DETERMINATION AND IMPORTANCE OF RESIDENCE
In personal taxation, determination of residence is vital, for the purpose of
identifying the relevant tax authority of a taxpayer. The First Schedule of PITA
provides details for the determination of residence.
Resident individual
An individual is regarded as resident in Nigeria in an assessment year if he:
Is domiciled in Nigeria;
Sojourns in Nigeria for a period or periods in all amounting to 183 days
or
more in a 12-month period; and
Serve as a diplomat or diplomatic agent of Nigeria in a country other than
Nigeria.
Non-resident individual
A non-resident individual is a person who is not domiciled in Nigeria or who
stays in Nigeria for less than 183 days in a 12 month period but derives income
or profit from Nigeria. A non-resident individual becomes liable to tax in
Nigeria from the day he commences to carry on trade, business, vocation or
profession in Nigeria. In the case of employment income, he is liable to tax in
Nigeria when he becomes a resident.
Residence and nationality
Residence should not be confused with nationality. The Nigerian tax laws
attach importance to residence and not nationality. Therefore, whether you are a
citizen of Nigeria or a citizen of another country, the same standards apply to
you as far as you are resident in Nigeria. The same condition will also apply to
an individual who is not resident in Nigeria whether he is a Nigerian or a
foreign national.
Place of residence
“Place of residence” in relation to an individual, means a place available for his
domestic use in Nigeria on a relevant day, and does not include any hotel,
rest-house or other place at which he is temporarily lodging, unless no more
permanent place is available for his use on that day.
Principal place of residence
“Principal place of residence” in relation to an individual with two or more
places of residence on a relevant day, not being both within any one territory
means:
In the case of an individual with no source of income other than a
pension
in Nigeria, that place or those places in which he usually resides;
In the case of an individual who has a source of earned income other than
a pension in Nigeria, that place or those places which on a relevant day is
nearest to his usual place of work;
In the case of an individual who has a source or sources of unearned
income in Nigeria, that place or those places in he usually resides; and
In the case of an individual who works in an office or operational site of
a company or other body corporate, the place of which the branch office
or operational site is situate; provided the operational site shall include
oil terminals, oil platforms, flow stations, factories, quarries, construction
sites with a minimum of 50 workers etc.
Residence of different categories of individuals
Liability to income tax is often determined according to whether a person
receiving income is resident in a state for a particular year of assessment.
A taxpayer is therefore liable to the tax authority of the territory in which he is
deemed to be resident for a year of assessment. The following rules guide the
determination of residence:
An individual whether in employment or whose only sources of income
are unearned income is deemed to be resident for a year ofassessment in
the territory in which he has a place available for his domestic use in
Nigeria on the first day of January of the assessment year, and does not
include any hotel, rest house or other place at which he is temporarily
lodging;
An executor is deemed to be resident in the territory in which the
deceased individual was last deemed to be resident or would have been
deemed to be resident if the law had been in force prior to the date of his
death;
A trustee of any trust or settlement is deemed to be resident where all the
income of the settlement or trust for a year of assessment arises. Where
the income arises in more than one territory or where the tax authority
cannot be determined, the Federal Inland Revenue Service is the tax
authority;
Partners in partnership are deemed to be resident where the principal
office or the place of the partnership is situated on the first day of that
year or is first established during the year;
A village or an indigenous community is deemed to be resident in the
territory in which the community is found;
An itinerant worker is deemed to be resident where he is found in a year
of assessment;
An individual not being a person assessable by FIRS (S. 2, 1 (b) ) who
holds a foreign employment on the 1st day of January in a year of
assessment or who first becomes liable to income tax in Nigeria for that
year by reason of his entering that employment during that year, shall be
deemed to be resident for that year in the territory in which the principal
office of his employer is situated on that day or on the day his foreign
employment commences as the case may be; and
An individual whose only source of earned income arising in Nigeria on
the 1st day of January in a year of assessment was a pension, or who had
a place or principal place on that day shall be deemed to be resident for
that year in the territory in which that place or principal place or
residence was situated on that day.
Meaning of income
Income chargeable to tax, is the aggregate amount, each of which is the income
of every taxable person, for the year, from a source inside or outside Nigeria,
including:
Gain or profit from any trade, business, profession or vocation for whatever
period of time such trade, business, profession or vocation may have been
carried on or exercised; and
Any salary, wage, fee, allowance or gain or profit from employment including
compensation, bonuses, premiums, benefits or other perquisites allowed, given
or granted by any entity to an employee, other than those specifically stated as
non- taxable. For the purposes of personal income tax and place of residence,
income is classified into earned and unearned.
Earned incomes
“Earned incomes” in relation to an individual, means income derived by him
from a trade, business, profession, vocation or employment carried on or
exercised by him and a pension derived by him in respect of a previous
employment. It includes profits, salaries, wages, commission, bonuses, etc.
Place of residence
An individual who has a source of earned income in Nigeria, for a year of
assessment, other than from employment or a pension, shall be deemed to
be resident for that year in the territory in which he had a place or
principal place of residence on the 1st day of January in that year.
If the source of the income is first acquired by the individual during the
year of assessment, and he had no place of residence on the first day of
that year, he shall be deemed to be resident for that year, in the territory
where he first establishes a place of residence during that year.
In any other case, the individual shall be deemed to be resident for that
year, in any territory from which any part or the whole of his earned
income, arising in Nigeria is derived, if the income is derived from more
than one territory, in the Federal Capital Territory.
Unearned incomes
These are incomes derived from sources other than employment, business or
reward for services rendered. It includes investment incomes such as rental
incomes, dividends, royalty, earnings from trademark, patents, etc. Others are
gifts, inheritance and bequeathals.
Place of residence
An individual who has no source of earned income in Nigeria for a year of
assessment, but has one or more sources of unearned income in Nigeria for that
year, shall be deemed to be resident for that year, in the territory in which he
has a place or principal place of residence, on the 1st day of January of that
year.
If all the unearned income of the individual for that year, arises in one territory,
and he has no place of residence on that day, he shall be deemed to be resident
for that year in that where the income arises.
If the unearned income of the individual arises for that year, in more than one
territory, and he has no place of residence on that day, he shall be deemed to be
resident for that year, in the territory from which any part of the unearned
income arises.
