Nigeria: Understanding The Tax Regime: Incorporated Companies Applicable Law

The Companies Income Tax Act is the applicable tax law for Companies in Nigeria.

Income Chargeable

For a company doing business in Nigeria, tax shall be assessed on profits, rent, premiums, interest, royalties, discounts, charges, annuities, benefits, any fees, dues or allowances and shall be payable at a rate specified by the relevant tax authority.

The Tax Identification Number

A company must register with and obtain a Tax Identification Number ('TIN') from the Federal Inland Revenue Service ('FIRS') to enable the payment of taxes such as Companies Income Tax, Withholding Tax and also for VAT purposes.

A TIN is an identification number for the company which is used by FIRS in the administration of Tax. A TIN must be furnished on Returns, Statement and other Tax related documents.

Tax Rate

Every year of assessment, the company shall pay tax at the rate of 30k for every naira in respect of the total profit assessed plus a special levy of 15% on any excess profits of the company.

However, in an instance where the company's turnover is N500, 000.00 or below and the assessable profit results in a loss, the company's minimum would be:

-0.5% of the gross profit; or

-0.5% of the net assets; or

-0.25% of the paid up capital; or

-0.25% of the turnover of the company for that year.

Profits That Are Exempt From Tax

  • Profits of any company being a statutory or registered society in which the profits are not derived from a trade or business carried on by such society.
  • Profits of company that are engaged in ecclesiastic, charitable or educational activities in which the profits are not derived from a trade or business carried out by such company.
  • Profits of a company being a co-operative society registered under any law relating to co-operative societies, not being profits from any business or trade carried on by that company other than co-operative activities solely carried out with its members or from any share or other interest possessed by that company in a trade or business in Nigeria carried on by some other persons or authority.
  • Profits of a company formed for promoting sporting activities where such profits are wholly expendable for such purpose, subject to such conditions as the Board may prescribe.
  • Profits of company being registered as a trade union which the profits are not derived from trade or business carried don by such trade union.
  • Dividend distributed by a Unit Trust.
  • Dividends derived by a company from another company incorporated in Nigeria.
  • Profits of a company engaged in petroleum operations will be taxed under the Petroleum Profit Tax Act.
  • Profits of any company being a body corporate established under any Local Government Law or Edicts in force in any state in Nigeria.
  • Profits of any company established by the Law of a State for the purpose of fostering the economic development of that state.
  • Dividends, rents, royalties or interest derived by a company from outside Nigeria and is being brought to Nigeria through Government approved channels.
  • Dividends received from small companies in the manufacturing sector in the first five years of their operation.
  • The interest on foreign currency domiciliary accounts in Nigeria accruing on or after 1st January, 1990
  • The interest on deposit accounts of a foreign non-resident company provided that the deposits into the account are transfers wholly of foreign currencies to Nigeria on or after 1st of January 1990, through Government approved channels.
  • Dividends received from investments in wholly exports oriented business.
  • Profits of a company in respect of goods exported from Nigeria provided that the proceeds from such exports are repatriated to Nigeria and are used exclusively for the purchase of raw materials, plants, equipment and spare parts.
  • Profits of a company whose supplies are exclusively inputs to the manufacturing of products for exports provided that the exporter gives a certificate of purchase of the inputs of the exportable goods to the seller of the supplies.
  • Profits of a company established within an export processing zone or a free trade zone.
  • A new company going into the mining of solid minerals shall be exempt from tax for the first three years of its operation.

Annual Returns

Every company must file a self-assessment tax return with FIRS at least once a year and the return must contain:

  • The audited accounts, tax, capital allowances computation for that year of assessment and amounts of profits from each source computed.
  • A duly completed self-assessment form as prescribed by the FIRS
  • Evidence of payment of either the whole or part of the tax due into a bank designated for collection of the tax.
  • The Company's annual return must be filed with the FIRS as follows:
  • In the case of a company that has been in business for more than 18 months, not more than 6 months after the end of its accounting year; and
  • For a newly incorporated company, within 18 months from the date of the company's incorporation or not later than 6 months after the end of its accounting period, whichever is earlier.

Where a company defaults in filing their annual returns with the relevant authority within the prescribed period, a penalty of N25, 000.00 in the first month of the default and N5, 000.00 for each subsequent month in which the default continues shall be charged.

Tax Designate

The Companies Income Tax Act provides that the company shall designate a representative who shall answer all queries relating to tax matters of the company and such person must be knowledgeable in the field of taxation.

Tax Clearance Certificate

A tax clearance certificate shall be issued by the FIRS to the company when the Board is satisfied that the tax assessed has been fully paid and no tax is due.

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.

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