Nigeria: Administration Of Taxes In Nigeria

Last Updated: 16 November 2018
Article by Strachan Partners

Tax administration in Nigeria is vested in the three tiers of government.   Taxes payable to the Federal Government are administered by the Federal Inland Revenue Service (FIRS), while those payable to the State Governments are administered by the State Boards of Internal Revenue (SBIRs) of the thirty- six states of the Federation.  Local Governments also administer rates and levies collectible by them through their various councils.

There are a good number of taxes payable by persons doing business in Nigeria. These include companies' income tax, personal income tax, capital gains tax, value-added tax, education tax, technology tax, stamp duties, and withholding tax.  Penalties are imposed for failure to pay taxes when due.

A Tax Clearance Certificate is issued on demand when taxes due have been fully paid for three years immediately preceding the current year of assessment. A Tax Clearance Certificate is usually required for official transactions with Government Ministries, Departments, and Agencies (MDAs).

1. Table of Taxes Applicable to Companies in Nigeria

Key taxes chargeable in Nigeria, their application and rates:

 

APPLICABLE TAX

TAX RATE

GOVERNING LEGISLATION

Companies Income Tax (CIT)

30 % of total profits of a company less allowable deductions

Companies Income Tax Act

Capital Gains Tax (CGT)

 

10% of gains realized upon disposal of a chargeable  asset

Capital Gains Tax Act

 

Value Added Tax (VAT)

5% on the supply of goods and services

Value Added Tax Act

Education Tax

2% of assessable profits of a company

Education Tax Act

Personal Income Tax

CHARGEABLE INCOME

RATE OF TAX

First N 300,000.00

7 %

Next N 500,000.00

15 %

Next N 500,000.00

19 %

Next N 1,600,000.00

21 %

Above N 3,200,000.00

24 %

3.    Stamp Duties

Stamp duty is a tax on documents, which is payable by virtue of the Stamp Duties Act, (Chapter S8), LFN 2004 (the "Stamp Duties Act"). The rate of stamp duties depends on the type of document and the value of the transaction evidenced by such a document. When a document is executed between a company and an individual, the stamp duty is payable to the Federal Inland Revenue Service, whereas, where the document is executed solely by individuals, the State Board of Internal Revenue is the appropriate collecting authority.   Some examples of stamp duty levies are as follows:

Taxable Item

Rate of Tax

Lease Agreements

16 kobo for every N 200 (0.08 %)

Mortgages

75 kobo for every N 200 (0.375%)

Incorporation of Limited Liability Company

0.75% of authorized share capital

4.    Withholding Tax

Nigeria's tax laws provide for the withholding of tax from payments due to any person or company (whether or not resident in Nigeria) that provides goods or services to another person or company in Nigeria. Withholding tax is not a separate category of tax but simply represents an advance payment of income tax.

Types of Payments

Rate of Tax for Companies (%)

Rate of Tax for Individuals (%)

Dividends, interests and rents

10

10

Royalties

10

5

Building and construction

5

5

All types of contracts and agency arrangements, other than sales in the ordinary course of business

5

5

Consultancy and professional services

10

5

Management services

10

5

Technical services

10

5

Commission

10

5

Directors' fees

10

10

5.    Customs and Excise Duty

The Customs and Excise Management Act ("CEMA") Chapter C44 LFN 2004 imposes customs duty on specified imported goods and empowers the Customs and Excise Management Authority to restrict the movement of goods into and out of Nigeria.   Any company operating in Nigeria is liable under CEMA to pay customs duty on all goods which it imports into Nigeria for its operations, for hiring or for sale. The rates range from 5% to 30%, depending on the goods imported.

6.     Information Technology Development Levy

The National Information Technology Development Agency ("NITDA") Act, 2007 imposes on telecommunication companies, cyber companies and internet service providers, pensions managers, banks, insurance companies and other financial institutions, which have an annual turnover of N100,000,000 (One Hundred Million Naira) and above, a levy amounting to 1% of their profits before tax. The NITDA Act also empowers the Federal Inland Revenue Service (the "FIRS") to assess and collect the levy and where a company fails to pay the levy within 60 days of the being served with notice of an assessment, a penalty of 2% will be added to the levy.   In addition, failure to pay the levy will attract a fine of not less than N1, 000,000 (One Million Naira) on conviction.

7.    Contributions

Although not taxes in the proper sense, below are certain categories of mandatory contributions that would apply to a corporate employer/investor, if it were to set up a local entity in Nigeria.

a.    Pension Contributions: The Pension Reform Act 2014 ("PRA") introduced a pension scheme whereby both employer and employee are required to make a minimum of 10% and 8 % respectively of the employee's monthly emoluments to a Pension Fund Administrator as a contribution towards the employee's pension upon retirement. Emoluments include all items that are paid on a monthly basis (in addition to basic, housing and transport). The scheme is compulsory for all private sector employers that employ fifteen or more employees. The Act stipulates that where an employer chooses to bear full responsibility, the rate of employer's contribution is a minimum of twenty percent.

b.    Employees Compensation Deductions:  The Employees Compensation Act 2010 (the "ECA"), which was signed into law on 17th December, 2010, imposes an obligation on employers in both the private and public sector to deduct 1% from the monthly salary of their employees, and remit the deduction to an Employees Compensation Fund, established under the ECA for the compensation of any death, injury, disease and disability of an employee arising out of or in the course of employment. The ECA gives the Nigeria Social Insurance Trust Fund Management Board (the "NSITF Board") the power to implement the fund.

c.    National Housing Fund Deductions: The National Housing Fund Act (Chapter N45), LFN 2004 requires an employer to deduct an amount equal to 2.5% (two and half percent) of the monthly salary of any employee whose annual salary is up to three thousand Naira (N3, 000) and to remit the amount deducted to the National Housing Fund as the employee's contribution to the National Housing Fund. The Act makes it an offence for an employer to fail to remit the appropriate amount as prescribed. It is also an offence not to comply with the Act and an employer will be liable upon conviction to pay a fine of fifty thousand Naira (N50, 000).

d.    Industrial Training Fund Deductions: Every Nigerian company that employs five or more employees or, having less than five employees but with a turnover of N50 million and above per annum, is required by the Industrial Training Fund (Amendment) Act, 2011, to contribute 1% of its total annual payroll to the Industrial Training Fund not later than 1st April of every year.  Section 16 of the Act defines "Payroll" to mean the sum total of all basic pay allowances and other entitlements payable within and outside Nigeria to any employee in an establishment, public or private.

8.    Land Use Charge

Land Use Charge is payable on real property (residential and commercial) in Lagos State. The Land Use Charge Law of Lagos State 2018 consolidates all property and land-based rates/charges payable in Lagos State (i.e. the Land Rate, Tenement Rate, and the Neighbourhood Improvement Charge) into a single property charge. Public cemeteries; private and public libraries; and properties owned by religious bodies and used as a place of worship or for religious education are properties exempt from the payment of Land Use Charge.

The Income Tax (Country by Country Reporting) Regulations 2018

Multinational Enterprises (MNEs) with a total group consolidated revenue of not less than N160 billion, who have either their ultimate parent entity or a constituent entity resident in Nigeria for tax purposes will now be required to file a country by country report to the Federal Inland Revenue Service with respect to their reporting accounting year. The report shall contain:

1.    Aggregate information relating to the amount of revenue, profit or loss before income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE group operates; and

2.    An identification of each constituent entity of the MNE group setting out the jurisdiction of tax residence of each constituent entity and where different from such jurisdiction of tax residence, jurisdiction under the laws of which such constituent entity is organized, and the nature of the main business activity or activities of such constituent entity.

For purposes of combating Base Erosion and Profit Shifting (BEPS), these reports will be exchanged with tax authorities in other jurisdictions where the MNE group has operations, under a Qualifying Competent Authority Agreement (QCAA) and an International Agreement permitting such exchange.

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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