Nigeria’s Significant Economic Presence (SEP) tax framework allows the government to tax qualifying foreign companies that derive income from economic activities involving Nigerian users, even without a physical office in the country. This makes it perfect for taxing platforms like META that provide services to Nigerians, generating billions without having a physical office in the country.
Under Section 17 of the Nigeria Tax Act 2025, activities covered include online advertising, e-commerce, digital content, search engines, online payments, cloud computing and participative network platforms.
For example, if a Nigerian business pays Meta ₦10 million to advertise its products to Nigerian Facebook and Instagram users, Meta may have a taxable economic presence in Nigeria even if the advertising contract and payment are processed through an overseas subsidiary. Nigeria can therefore lay a claim to the taxable profits attributable to this Nigerian economic activity.
However, the SEP framework has potential weaknesses. Because it generally seeks to establish taxable profits rather than simply taxing all revenue generated, (1) the allocation of expenses between related companies can affect the amount of profit attributed to Nigeria and (2) it raises conflict between legal right to tax vs compliance with tax
To illustrate this, imagine Meta earns ₦1 billion from Nigerian advertisers but pays its Irish subsidiary ₦700 million in technology, intellectual property licensing and management fees, leaving only ₦300 million as profit potentially taxable in Nigeria. Or if a Nigerian business pays Meta ₦10 million for Facebook advertising, but the payment goes into Meta’s Swiss bank account. Nigeria may have the legal right to tax Meta’s attributable profits, but collecting that tax is a separate challenge if Meta does not comply and its assets are outside Nigeria.
Such expenses and maneuvers could reduce Nigerian taxable profits. Although the 2025 Act introduces restrictions on certain related-party deductions, profit-margin adjustments and a minimum tax floor in specified circumstances, as described above, enforcement still depends on access to reliable financial information and the ability of tax authorities to scrutinize multinational transactions.
Other countries have adopted different approaches. The United Kingdom, for example, introduced a Digital Services Tax (DST), which imposes a 2% tax on qualifying revenue derived from UK users of social media platforms, search engines and online marketplaces. It applies to groups with worldwide in-scope revenues exceeding £500 million and UK revenues exceeding £25 million, with the first £25 million of UK revenue exempt. For example, a qualifying company generating £40 million in UK revenue would pay £300,000 in DST (2% of £15 million). Unlike a conventional profits-based tax, this liability cannot simply be eliminated through increased operating expenses. However, the UK provides an alternative calculation for businesses with low operating margins.
Ultimately, the difference is that Nigeria’s SEP framework focuses on taxing profits attributable to economic activity within its borders, while the UK’s DST places greater emphasis on revenue generated from local users. Nigeria’s approach preserves the conventional corporate income tax model but presents challenges around profit allocation and enforcement. The UK’s approach reduces the scope for expense-based profit shifting. These differences demonstrate the broader challenge of ensuring that multinational digital companies contribute taxes in the countries where they generate economic value.