Nigeria - Personal Income Tax & Assignment of Oil Leases

Personal Income Tax

Under the Personal Income Tax Decree 1993 every individual who is resident in Nigeria is liable to income tax on his income from all sources whether "inside or outside Nigeria". A large number of foreigners working in Nigeria receive only a part of their income locally with the balance being received outside Nigeria. Nigerian tax authorities have for some time been concerned that many foreigners have been declaring only the Nigerian portion of their incomes or at best have been under reporting the foreign portions. As a result, the authorities have recently begun to assess foreigners to tax on the basis of deemed incomes. These deemed incomes vary according to the nationality and managerial grade of the foreigner.

Assignments of Oil Field Leases

Under the Petroleum Act 1969 the holder of an oil prospecting license or an oil mining lease could with the consent of the Minister assign his license or lease to an assignee whom the Minister considers to be:

• of good reputation;
• likely to have sufficient technical knowledge and financial resources; and
• in all other respects acceptable to the Federal Government.

In addition, the Petroleum (Drilling and Production) Regulations 1969 provide that in an application for the assignment of an oil prospecting license or oil mining lease "an applicant should furnish in respect of the assignee all such information as is required to be furnished in the case of an applicant for a new license or lease". These provisions mean that an applicant for assignment must have identified a prospective assignee before presenting its application.

Recently an oil company in Nigeria, Ashland Oil Nigeria Limited, sought permission for the assignment of its Nigerian oil mining leases to an assignee with whom it had reached agreement on terms. In response, the Nigerian government accused Ashland Oil of assigning its interests "without approval" and proceeded to revoke its (Ashland Oil's) leases and to take over its operations. Although the reasons for the Government's action are unclear it seems that the Government now takes the view that any company considering assignment of its lease must first obtain from the Government approval in principle for the assignment before proceeding to seek willing assignees. It is possible that this view follows from the Petroleum (Amendment) Decree of 1966 by virtue of which the Head of State became empowered to "cause the farm-out of a marginal field if the marginal field has been left unattended for a period of not less than 10 years from the date of the first discovery of the marginal field". The Decree defines a marginal field as "such field as the Head of State ... may, from time to time, identify as a marginal field". Therefore, the Government, it seems, now considers itself to have a right of first refusal on assignments of leases.