In this blog, we explained in detail the number of major taxes individuals and corporate organization pays in Nigeria. It is mostly taxes manage and levied by Federal government of Nigeria. It is important to note here that there other several taxes and levis other governments like state and local government can impose in their locations.
You will also find information on how to process and obtain tax clearance certificate in Nigeria for individuals, new registered companies and old registered companies.
Under current Nigerian law, taxation is enforced by the 3 tiers of Government, i.e. Federal, State, and Local Government with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) Decree, 1998. Of importance at this juncture however are tax regulations pertaining to investors both foreign and Local.
The importance of tax regulations cannot be over-emphasized, as most transactions with any Ministry, department, or government agency cannot be concluded without evidence of tax clearance certificate.
The following are some of the relevant tax regulations in the country.
1. COMPANIES INCOME TAX: Tax is payable for each year of assessment of the profits of any company at a rate of 30%. These include profits accruing in, derived form brought into or received from a trade, business or investment. Also companies paying dividends to its shareholders are first obliged to pay tax on it’s profits at the companies tax rate. Generally in Nigeria company dividends or other company distribution whether or not of a capital nature made by a Nigerian company is liable to tax at source of 10%, however dividends paid in the form of bonus share or scrip shares to individual share holders are not subject to tax, where also a company is a shareholder in another company then such dividends are excluded from the profits of the company for the purposes of computation of the tax.
2. PERSONAL INCOME TAX: In PERSONAL INCOME TAX (AMENDMENT) ACT, 2011, every taxpayer in Nigeria is liable to pay tax on the aggregate amount of his income whether derived from within or outside Nigeria, the salaries, wages, fees, allowances, and other gains or benefits, given or granted to an employee are chargeable to tax. The Employers of labor are deemed to be agents of the tax authority for the purposes of remitting taxes deducted from salaries due to employees.
However residency of the Taxpayer determines the extent of a taxpayer’s liability in Nigeria. A person’s place of residence for this purpose is defined as a place available for his domestic use in Nigeria on a relevant day, excluding hotels and rest houses. A person is deemed resident in Nigeria if he resides in Nigeria for 183 days in any 12-month period, expatriates holding residence permits are liable to tax in Nigeria even if they reside in the country for less than 183days in any 12-month period. Once residence can be established, the relevant tax authority of the territory is the tax Authority in which the taxpayer has his place of residence or principal place of business.
The following are however exempted from tax: –
- Medical or Dental expenses incurred by the employee;
- Retirement gratuities and compensation loss of office;
- The cost of passage to or from Nigeria incurred by the employee;
- Interest on loans for developing an owner-occupied residential house;
- Leave allowance, which is computed as 10% of annual basic salary subject to a maximum of N7, 500 per annum.
You can find more details about Personal Income Tax in Personal Income Tax in Nigeria – PAYE, Direct & Self Assesment Taxes
3. VALUE ADDED TAX (VAT): VALUE ADDED TAX (AMENDMENT) ACT 2007 is 5% of a consumption tax levied at each stage of the consumption chain, and is borne by the final consumer. It requires a taxable person upon registering with the Federal Board of Inland Revenue to charge and collect VAT at a flat rate of 5% of all invoiced amounts of taxable goods and services.
VAT paid by a business on purchases is known as input tax, which is recovered from VAT charged on company’s sales, known as output tax. If output exceeds input in any particular month the excess is remitted to the Federal Inland Revenue Service (FIRS) but where input exceeds output the taxpayer is entitled to a refund of the excess from FBIR though in practice this is not always possible.
A Taxpayer however has the option of recovering excess input from excess output of a subsequent period. It should be stated at this point that recoverable input is limited to VAT on goods imported directly for resale and goods that form the stock-in-trade used for the direct production of any new product on which the output VAT is charged. Learn more about Value Added Tax (VAT).
4. WITHHOLDING TAX: Nigerian law subjects certain activities and services to Withholding Tax. This basically means that where during transactions in any of the specified activities or services, a payment is due from one person to another, the person making the payment is expected to deduct tax at the applicable rate and remit it to the relevant tax authority. This should be done not later than 30 days after the deduction. This provision can be found in sections 68 to 72 of the Personal Income Tax Decree No. 104 of 1993; Sections 60 to 64 of the Company Income Tax Act (as amended), and Section 51(a) of the Petroleum Profits Tax Act (as amended). Some of these activities and Services and their current applicable rates include:-
5. CAPITAL GAINS TAX: This accrues on an actual year basis and it pertains to all gains accruing to a taxpayer from the sale or lease or other transfer of proprietary rights in a chargeable interest which are subject to a capital gains tax of 10%, such chargeable assets may be corporeal or incorporeal and it does not matter that such asset is not situated in Nigeria. Where however the taxpayer is a non-resident company or individual the tax will only be levied on the amount received or brought into Nigeria.
Computation of capital gains tax is done by deducting from the sum received or receivable from the cost of acquisition to the person realizing the chargeable gain plus expenditure incurred on the improvement or expenses incidental to the realization of the asset.
6. EDUCATION TAX: An education tax of 2% of assessable profits is imposed on all companies incorporated in Nigeria. This tax is viewed as a social obligation placed on all companies in ensuring that they contribute their own quota in developing educational facilities in the country.
7. NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT 2010.
The Nigerian Oil and Gas Industry Content Development Act (“the Act”) is designed to
enhance the level of participation of Nigerians and Nigerian companies in the country’s oil and gas industry. With the promulgation of the Act, the Government has clearly established its intention to increase indigenous participation in the industry in terms of human, material and economic resources. The implementation of the Act is expected to significantly change the current business and operating structure in the Nigerian oil and gas industry, particularly for the international oil service companies
8. Tax Treaties: Nigeria has a number of tax treaties referred to as “double taxation” agreements with a number of countries, these are designed to ensure that the tax payable in Nigeria on the profits of a Nigerian company being remitted into the country are reduced by the amount of “foreign Tax” paid abroad and vice versa where an overseas company receives profits from Nigeria that have already been taxed in Nigeria. Some of these countries include the UK, France. The Netherlands, Belgium, Canada and Pakistan.
9. NIGERIAN SOCIAL INVESTMENT TRUST FUND (NSITF): This is governed by the NSITF Decree, and requires everybody employed in a Nigerian incorporated company to contribute a certain percentage of their salary to the fund. This contribution is based on the assumption that the maximum basic salary in Nigeria is N48, 000 per annum; Expatriates are excluded from this requirement where they can show proof of a similar contribution in their home country. The rate of contributions is defined as follows, where the contributor is an employee, 2.5% of his salary subject to a maximum of N 1,200 per annum; Where the contributor is an employer, 5% of basic salary subject.
This is governed by the NSITF Decree, and requires everybody employed in a Nigerian incorporated company to contribute a certain percentage of their salary to the fund. This contribution is based on the assumption that the maximum basic salary in Nigeria is N48, 000 per annum; Expatriates are excluded from this requirement where they can show proof of a similar contribution in their home country. The rate of contributions is defined as follows, where the contributor is an employee, 2.5% of his salary subject to a maximum of N 1,200 per annum; Where the contributor is an employer, 5% of basic salary subject.
10. PETROLEUM PROFIT TAX (PPT)
The Petroleum Profit Tax is subject to any resident company or person in charge of a non-resident company who are exploring for petroleum or producing it. This also includes any liquidator, receiver, or agent of liquidator or receiver of any company carrying on petroleum operations in Nigeria.
The Petroleum Profit Tax is a type of pre-paid tax. You have to prepare and submit your annual tax return to JP Morgan Chase Bank, within five months of the end of each assessment year.
The payment is done mainly 2 segments of 12-13 phases. The first segment is the estimated annual return paid not later than February of each year. The tax due is than paid in 12 months installments throughout the year. In case of the accumulated actual tax exceeds the tax paid a 13th month payment can be paid. If the opposite occurs you will get the refund.