A tax is a compulsory levy imposed by the government on the income of individuals and corporations to generate revenue and provide the basic infrastructure for the people. As a business owner or a prospective business owner, you should be familiar with the Nigerian tax framework and tax regulations that govern your business activities.
I would be emphasizing the different taxes that apply to you as a business owner. The Nigerian Federal Law requires businesses registered and operating in the country to remit different taxes at different levels of government to the Federal Inland Revenue Service (FIRS) and the State Revenue Services.
Company Income Tax
CIT is a tax payable for each year of assessment on profits of a company accruing in, derived from, or brought into Nigeria. This tax is payable on the completion of 1 financial year when the audited statement of account is presented to FIRS for computation and processing of your tax clearance.
The tax is applied after all company costs and expenses are deducted; the education tax has been deducted and after adjustments for the previous year’s losses and tax-exempted income. If you have any profit left, it’s taxed at 30%.
For small companies in the manufacturing industry and wholly export-oriented companies with turnover not exceeding 1 million Nigerian Naira (NGN), the CIT rate is reduced to 20% in the first five calendar years of operation.
Capital Gains Tax Act
The capital gain tax is 10% of the company gains realized upon the disposal of chargeable assets or exchange of certain kinds of interests. The most common capital gains tax payable by companies includes but not limited to the sale of stocks, bonds, precious metals, real estate, disposal of assets, and property investments. Capital gains tax accrues yearly, there are however exemptions to CGT contained in the Capital Gains Act.
Personal Income Tax
PIT is charged on the income of individuals, families, bodies of individuals, and trustees. PIT is an obligation paid to the State Inland Revenue Service where the individual resides. It is payable for each year of assessment on the aggregate amounts that qualify as the income of every taxable person, for the year, from a source inside or outside Nigeria,
Annual Income Personal Income Tax Rate
- First N300,000.00 – 7%
- Next N300,000.00 – 11%
- Next N500,000.00 – 15%
- Next N500,000.00 – 19%
- Next N1,600,000.00 – 21%
- Above N3,200,000.00 – 24%
This is paid to the federal or state governments on documents or instruments such as conveyances on sale, bills of exchange, promissory notes, agreements, contracts, etc. The federal government has the sole authority to impose a charge and collect stamp duties in respect of documents relating to matters between a company and an individual, group, or body of individuals.
While, the state government, on the other hand, has authority to collect stamp duty in respect of documents executed between individuals or persons at such rates imposed or agreed with the federal government.
Value Added Tax (VAT)
This is a tax placed on a product whenever value is added at a stage of production and the final sale. The standard VAT rate on goods and services is 5% A taxable person is required to register for VAT on commencement of business. A VAT number (now covered by the tax identification number, TIN) is assigned to every registered person and must be stated on all VAT invoices.
Non-resident companies doing business in Nigeria are required to register for and charge VAT on all their taxable supplies in the country. VAT charged by a non-resident company is withheld and remitted to the tax authorities by the resident customer. In all cases, government agencies, as well as oil and gas companies, are required to withhold VAT on their incoming invoices.
Withholding Tax (WHT)
Withholding tax is an advance payment of income tax. It is the payment of income tax liability of a taxpayer or company. Given that it is not a distinct tax and has no legislation of its own, WHT is only a mechanism for the collection of taxes that may have been lost through evasion and/or avoidance.
Education Tax (EDT)
Here, a tax of 2% of assessable profits is imposed on all companies incorporated in Nigeria. It is done to ensure that all companies contribute to the development of the education sector.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.