After the Flip: How Money and Costs Move Between Your Parent Company and Your Nigerian Company

You raised from international investors, so you flipped. A parent company abroad now sits on top, and your Nigerian company sits under it as a subsidiary. The paperwork is done, and then the practical questions start. Which company signs up the customer? Which one employs your engineers in Lagos? When money comes in, where does it land, and how does it reach the people doing the work?

These are not questions to answer by improvising. The flip created two separate companies, in two countries, each with its own tax authority watching. How money and costs move between them has to be deliberate and documented, or you build up tax exposure and a mess that is expensive to unwind later. The sound setup follows a few clear principles, and they are worth getting right from the start. They hold whether your parent is in the US or the UK; only the name of the tax authority at the top changes.

What the flip actually created

The flip gave you two companies with two different jobs. The parent, usually a Delaware corporation in the US or a company in the UK depending on where your investors are, is the holding company. It is where your investors hold their shares, and often where the group’s intellectual property and international contracts sit. On its own, it does not run the business. The Nigerian company is the operating company. It employs the local team, does the day-to-day work, and holds the local licences and tax registrations. One owns; the other operates.

Keeping that distinction clean is what everything else depends on. The two companies are separate legal persons, taxed separately, and the authorities in both countries expect them to behave that way. Whether and where to flip is a separate decision, one where to incorporate works through. The harder part is what comes next: keeping the two companies clean once they both exist.

Which company employs your team

Your Nigerian staff should almost always be employed by the Nigerian company, not the foreign parent. Employment is governed by local law, payroll taxes and pension contributions are local obligations, and paying a Lagos-based team from a US or UK entity creates complications on both sides.

It can also create what tax authorities call a permanent establishment. If the parent is effectively operating in Nigeria through people based there, Nigeria can tax the parent as though it were trading locally, which is the opposite of what a clean structure is for. So employ local people in the local company, and reserve the parent for whatever genuinely belongs at the top, a founder or executive based where the parent is, or no employees at all.

Which company bills the customer

Where the contract and the invoice sit should follow where the customer is and where the value is delivered, not whatever is easiest to set up. If your customers are Nigerian and the service is delivered locally, the Nigerian company is usually the right one to contract and bill them, and to account for local VAT and company tax. If you sell internationally, the parent may hold those contracts instead.

What matters is that the choice is deliberate and consistent, and that it matches how the two companies actually work together. Billing from the wrong entity is how you end up with revenue sitting in the wrong country and tax questions you cannot answer.

Who pays whom, and the rule that governs it

This is the part founders most often get wrong. The two companies will pay each other. The parent funds the operating company, the operating company does work that benefits the group, and those payments cannot be set at whatever number is convenient. They have to be set at arm’s length: the price two unrelated companies would agree for the same work. The Nigeria Revenue Service and the parent’s authority, the US IRS or the UK’s HMRC, all require this, and Nigeria’s transfer pricing rules expect you to document how you arrived at the number.

In practice, the common structure is a services agreement. The Nigerian company does the operational work for the group, and the parent pays for it on a cost-plus basis, meaning the company’s costs plus a reasonable margin. That margin matters. If you set it to zero, the Nigerian company charges only its costs and makes no profit, so the profit from work its team did shows up in the parent instead, where it may be taxed less or not at all. That shift is exactly what transfer pricing rules exist to stop. This is worth setting with a specialist who can fix the margin and write the agreement, because it costs little next to the penalties for getting it wrong.

How the investors’ money reaches the work

The money your investors put in lands in the parent, because the parent is what they bought shares in. It then has to reach the Nigerian company that spends it on salaries and operations. There are three main routes: the parent invests it as equity, the parent lends it under an intercompany loan, or it flows as payment under the services agreement above. Each carries different tax and repatriation consequences, and the right mix depends on your situation.

The point to hold onto is that each movement is a real, documented transaction between two separate companies, not an informal transfer within one business. Treating the two as one wallet is the fastest way to create a tax problem, and moving money between them is part of the same discipline as getting money in and out of the country.

What this means for founders

The flip is the start of your structuring work, not the end of it. Two companies now exist, and the money and costs between them have to move on purpose: documented, consistent, and at arm’s length. Get that right and the structure does what it was meant to, letting you raise from international investors while running a real business in Nigeria, with each company clean in the eyes of its own tax authority. Get it wrong and you are left with back taxes and penalties, and a tangled structure that becomes an expensive problem in due diligence when you next raise or sell.

Most of this is set up once, early, with the right help, and it is often the point at which a growing company brings in senior finance leadership. That is the work we do at The SME CFO: building the intercompany structure, the agreements, and the reporting that keep a cross-border group clean. If you have flipped, or are about to, book a consultation.