Expanding beyond Nigeria’s borders is an exciting move for businesses, but cross-border taxation can turn it into a financial minefield. Many businesses enter international markets unaware of the tax implications, leading to compliance risks, unexpected liabilities, and penalties that could have been avoided with proper planning.

One major challenge is double taxation—will your profits be taxed in both Nigeria and the foreign country? In some cases, yes—unless there’s a Double Taxation Agreement (DTA) between both nations. Nigeria has DTAs with a few countries, including the UK, Canada, and South Africa, but if your target country isn’t on the list, you may be subject to double taxation. Businesses must structure their operations strategically to minimize tax burdens.

Another concern is VAT and withholding tax. Should a Nigerian business charge VAT on services provided to foreign clients? Should it deduct withholding tax when paying international vendors? Many businesses misclassify transactions, leading to unpaid tax liabilities that pile up over time. For instance, software companies selling digital products to foreign customers may still have VAT obligations in Nigeria. Failing to address this can trigger compliance issues with tax authorities.

Transfer pricing is another tricky area. If a Nigerian business operates internationally, it must ensure that pricing for transactions between its subsidiaries follows arm’s length principles—meaning they must be priced as if they were between unrelated entities. The Nigerian government is increasingly scrutinizing transfer pricing to prevent profit shifting and tax evasion. Missteps here could lead to audits, fines, and reputational damage.

Beyond these, permanent establishment (PE) rules can also affect taxation. If a Nigerian business has a significant presence in another country—like a branch, office, or agent—it may be considered a taxable entity there. Understanding what constitutes a PE is critical because tax obligations can arise even if a company doesn’t have a legal entity in that country.

So, how can Nigerian businesses manage cross-border taxation effectively? First, understand the tax laws in both Nigeria and the target country. Next, consult tax professionals to structure operations efficiently. And finally, maintain detailed financial records—proper documentation is crucial for audits and disputes.

Expanding globally is a powerful growth strategy, but failing to navigate cross-border tax complexities can turn it into a costly mistake. Have you faced challenges with international taxation? Let’s discuss in the comments!