says a treaty must be interpreted in good faith, in line with the ordinary meaning of its terms, in their context and in the light of its object and purpose.
• A treaty in force binds the parties, who must perform it in good faith and may not use domestic law to excuse failure.

Benefits of a treaty

It encourages foreign investment, lowers compliance cost, makes the taxing rights of each state clear, reduces disputes and evasion, supports trade and growth and strengthens relations between the states.

The old Commonwealth relief (for reading earlier papers)

Before the NTA 2025, section 44 of the Companies Income Tax Act gave Commonwealth income tax relief where there was no treaty. For a Nigerian company the relief was the lower of the Commonwealth rate and half the Nigerian rate: at a Nigerian rate of 30%, a Commonwealth rate of 12% gave relief at 12% and a rate of 35% gave relief at 15%. A claim had to be made within six years.

That regime has been replaced by s. 120, so use the “lower of” credit above for every year from 2026.

Worked examples

1. Nigerian tax.
   30% × ₦132,000,000 = ₦39,600,000.
2. Attributable to Ghana income.
   122 ÷ 272 × 39,600,000 = ₦17,761,765.
3. Foreign tax paid is ₦18,500,000. The credit is the lower, ₦17,761,765.
4. Nigerian tax payable.
   39,600,000 − 17,761,765 = ₦21,838,235.
   The ₦738,235 of extra Ghana tax is not refunded.

1. Nigerian tax.
   30% × 400 = ₦120m.
2. Attributable = 100 ÷ 400 × 120 = ₦30m.
3. Foreign tax paid is ₦20m, which is lower, so the credit is ₦20m.
4. Nigerian tax payable.
   120 − 20 = ₦100m.

1. Dividend.
   7.5% × 200 = ₦15m.
2. Interest.
   10% × 50 = ₦5m.
3. Both deductions are final for the non-resident recipients.

1. Under s. 121(5), relief applies from 1 January 2028, the first day of the year after entry into force.
2. A claim for credit for the 2028 year of assessment is due within two years after the end of that year.

How to score full marks

• Name the relief: s. 120 without a treaty, ss. 121 and 122 with one.
• Set out the formula: foreign income ÷ total income × Nigerian tax.
• Take the lower of that figure and the foreign tax paid.
• State that there is no refund and no deduction of foreign tax as an expense.
• Give the two-year claim limit and the objection and appeal route.
• Use 10% for non-treaty withholding and the treaty rate for a treaty partner.

Common mistakes in the exam

• Giving credit for the whole foreign tax without the ceiling.
• Using total Nigerian tax instead of the attributable part.
• Deducting foreign tax from profit and also taking a credit.
• Using the old Commonwealth half-rate rule for 2026.
• Applying 7.5% to every treaty partner after 1 July 2022.
• Giving the credit to a company that was not resident in Nigeria in the year.

Quick revision

• Credit = lower of attributable Nigerian tax and foreign tax paid.
• Attributable tax = foreign income ÷ total income × Nigerian tax.
• No refund; no deduction; two years to claim.
• Treaty needs ratification or domestication; beneficial owner test; anti-abuse.
• MAP, then arbitration after two years.
• Vienna Convention Article 31: good faith, ordinary meaning, context and purpose.
• CAMA 2020: ss. 54, 119, 377(1), 378, 426, 427, 433.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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