1. What is Companies Income Tax (CIT)? CIT is tax on the profits of incorporated entities in Nigeria. It also includes the tax on profits of non-resident companies who accrue or derive profits from Nigeria or bring or receive their income in Nigeria. It is therefore commonly referred to as corporate tax. CIT was created by the Companies Income Tax Act (CITA or the Act), it is one of the taxes administered and collected by the Federal Inland Revenue Service ("FIRS" or "the Service").
  2. How is CIT Computed? CIT Computation is done for each year of assessment separately, it is computed generally on preceding year basis except in the instances of: commencement of business operation, cessation of business operation and change of accounting date, in which case, the actual year basis of computation could be employed.
  3. The profit (Profit before Tax) in the Audited Financial Statement (AFS) is taken and adjusted for non-tax items. In doing this, cognizance is taken of the general rule of deductibility of business expense as described in CITA.
  4. The business expenditure/expense must be wholly, reasonably, exclusively and necessarily (WREN) incurred in earning the income of the company for the underlying Period. There are also expenses that are expressly not allowable or exempted from tax in the Act.
  5. Capital allowances are given at rates specified in the Act on each qualifying expenditure or asset used in earning the income in the year of assessment. It is allowed as a deduction from assessable profit to arrive at total profit.
  6. Capital allowances are given in place of depreciation for the use of business assets. Depreciation is usually added back to profit because of the different policies and rates used by companies which are capable of producing different profits. Capital allowances is the tax systems means of providing uniformity.
  7. There is a restriction to the amount of capital allowance claimable in any assessment year except for the companies in the manufacturing and agro-allied sectors. Other sectors are restricted to a claim of 66% or 2/3 of assessable profit in an assessment year. Unutilized capital allowance in any year of assessment can be carried forward indefinitely.
  8. At this point, the question of what if the company makes a loss would have crossed your minds but not to worry, the Act has got you covered. Whenever a company makes a loss (normal business loss) in the year of assessment, CIT would not be computed on such loss, rather the company would be compelled to pay a minimum tax as specified in the Act. Such loss would be accepted as an allowable deduction for future years of assessments but if not fully utilized, it could be carried forward indefinitely, save in the case of insurance companies who have a maximum four (4) years to carry such losses forward. Note that the minimum tax rule does not apply to all companies as the following categories of companies are exempted: Agro-allied businesses, companies with at least 25% imported capital or foreign participation and a company in its first four years of business operations.
  9. What is the rate of CIT? CIT is charged at 30% of chargeable profits, save in the case of small companies who have a reduced rate of 20%. A small company is one with an annual turnover of N1,000,000 (One Million Naira).
  10. When do I file my CIT Returns? CIT returns for a new company should be filed with the FIRS, within eighteen (18) months after incorporation or six (6) months after the accounting year end whichever is earlier. Companies that have been in business beyond 18 months are required to file CIT returns 6 months after their year end. A company that files returns within six months after the accounting year end can apply to the FIRS in writing to pay its income tax in installments.
  11. What happens if I fail to file CIT? Failure to file CIT returns attracts a penalty of NGN 25,000 for the first month and NGN 5,000 for each subsequent month of default. Late payment of CIT attracts a 10% penalty and interest at the commercial rate.
  12. Where can I get help with CIT Compliance? The Chartered Institute of Taxation of Nigeria currently has in excess of 1,000 chartered or licensed tax practitioners who are able to assist with CIT compliance requirements. Taxaide®'s professional personnel are among such licensed tax practitioners. Taxaide®'s technology practice, Taxtech® has a revolutionary product CITApp® (www.citapp.taxit.com.ng/login) designed to help you or your chosen professional with your CIT computation and compliance process. CITApp®, a cloud-based solution, has automated the CIT computation processes, archives essential data and information, prevents replication and saves returns filing and compliance time, generally.

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.