Is tax residence still a challenge under PITA?
According to Section 41 of PITA, all taxable persons are required, without notice or demand, to file a return of their income in the prescribed form and containing specific information in relation to their income and taxes thereon with the tax authority of their State of residence
With the dwindling oil revenue and resultant decline in allocation from the Federation Account, State Governments are expected to look more at internally generated revenue to meet the increasing costs of governance. Individuals and other tax payer liable to taxation under the Personal Income Tax Act (PITA) need to wake up to their obligations under the Personal Income Tax Act to avoid being caught in a web of multiple taxation due to initial tax payment to wrong tax authority. Itinerant workers are most affected in this ugly situation, as they are liable to tax wherever they work.
In Nigeria, individuals (expatriates and nationals alike) except itinerant workers, are expected to pay their personal income tax to the state in which they are deemed to be resident. In cases where an individual has more than one place of residence, its tax becomes payable to the state that is deemed to be its principal place of residence.
Section 3 of Personal Income Tax (Amendment) Act 2011 (PITAM) empowers States tax authority to impose and collect tax from an itinerant worker wherever he/she is found during the year. An itinerant worker includes an individual irrespective of his status who works at any time in any state during a year of assessment (other than a member of the armed forces) in more than one state and for a minimum of twenty (20) days in at least three (3) months of every assessment year. In assessing the itinerant worker for tax for any year of assessment, credit should be given against any tax paid to other tax authorities for the same year of assessment.
The residence of a tax payer depends, amongst other things, on the source of his/her income. For an individual whose only source of income is from a Nigerian employment, which he/she enters into on the first day of January in a year of assessment or who first becomes liable to tax in Nigeria by reason of that employment, his/her tax shall be accounted to the tax authority of the state where he/she resides. Where the tax payer maintains dual abode in a year of assessment, his/her principal place of residence shall be deemed to be the place that is nearest to his/her usual place of work.
In the case of individuals who work in the branch office or operational site of a company or other companies, the principal place for tax purposes shall be the location of the operational site or branch office. In this case, the taxing authority of the state where the operational site or branch office is situated will have the taxing right for the income earned by the employees. This scenario covers employees under subcontracting arrangement where the employer may be located in a different state while the employees work for another company located within the jurisdiction of another taxing authority.
For individuals under global labour mobility, tax residence varies from jurisdiction to jurisdiction. While some countries determine individual residence based on physical presence, others use combination of factors such as location of permanent home, economic interests and family.
In Nigeria, the main factor for determination of tax residence of non-nationals is physical presence. An individual is deemed resident in Nigeria, if he/she exercises duties of employment in Nigeria. The residence risk for expatriates under foreign employment is triggered where the duties of employment is carried out in Nigeria for a period of 183 days or more (including temporary period of absence) in a 12 month calendar year. Further, no expatriate/foreigner is allowed to be in long term employment in Nigeria except he/she is on a Nigerian company's quota position and holds a valid work and residence permit.