Place Of Effective Management And Control: Implications For Companies' Tax Residency Under The Nigeria Tax Act

1. Introduction

In a significant overhaul of the Nigerian tax framework, the Nigeria Tax Act, 2025 ("NTA" or "the Act"), among other pieces of legislation, were signed into law by the President of the Federal Republic of Nigeria on 26 June 2025. The NTA, effective 1 January 2026, aims to provide a unified fiscal legislation governing taxation in Nigeria. Also, the NTA clarifies the rules governing corporate taxation, including the criteria for determining the tax residency of companies.

A central feature of the NTA is the introduction of the concept of "Place of Effective Management and Control" (PoEM) as a determinant of tax residency in Nigeria. Under the Act, a company may be deemed tax resident in Nigeria, not only if it is incorporated in Nigeria, but also if its central or effective place of management or control is in the country (i.e. in Nigeria).

This development aligns Nigeria with international best practices, including the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, and is aimed at preventing the artificial shifting of corporate residency to foreign jurisdictions while management decisions are effectively made in Nigeria.

Understanding the concept of PoEM is critical for both domestic and multinational companies. The determination of a company's effective place of management affects the taxation of its worldwide income, and its compliance obligations in Nigeria. As multinational groups continue to operate across multiple jurisdictions, corporate governance and decision-making structures may have broader tax implications.

This article explores the definition and scope of PoEM under the Nigeria Tax Act, examines its practical implications for companies, and draws lessons from international models and practices in other jurisdictions.

It also highlights considerations for boards, investors, and advisors seeking to navigate the evolving tax residency landscape in Nigeria. Ultimately, it seeks to answer: what the term, PoEM means, how the NTA's PoEM provisions reshapes corporate tax obligations in Nigeria, and what steps can be adopted by the Nigeria Revenue Service (NRS) (formerly Federal Inland Revenue Service) to ease the transition for companies into this new framework.

2. Overview and Implication of the Definition of a Nigerian Company under the NTA and Repealed Companies Income Tax Act (CITA)

The determination of a company's tax residency in Nigeria is central to understanding income tax obligations under the NTA.

Under the now repealed CITA, Section 105 defined a Nigerian company as any company formed or incorporated under any law in Nigeria. Previously, corporate residency for Nigerian companies and the resulting tax obligations were largely tied to the place of incorporation. Also, for non-resident companies, potential tax exposure arose where such companies carried on business in Nigeria through a fixed base or where such companies were deemed to have a significant economic presence (SEP) in the country. However, the CITA had no provision on how management and control within Nigeria could affect tax residency for companies.

Now, the NTA introduces a broader definition of Nigerian companies. In line with Section 201 of the NTA, a Nigerian company means a company:

1. formed, registered or incorporated under any law in Nigeria;
2. whose central place of management or control is Nigeria or;
3. whose effective place of management or control is Nigeria.

Based on the above, any company may now be deemed a Nigerian company, for tax purposes, where any of the conditions "a" – "c" above is satisfied. While condition "a" remains significantly unchanged, the introduction of conditions "b" and "c" makes it critical to examine what constitutes an effective or central place of management or control, especially as the NTA does not provide explicit definitions for these terms.

Based on the foregoing, there is a plausible risk that non-resident companies could be deemed tax resident in Nigeria and therefore be subject to Nigerian Corporate Income Tax (CIT) and other taxes applicable to Nigerian companies, if their effective or central place of management or control is determined to be within Nigeria.

In the absence of explicit definitions in the NTA, recourse can be made to established legal dictionaries. The Black's Law Dictionary defines "control" as "the direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise; the power or authority to manage, direct, or oversee." Similarly, management is defined as "the individuals in a company who are responsible for its operations."

These definitions help frame the discussion by clarifying that control encompasses both legal authority and practical ability to direct corporate affairs, while management refers to the executive body tasked with operational responsibility.

However, this analysis is preliminary, as a definitive interpretation of the NTA cannot be established without careful examination of the origin of the term PoEM. This is necessary to understand the intent of its framers.

In view of this, the article seeks to answer the following questions:

• What does PoEM mean?
• What are its implications for determining corporate tax residency in Nigeria?
• How have other jurisdictions interpreted similar concepts? and
• What lessons can Nigeria draw to apply these rules consistently?

To answer these questions, it is essential to explore the historical development of PoEM and review international practices in various jurisdictions.

3. Origin of Place of Effective Management

The concept of PoEM originates from international tax practice, particularly the OECD Model Tax Convention ("the OECD commentary"), which historically adopted PoEM as a tie-breaker rule to determine the tax residence of companies considered residents in more than one jurisdiction.

Its primary objective is to prevent double taxation and to discourage artificial manipulation of corporate residence, such as the incorporation of a company in one country while key managerial decisions are exercised elsewhere.

Under the OECD commentary, PoEM is defined as "the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are in substance made." The OECD further clarifies that while a company may have multiple places of management, it may have only one place of effective management at any given time. Notably, the OECD's definition emphasizes management and does not explicitly provide "control" as stipulated under the NTA.

Additionally, the concept of PoEM derives its history from the UK's tax jurisprudence. The landmark case on PoEM is the UK's De Beers Consolidated Mines Ltd v Howe (1906)¹. In this case, it was indicated that in determining where the central management and control actually abides, the first natural step is to ask who, in law, possesses the right and duty to exercise such management and control. In this regard, both the Board of Directors (BoDs) and shareholders were considered.

In order to answer the question, subsequent case law such as, Greer LJ (Shaw & Sons (Salford) Ltd v Shaw) (1935) clarified that the power of management and control lies in the hands of the BoD and not with the General Meeting (of shareholders). The rationales behind this conclusion were indicated as follows:

• The BoDs, while agents of the company, cannot be ordered about by the General Meeting (that is the Shareholders).
• The General Meeting can replace the directors, or it may alter the Articles, but it is very rare indeed to find the shareholders reserving for themselves the right to manage and control.
• Of course, the shareholders at the General Meeting have rights and duties apart from those of appointing and dismissing the directors. They approve the accounts and pass the dividend and have a voice in such matters as issuing new capital, in the reduction of capital and in changes of the objects clause of the Memorandum or changes in the Articles. These things do not constitute the management and control of the business. They are, rather keeping a critical eye on the interests of the shareholders, while control is in the hands of the BoDs.

Building on the historical and conceptual foundations of PoEM, it becomes evident that the locus of management and control is typically vested in the BoDs. However, examining international best practices will provide valuable insights into how the principle of effective management and control is applied in practice and will offer guidance on how Nigeria may interpret PoEM under the NTA.

4. Jurisdictional Comparison on the use of PoEM

Several jurisdictions have adopted the concept of the effective place of management and control to determine the tax residency of a corporate entity, including, but not limited to, the United Kingdom (UK), Singapore, Australia, India and South Africa. For the purpose of this article, our focus is on these jurisdictions.

In view of the above, it can be argued that the effective or central place of management and control for any non-resident company under the Nigerian tax law will also be where the BoDs of each entity sits, where key decisions are made and where the core operations of the entities are carried out.

However, it is important to note that, as seen in jurisdictions such as Australia, shareholders can also influence the determination of tax residency, particularly where they hold sufficient voting power to control or direct the company's affairs. Similarly, in the UK, where the shareholders exercise significant influence over the BoDs, the residency of those shareholders may be taken into account in determining the company's tax residence.

5. Navigation of the PoEM under the Nigeria Tax Framework

In periods of uncertainty such as this, international practices and comparative tax frameworks may serve as useful indicators of how similar provisions could be interpreted in Nigeria. However, such approaches cannot be relied upon with certainty in the absence of formal guidance, clarification, or administrative pronouncements from the NRS.

Accordingly, it is important to recognise that the NRS may adopt a more expansive or aggressive interpretation of the concepts of central or effective place of management or control. Also, it is noteworthy that the NTA adopts the use of the term "management or control," which differs from the term, "management and control" commonly applied in various jurisdictions, as reflected in the examples cited earlier in this article. International practice generally treats management and control as a composite concept, assessed holistically with emphasis on substantive board-level decision-making.

By contrast, the use of "or" under the NTA arguably permits either management or control, assessed independently, to impact Nigerian tax residency. This raises the practical risk that the place of control alone could be relied upon by the NRS without reference to place of management.

Interpretations of "control" vary across jurisdictions. In some countries, such as the UK and Singapore, control is primarily determined through the activities of the board of directors, while in Australia, the shareholders can establish control. In countries such as New Zealand that create a distinction between control and management for the determination of tax residency, control is defined explicitly in the law, in relation to the activities of the company's directors⁶. Separately, control may be assessed in accordance with relevant accounting standard, as outlined below. Specifically, International Financial Reporting Standards (IFRS) 10 defines control where three conditions are met⁷.

1. Power over the investee – Power is the ability to direct those activities which significantly affect the investee's returns. It arises from rights, which may be straightforward (e.g, through voting rights) or complex (e.g, through one or more contractual arrangements).
2. Exposure, or rights, to variable returns – Returns must have the potential to vary as a result of the investee's performance and can be positive, negative or both.
3. The ability to use power over the investee to affect the amount of the investor's returns.

In practice, significant shareholding often provides a strong indicator of control, as holding a majority of voting shares generally enables an investor to direct the investee's key activities, participate in its returns, and influence the amounts received.

As a result, the NRS could extend the definition of control to include circumstances where shareholders (whether corporate or individual) exercise significant influence in foreign entities, particularly where such shareholders hold substantial ownership. In this context, where the ultimate beneficial owners or controlling shareholders in a non-resident entity are Nigerian resident, there is a risk that such foreign entities could be regarded as being effectively controlled from Nigeria. However, these writers do not concur with this interpretation and consider it aggressive.

The consequence of such a determination is that every non-resident company that is a subsidiary of a Nigerian company or owned ultimately by Nigerian resident persons, could be deemed as Nigerian companies for tax purposes and could become subject to Nigerian CIT on their worldwide income. Such a determination would be overreaching and will bring to question the relevance of the controlled foreign company (CFC) rules under the NTA which are applicable to foreign subsidiaries of Nigerian companies. Can a company be considered both a foreign company and a Nigerian company under the same tax law?

Further questions arise regarding the treatment of dividends distributed by foreign subsidiaries which are deemed "Nigerian companies" under the NTA. Would such dividends be treated as Nigerian sourced and subject to final withholding tax at 10% or would they qualify as tax exempt where they are brought into Nigeria through government approved channels? Where the dividends are treated as Nigerian sourced, it could result in economic double taxation as returns from offshore investments are taxed twice, which could disincentivize cross border expansion by Nigerian businesses.

Nevertheless, we expect the NRS to issue guidelines clarifying the appropriate tax treatment of profits and dividend distributions from Nigerian-parented foreign subsidiaries under the new tax framework.

6. Conclusion

The introduction of the concept of PoEM under the NTA represents a significant step toward aligning Nigerian corporate tax residency rules with international best practices. However, the NTA does not provide explicit definitions or detailed guidance on what constitutes the "central or effective place of management or control," nor does it specify the conditions under which non-resident entities may be deemed Nigerian companies.

This absence of guidance is particularly significant given the NTA's use of "management or control," which differs from the internationally prevalent use of "management and control". Without clarification, there is a risk that the term, control, may be overemphasized and applied independently, potentially leading to unhealthy assertions of tax residency. The lack of guidance introduces potential uncertainty for non-resident companies, particularly where controlling shareholders are Nigerian-resident individuals or entities. Accordingly, it is recommended that the NRS, with the approval of the Minister, issue formal regulations or administrative guidelines clarifying the definition and interpretation of Place of Effective or Central Management or Control, taking into consideration the best practices applied in other jurisdictions.

Issuance of such regulations or guidelines would provide much-needed clarity, reduce compliance uncertainty, promote consistent application of the NTA's PoEM provisions and provide comfort to the taxpayers.

Notwithstanding the actions of the NRS, non-resident companies with Nigerian shareholding or management connection should remain mindful of further developments in this area and the potential implications on their operations. On a high level, where a non-resident company is deemed a Nigerian company, such company may be subject to CIT at 30% on its worldwide income, development Levy at 4% (which is not applicable to non-Nigerian companies), withholding taxes on payments, including dividends repatriated to shareholders etc. In addition, the company will be required to comply with other statutory obligations, such as filing annual returns, CIT returns etc.

While there is a risk of double taxation, both in the jurisdiction of incorporation of the non-resident companies and in Nigeria, relief may be available. Specifically, pursuant to Section 119(1) of the NTA, any income or profit derived outside Nigeria that has suffered tax in the source jurisdiction and is also chargeable to tax in Nigeria may qualify for a foreign tax credit, which can be set off against the Nigerian tax payable on that income.

Notwithstanding, it is essential for multinational enterprises and companies with foreign affiliations to seek professional advice to assess the potential implications of the recent changes in the Nigerian tax framework, as discussed in this article, on the non-resident entities within their group.

Footnotes

1. HMRC Internal Manual: Company Residence

2. Inland Revenue Authority of Singapore - Tax Residency of a Company / Certificate of Residence

3. Australian Taxation Office – Working out your residency

4. PwC – India Corporate Tax Residency

5. PwC – South Africa Corporate Tax Residency

6. Parliamentary Counsel Office – New Zealand's Income Tax Act

7. ICAEW - IFRS 10 Consolidated Financial Statements

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.