OVERVIEW OF BUSINESS TAXES IN NIGERIA

Businesses in Nigeria must pay a variety of taxes, each with its own set of rules and consequences. The Federal Inland Revenue Service (FIRS) and other state tax bodies are in charge of these taxes, which are intended to bring in money for the government. An outline of the main tax categories that apply to businesses in Nigeria is provided below:

1.??? Companies Income Tax (CIT)

In Nigeria, the most substantial tax on businesses is the Companies Income Tax (CIT). It is imposed on the earnings of Nigerian businesses and individuals making money in Nigeria. The CIT rate for major enterprises, which are those that have an annual turnover exceeding NGN 100 million, is typically 30% of taxable profits. The CIT rate is 20% for medium-sized businesses, defined as those with a yearly turnover of between NGN 25 million and NGN 100 million. Small businesses are free from CIT if their yearly revenue is less than NGN 25 million. Notably, a small business is defined as having approved share capital of no more than N1 million, which is far less than what a foreign-owned company would have.

Calculation and Filing:

• Taxable Profit: This is the profit after adjusting for allowable deductions, non-allowable expenses, and tax incentives.
• Filing Deadline: A company's CIT return must be filed every year, not later than six months after the end of the accounting year.

2.??? Value Added Tax (VAT)

A consumption tax applied to the value added at every stage of manufacturing and distribution is called value added tax, or VAT. In Nigeria, the standard VAT rate is 7.5%.

Applicability:

Except for those items that are expressly exempt (such as basic food items, pharmaceutical and medical products, and educational materials), VAT is applied to the majority of goods and services, whether they are produced locally or imported.

Filing and Payment:

• Monthly Filing: VAT returns must be filed monthly, on or before the 21st day of the month following the month of transaction.
• Payment: VAT collected from customers must be remitted by the company to the FIRS monthly.

3.??? Personal Income Tax (PIT)

Individuals' income, including that of company employees, is subject to personal income taxation (PIT). Pay As You Earn (PAYE) tax is withheld and remitted by businesses on behalf of their employees.

Deduction and Remittance:

• PAYE System: Companies deduct PIT from employees’ salaries and remit it to the State Inland Revenue Service (SIRS) of the state where the employee resides.
• Filing: Monthly returns must be filed, detailing the deductions made.

?4.??? Education Tax (EDT)

All Nigerian businesses are subject to the Tertiary Education Trust Fund (TETFund), sometimes known as the Education Tax (EDT), which is levied at a rate of 2% of assessable profits. This tax's revenues go toward supporting Nigeria's educational establishments.

Filing and Payment:

• Annual Filing: The EDT is filed with the CIT returns and is computed using the company's assessable profits.
• Payment: The tax is paid yearly to the FIRS.

5.??? Withholding Tax (WHT)

The advance payment of corporate income tax is known as withholding tax (WHT). It is taken out at the source of some payments made to businesses and people.

Applicability:

• Types of Payments: WHT applies to a number of payment kinds, such as interest, rent, royalties, dividends, contracts, and rent.
• Rates: The charges change based on the recipient and the form of payment. For example, the WHT rate is 10% on royalties, interest, and dividends given to businesses.

Filing and Remittance:

• Monthly Filing: Businesses are required to submit WHT returns on a monthly basis by no later than the 21st day of the month that follows the month of deduction.
• Remittance: The FIRS or SIRS, as appropriate, must receive the WHT that was withheld.?

6.? Employee Compensation Scheme (ECS)

A type of social security known as the Employee Compensation Scheme (ECS) pays workers for disabilities or injuries sustained on the job. The Nigeria Social Insurance Trust Fund (NSITF) is in charge of overseeing the program.

Applicability:

• Employers: Contributions to the ECS are mandatory for all employers..
• Rate: 1% of the entire payroll expenses is the contribution rate.

Filing and Payment:

• Annual Filing: Every year, ECS contributions are determined and disbursed.
• Advantages: For workers hurt on the job, the program offers financial and medical assistance.

7.??? Stamp Duties

Stamp duties are imposed as taxes on documents and transactions. The applicability and rates differ.

Applicability:

• Chargeable Instruments: A variety of documents, such as leases, share capital increases, and contracts, are subject to stamp duty.
• Rates: Rates may be fixed or ad valorem, or expressed as a percentage of the transaction value.

Filing and Payment:

• Stamping: Legal enforceability of documents requires their stamp to be applied.
• Payment: Either the FIRS or SIRS, the appropriate tax authority, receives stamp duties.

8.??? National Industrial Training Fund (NITF) Levy

The purpose of the National Industrial Training Fund (NITF) Levy is to provide funding for skill development and industrial training in Nigeria.

Applicability:

• Eligible Employers: Companies with more than five employees or an annual turnover of NGN 50 million or more.
• Rate: The NITF levy is 1% of the company’s payroll.

Filing and Payment:

• Annual Filing: Companies must file returns and pay the levy annually.
• Training Requirements: Companies can access reimbursement for training expenses from the fund.

9.??? Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is charged on the disposal of the company’s capital assets. The rate is 10%.

Applicability:

• Chargeable Assets: CGT is applicable to gains arising from the sale of capital assets, such as real estate, shares, and other investments.
• Exemptions: Some exemptions apply, including gains from the disposal of shares and gains used to purchase similar assets within a specified period.

Filing and Payment:

• Annual Filing: CGT returns are filed annually.
• Payment: The tax is payable by the company that realizes the gain.

?10.??? Information Technology (IT) Tax

A tax on information technology (IT) is levied on a number of firms in order to finance the advancement of IT in Nigeria.

Applicability:

• Eligible Companies: Companies in specific sectors, such as telecommunications, banks, insurance, and other financial institutions with an annual turnover of NGN 100 million or more.
• Rate: The IT tax rate is 1% of profit before tax.

Filing and Payment:

• Annual Filing: IT tax is calculated based on the profit before tax and filed annually.
• Payment: The tax is paid to the National Information Technology Development Agency (NITDA).

In Conclusion, Complying with the several tax laws that Nigerian companies must know about is essential for efficient financial planning and compliance. CIT, VAT, EDT, PIT, WHT, CGT, Stamp Duties, IT Tax, NITF Levy, and ECS are some of these taxes. To avoid fines and maintain efficient operations, businesses must abide by the rates, filing requirements, and deadlines associated with each tax. Companies can manage the intricacies of the Nigerian tax system by interacting with tax experts and becoming current on legislative changes.

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By Corporate & Commercial Law Team at?Resolution Law Firm

Email: [email protected]

Tel/WhatsApp:?+2348099223322