July 6, 2021
The petroleum shipping industry is an international industry, whose operations traverse the length and breadth of the world’s waterways. Vessels operate in multiple jurisdictions where they load and discharge petroleum cargoes. The transactions and contractual arrangements in the petroleum shipping industry are also complicated, given the enormous financial requirements, as well as the environmental, market and operational risks associated with the management of effective and standard-compliant shipping operations.
As an oil and gas exporting country, Nigeria is a frequent destination for non-resident ships, tankers and vessels that transport crude oil and liquefied natural gas out of the country. The activities and operations of these vessels within the Nigerian maritime boundaries may create footprints with potential tax consequences and obligations for the diverse economic agents involved in the financing, operating and maintaining of these petroleum vessels.
Given the offshore nature of the petroleum shipping industry and the tax administration and enforcement challenges therein, these non-resident petroleum-shipping companies and vessels with activities in Nigeria may be unaware of their corporate tax obligations in the country. The Companies Income Tax Act (“CITA”) (as amended) that provides the legal basis for subjecting companies to corporate tax in Nigeria, has a specific section dedicated to the taxation of international companies and vessels engaged in the business of transport by sea in Nigeria. In specific terms, Section 14(1) of the CITA provides that:
“Where a company other than a Nigerian company carries on the business of transport by sea or air and ship or aircraft owned or chartered by it calls at any port or airport in Nigeria, its profit or loss to be deemed to be derived from Nigeria shall be the full profit or loss arising from the carriage of passengers, mails, livestock, or goods shipped, or loaded into an aircraft in Nigeria…”
The implication of Section 14(1) of the CITA is that freight income earned by a non-resident shipping company for petroleum cargoes shipped or loaded from Nigeria will be liable to the Companies Income Tax (“CIT”). Furthermore, the non-resident shipping company will be required to file annual CIT returns and pay the taxes due on its activities in the preceding financial year. While the requirement to comply with Section 14 of the CITA is indisputable for non-resident shipping companies who transport petroleum cargoes out of Nigeria, the stringent compliance obligations imposed on these companies may not have taken into consideration the peculiarities of their business and could deter these companies from willingly complying with the tax laws in Nigeria. In this article, we will examine some of the unfavorable compliance requirements that may deter a non-resident shipping company from complying with provisions of the CITA and we will make recommendations that may improve their compliance level in Nigeria.