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The short answer
A Nigerian subsidiary of a UK company is a controlled foreign company (CFC), but a UK charge arises only if its profits pass through one of the CFC gateways and no exemption applies. For most owner-run groups an entity-level exemption settles it: the low profits exemption (accounting profits or assumed taxable total profits of no more than £500,000, of which no more than £50,000 non-trading income), the low profit margin exemption (profits no more than 10% of relevant operating expenditure) or the tax exemption (Nigerian tax at least 75% of the corresponding UK tax).
If your UK limited company owns a company in Lagos or Abuja, the UK controlled foreign company rules (Part 9A of the Taxation (International and Other Provisions) Act 2010) are the first thing an accountant will ask about. They exist to stop profits that really belong in the UK being parked in a lower-tax country. HMRC's guidance applies them to CFC accounting periods starting on or after 1 January 2013. This article explains how the rules are built, what each exemption tests, and how a typical Nigerian trading subsidiary fits. It is information, not tax advice.
How the CFC rules are built
Think of the rules as three filters, applied in order. First, is the Nigerian company a CFC at all? A company resident outside the UK and controlled from the UK usually is. Second, does an entity-level exemption remove the whole company from the charge? Third, if none does, do any of its profits pass through a gateway? Only profits that pass a gateway can be apportioned to the UK parent and taxed.
HMRC's International Manual (INTM190000, updated 29 September 2026) lists the gateway chapters as follows:
- Chapter 4: profits attributable to UK activities, in practice where the key people managing the subsidiary's assets and risks sit in the UK
- Chapter 5: non-trading finance profits, such as interest the subsidiary earns on spare cash or loans
- Chapter 6: trading finance profits
- Chapter 7: captive insurance business
- Chapter 8: solo consolidation
The charge itself falls on UK resident companies that hold relevant interests in the CFC; HMRC calls them chargeable companies. If you hold the Nigerian company personally rather than through a UK company, this particular charge is not the one to look at, although other rules may be.
The five entity-level exemptions
HMRC's exemptions page (INTM224000, updated 8 October 2026) lists five. Each is tested period by period.
| Exemption | What it tests | Source |
|---|---|---|
| Exempt period | A CFC that has come under UK control for the first time gets a temporary exemption, usually 12 months | INTM224000 |
| Excluded territories | CFCs resident in certain listed territories | INTM224000 (check the list) |
| Low profits | Accounting profits or assumed taxable total profits of no more than £500,000 for the period, of which non-trading income is no more than £50,000; reduced in proportion for periods under 12 months | INTM225550 |
| Low profit margin | Accounting profits (before interest) of no more than 10% of relevant operating expenditure | TIOPA s.371MB |
| Tax exemption | Local tax on the CFC's profits is at least 75% of the corresponding UK tax | TIOPA s.371NB |
A chargeable company must list on its Corporation Tax return any CFC that relies on the low profits exemption (INTM225500). That listing is easy to forget in the first year a subsidiary trades.
Low profit margin: what counts as expenditure
Section 371MB excludes two things from relevant operating expenditure: the cost of goods the CFC buys (unless the goods are used in its own territory) and any expenditure that gives rise, directly or indirectly, to income of a person related to the CFC. A Nigerian subsidiary that mainly buys goods from its UK parent and resells them therefore cannot count those purchases. The exemption suits service companies, such as a Lagos support or development team billing the parent at cost plus a mark-up.
Tax exemption: why Nigerian rates usually help
PwC's Nigeria summary (reviewed 29 May 2026) gives companies income tax of 30% for large companies (turnover above ₦100m or fixed assets above ₦250m) and 0% for small companies, plus a 4% development levy on assessable profits for companies other than small and non-resident ones. GOV.UK gives UK Corporation Tax as 25% on profits over £250,000 and 19% at £50,000 or less, with marginal relief between. Section 371NB compares the tax actually paid locally with the UK tax that would be due on the same profits computed under UK rules, so the headline rates are only a starting point: Nigerian reliefs, losses or exemptions can bring the local figure below 75%. A designer-rate regime disqualifies the exemption altogether. A small Nigerian company paying 0% will not meet this test and must rely on another exemption.
Worked examples
Example only, using an illustrative rate of ₦2,000 to £1 (check the rate your adviser applies; HMRC's guidance on currency for these tests was not reviewed here).
- Example A: small service subsidiary
- Turnover ₦80m, fixed assets ₦40m, accounting profit ₦30m (about £15,000), no interest income. Nigerian tax 0% as a small company, so the tax exemption fails. Profits are well under £500,000 and non-trading income is nil, so the low profits exemption applies. List the CFC on the parent's return.
- Example B: larger trading subsidiary
- Turnover ₦1.2bn, accounting profit ₦1.4bn (about £700,000), interest on deposits ₦60m (about £30,000). Over £500,000, so low profits fails. If Nigerian tax actually paid is close to 30% of profits computed on UK principles, it would exceed 75% of UK tax at 25%; the tax exemption is the one to evidence, with a computation of the corresponding UK tax.
In Example B the arithmetic is: corresponding UK tax at 25% of £700,000 is £175,000; 75% of that is £131,250. Nigerian tax at 30% of the same profits would be £210,000, which clears the bar. If Nigerian reliefs cut actual tax to, say, £120,000, it would not.
What to check first
- Confirm the subsidiary's accounting period and whether this is its first period under UK control (exempt period).
- Work out accounting profits and split out non-trading income such as deposit interest.
- Get the Nigerian tax computation and the amount actually paid, not the headline rate.
- Test the exemptions in the order easiest to evidence; keep the working with the UK company's tax records.
- If no exemption fits, ask an adviser to run the gateway tests, starting with where key decisions are made (Chapter 4).
Transfer pricing sits alongside the CFC rules and is covered in transfer pricing in a UK and Nigeria group. Moving profits back as dividends is covered in repatriating dividends from a Nigerian subsidiary, and setting the structure up in setting up a Nigerian subsidiary from the UK.
Where Pryme fits
Clean evidence makes CFC tests quicker. A Pryme Business Account can be opened from any country and holds NGN, USD, GBP and EUR with local account details for each, so the subsidiary's naira takings and the parent's sterling stay in the currency they arrived in, with statements for each. The Finance agent can prepare schedules for your accountant; a person reviews them, and actions are recorded.
Questions people ask
Is a Nigerian subsidiary automatically a CFC?
If it is resident outside the UK and controlled from the UK, it generally is. Being a CFC does not by itself create a charge; the gateways and exemptions decide that.
What is the CFC low profits exemption limit?
HMRC's INTM225550 (updated 7 September 2026) gives accounting profits or assumed taxable total profits of no more than £500,000, with non-trading income no more than £50,000, reduced in proportion for periods under 12 months.
Does Nigeria's 30% company tax mean the tax exemption always applies?
No. The test compares tax actually paid with 75% of the UK tax on the same profits computed under UK rules. Reliefs, exemptions or small-company status can bring Nigerian tax below that.
Do I have to tell HMRC if I use an exemption?
For the low profits exemption, HMRC's manual says the chargeable company must list the CFCs relying on it on its Corporation Tax return. Keep working papers for the other exemptions too.
Sources
- HMRC International Manual INTM190000: Controlled foreign companies (updated 29 Sep 2026) · accessed Oct 2026
- HMRC INTM224000: CFC entity exemptions (updated 8 Oct 2026) · accessed Oct 2026
- HMRC INTM225550: Low profits exemption, the basic rule (updated 7 Sep 2026) · accessed Oct 2026
- HMRC INTM225500: Low profits exemption (contents) · accessed Oct 2026
- legislation.gov.uk: TIOPA 2010 section 371MB, low profit margin exemption · accessed Oct 2026
- legislation.gov.uk: TIOPA 2010 section 371NB, the tax exemption · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, taxes on corporate income (reviewed 29 May 2026) · accessed Oct 2026
- GOV.UK: Corporation Tax rates and reliefs (updated 23 Oct 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.