TAXATION OF NON-RESIDENT AIRLINES UNDER NIGERIA’S 2025 BILATERAL AIR SERVICE AGREEMENTS: WITHHOLDING TAX AND DOUBLE TAXATION ISSUES

Abstract

The taxation of non-resident airlines presents unique legal challenges due to the cross-border nature of international air transport and the overlapping application of domestic tax laws and international treaty obligations. Nigeria's recent tax reforms, particularly the enactment of the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025, have introduced a revised framework for taxing income derived by foreign airlines from Nigerian operations. This article examines the taxation of non-resident airlines under Nigeria's 2025 Bilateral Air Service Agreements (BASAs), with particular focus on withholding tax obligations and the risk of double taxation. It analyses the interaction between domestic tax provisions, BASAs, and Double Taxation Agreements (DTAs), highlighting the circumstances in which treaty protections may restrict or modify Nigeria's taxing rights. The article further considers the practical implications of the withholding tax regime and the available mechanisms for obtaining double taxation relief. It concludes that while the 2025 reforms provide greater clarity and certainty in the taxation of international air transport income, effective coordination between domestic legislation and treaty obligations remains essential to preventing double taxation and promoting a predictable operating environment for non-resident airlines.

Keywords: Non-Resident Airlines; Bilateral Air Service Agreements; Withholding Tax; Double Taxation; Nigeria Tax Act 2025.

Introduction

The taxation of non-resident airlines operating into Nigeria sits at the intersection of international aviation law, bilateral treaty practice, and domestic tax policy. Airlines earn revenue in multiple jurisdictions, operate mobile assets, and often lack a conventional local corporate presence. These features make airline taxation a distinct sub-topic within international tax law because it raises persistent questions about where profits arise, which state may tax them, and how tax administration and collection should be effected.

Recently, Nigeria restructured its tax architecture with the enactment of the Nigeria Tax Act, 2025 and the Nigeria Tax Administration Act, 2025. These reforms have materially altered the commercial calculus for carriers serving Nigerian destinations. Accordingly, source-based rules, monthly reporting obligations, and withholding mechanisms now interact with a patchwork of Bilateral Air Service Agreements (BASAs) and double taxation treaties to determine the ultimate tax exposure of non-resident airlines.

Legal Framework & Overview

The legal framework governing the taxation of non-resident air carriers operates within a three-tiered structure. The first tier consists of the international legal regime, comprising the Chicago Convention and the network of Bilateral Air Services Agreements (BASAs). The second and third tiers comprise the domestic legal regime, principally embodied in the Nigeria Tax Act, 2025 (NTA) and the Nigeria Tax Administration Act, 2025 (NTAA); the Nigeria Tax Administration Act, 2025 (NTAA) together replace the Companies Income Tax Act (CITA) and consolidate Nigeria's principal tax legislation. Accordingly, the Chicago Convention affirms the sovereignty of States over their respective airspace and provides limited exemptions from customs duties and related charges. It does not, however, confer a general exemption from income taxation on non-resident air carriers. In contrast, Bilateral Air Services Agreements (BASAs), although negotiated on a bilateral basis, are the principal instruments through which States agree on reciprocal fiscal treatment for international air transport operations. Typically, a BASA contains a fiscal clause governing the taxation of income derived from international carriage. Once incorporated into domestic law, such fiscal provisions may modify, restrict, or displace the application of domestic taxing rights to the extent stipulated in the agreement.

Section 18 of the NTA clearly constitutes the primary charging provision governing the taxation of non-resident shipping and air transport enterprises. It deems profits derived from passengers, mail, livestock, or goods loaded in Nigeria for international carriage to be Nigerian-sourced and therefore chargeable to tax. Recognizing the practical difficulties associated with allocating profits to Nigerian operations, the provision further adopts a deemed-profit formula where the actual profits attributable to such operations cannot reasonably be ascertained.

Complementing this framework, Section 21 of the NTAA imposes monthly filing obligations on non-resident shipping and air transport operators, requiring the submission of certified statements of gross revenue generated from their Nigerian operations. In addition, Section 51 of the NTAA establishes the general withholding tax regime by empowering persons making payments to non-residents to deduct tax at source in accordance with the provisions of the Act. Additionally, Chapter Four of the Nigeria Tax Act, 2025 (NTA) establishes the statutory relief regime for the elimination of double taxation. It consolidates both treaty-based and unilateral relief mechanisms, thereby ensuring that income derived by non-resident airlines from international air transport operations is not subjected to double taxation and promoting consistency with internationally accepted principles of cross-border taxation.

In line with the foregoing, where Nigeria has entered into a ratified Double Taxation Agreement (DTA) with another jurisdiction, the treaty determines how taxing rights are allocated between the two States and the manner in which double taxation is relieved, whether through the exemption method or the grant of a foreign tax credit. The availability of such relief is, however, subject to the taxpayer satisfying the applicable treaty requirements, including those relating to residence, beneficial ownership, and anti-abuse rules.

Conversely, where no DTA exists, the Nigeria Tax Act, 2025 (NTA) provides unilateral relief by allowing a foreign tax credit for tax paid in the foreign jurisdiction. The credit is limited to the lower of the Nigerian tax attributable to the foreign income and the foreign tax actually paid, thereby preventing the same income from being taxed twice while ensuring that the credit does not exceed the Nigerian tax liability.

Withholding Tax Mechanics and Computation

The NTA/NTAA framework places withholding and tax collection at the centre of practical tax compliance. Section 51 of the NTAA requires persons making payments to non-residents to deduct tax at the point of payment or settlement, with the applicable rates prescribed by subsidiary legislation. In practice, this obligation may extend to ticket agents, ground handlers, cargo agents, and online distribution platforms that collect or remit revenue arising from international carriage originating in Nigeria, thereby requiring them to act as withholding agents. The practical implication of this regime is that amounts otherwise payable to a non-resident carrier may be withheld and remitted to the relevant tax authority, thereby creating an immediate cash flow impact on the carrier's operations.

Furthermore, the deemed profit method recognizes the practical difficulty of identifying the profits attributable to a non-resident carrier's Nigerian operations. Accordingly, Section 18 of the NTA adopts a formula-based approach by applying the carrier's worldwide profit ratio to its Nigerian gross carriage revenue, while a separate depreciation ratio replaces local capital allowances. Where audited global accounts are unavailable, the Act permits the use of a published profit margin or such fair percentage of Nigerian gross revenue as may be determined by the relevant tax authority. In addition, the Act imposes a minimum tax of two percent of gross Nigerian carriage revenue, payable monthly, thereby ensuring a minimum tax liability regardless of actual profits.

Similarly, Section 21 of the NTAA imposes strict compliance obligations by requiring non-resident carriers to file monthly returns by the twenty-first day of the following month, supported by certified gross revenue statements and relevant invoices. When combined with the withholding tax obligations imposed on third-party payers, this framework creates significant legal and administrative compliance responsibilities for non-resident air carriers.

Bilateral Air Service Agreements in 2025

BASAs remain the principal international instrument through which states moderate or exempt the taxation of international carriage. Many BASAs follow the ICAO template and include reciprocal clauses exempting designated airlines from taxes on profits derived from international carriage and from duties on fuel and spare parts. However, Nigeria’s legal system treats treaties dualistically: a signed BASA or fiscal clause does not automatically displace domestic law unless the treaty has been ratified and domesticated or the domestic statute gives effect to the BASA’s fiscal terms.

The practical upshot of Nigeria’s 2025 BASA activity is twofold. First, where a BASA with a fiscal clause has been ratified and domesticated and a corresponding DTA exists, carriers may secure treaty relief by producing the required documentation. Second, where a BASA exists without a domesticated DTA, the BASA’s fiscal clause may bind Nigeria internationally but will not, by itself, prevent domestic assessment under Section 18. This gap, signed BASA without domesticated DTA, is the precise fact pattern that exposes carriers to full application of the deemed-profit regime and the monthly minimum tax.

Double Taxation Issues and Reliefs

Double taxation arises where the same income derived by a non-resident carrier is subject to tax both in Nigeria and in the carrier's country of residence. To address this, Chapter Four of the Nigeria Tax Act, 2025 (NTA) provides two mechanisms for relief. The first is unilateral relief under Section 120, which permits a foreign tax credit where no Double Taxation Agreement (DTA) exists. This credit is limited to the lower of the Nigerian tax attributable to the income and the foreign tax actually paid. The second is treaty-based relief under Sections 121–123, which applies where Nigeria has entered into a ratified DTA with the carrier's country of residence. Access to treaty relief is subject to the taxpayer satisfying the prescribed conditions, including providing evidence of tax residence, beneficial ownership, and compliance with the applicable anti-abuse provisions.

In practice, however, obtaining double taxation relief is not without challenges. First, the operation of the withholding tax regime may result in temporary double taxation, as tax may be deducted in Nigeria before the carrier is able to claim treaty relief or a foreign tax credit in its home jurisdiction. Secondly, treaty relief is not automatic. A carrier must satisfy the documentary and procedural requirements of the applicable treaty, and failure to establish genuine tax residence or beneficial ownership may result in the denial of treaty benefits. Consequently, non-resident carriers should maintain adequate documentation, including tax residency certificates, audited financial statements, certified Nigerian revenue statements, and withholding tax certificates, to facilitate timely claims for relief and minimise the risk of double taxation.

Commercial Implications and Practical Recommendations

For non-resident airlines, the NTA/NTAA regime has significant commercial implications beyond legal compliance. These include cash flow pressures resulting from withholding tax and the statutory minimum tax, increased accounting and audit costs, and the need to review agreements with local agents to clearly allocate tax compliance and withholding responsibilities.

To mitigate these challenges, non-resident airlines should review the applicable BASA and any Double Taxation Agreement (DTA) before commencing or expanding operations in Nigeria to determine the availability of tax relief. They should also assess the impact of withholding tax and the minimum tax on route profitability, ensure that agreements with local agents contain appropriate withholding provisions, and maintain the documentation required to support treaty relief claims, including tax residency certificates, audited accounts, and withholding tax certificates. In addition, airlines should make adequate financial provision for tax obligations and incorporate these costs into their commercial planning and pricing strategies to ensure the continued profitability of their Nigerian operations.

Conclusion

Nigeria's 2025 tax reforms have reshaped the taxation of non-resident airlines by providing a clearer domestic tax framework while reaffirming the continued importance of BASAs and DTAs in preventing double taxation. As a result, the taxation of international air transport now depends on the effective interaction between Nigeria's domestic tax laws and its international treaty obligations.

Ultimately, for non-resident airlines, tax compliance is no longer merely a legal obligation but a commercial necessity. Airlines that proactively align their operations with Nigeria's tax framework, maintain robust documentation, and take advantage of available treaty relief will be better positioned to minimize tax exposure, avoid costly disputes, and operate efficiently within Nigeria's aviation sector.