All you need to Know about Nigeria Tax.

Most of our small businesses finds it difficult to differentiate between VAT, WHTax and Other Tax Element.  We are using this medium to give you an insight on all you need to know about Nigeria tax and how it’s been charge.

This is to educate you and to avoid you paying double tax. Tax evasion and avoidance is also not healthy for your business.

  1. Prior to Finance Act that was enacted in the year 2019 and effective from February 2020, section 9 of CITA states that a Company shall pay 30% of its chargeable income. I.e. after the necessary adjustment has been made.

With the advent of the Finance Act under the same Section, Companies was categorized into three (3) major’s types:

  1. Companies with turnover of N25,000,000 or less should be exempted from Company Income Tax(CIT)
  2. Companies with turnover over N25, 000,000 to N99, 000,000 are to be paid Company Income Tax (CIT) at the rate of 20%. Of its chargeable income
  • Companies with turnover of N100,000,000 and above to be paid Company Income Tax (CIT) at the rate of 30% of its chargeable income

 

  1. Education Tax levy, this is levy imposed on all taxable companies in Nigeria to assist the Government in the development of education in Nigeria. It is charged at the rate of 2% of the adjusted/assessable profit.

 

  1. Minimum Tax: Prior to Sections 33 of CITA

Minimum tax is levied and payable by a company for any year of assessment where:

In the ascertainment of Total Assessable Profits from all sources, a loss occurs; or

(b) Tax on Total Profits is less than the minimum tax as determined below:

(i) Where revenue is N500, 000 or below, minimum tax payable shall be the highest of:

  • 0.5% of Gross Profits;
  • 0.5% of Net Assets;
  • 0.25% of Paid-up Capital; or
  • 0.25% of Revenue for the year.

 

(ii) Where revenue is above N500, 000, minimum tax payable shall be the sum of:

  • Highest factor in (i) above; plus
  • 0.125% of revenue in excess of N500, 000

 

However, minimum tax is not applicable to a company where:

  • It is carrying on agricultural trade or business;
  • At least 25% of its equity is imported; and
  • The company has not been in operations for more than four years (i.e. for the first 4 calendar years of its commencement of business) .

 

According to the Finance Act of 2020, the above calculation has been abolished and replaced with 0.5% of the Company’s turnover less Frank Investment.

 

 Withholding Tax

 In Nigeria, the Withholding Tax is deducted at source by the authorized withholding tax agent and the tax is later paid to the State Internal Revenue if the recipient of the income from which the tax is deducted is an individual. The amount withheld is paid to the Federal Inland Revenue Service if the recipient of the income is a corporate body.

Suffice it to say, that in determining the relevant tax authority on Withholding Tax, the residence of the recipient is very important. For example, the residence of the landlord is important in determining the relevant tax authority on Withholding Tax on rent. In case of the interest, the location of the branch of the bank paying the interest is relevant. The residence of the taxpayer is important when considering the issue of royalty. However, the residence of the taxpayer is important and not the location of the company paying the dividend. In the case of director’s fees, the residence of the recipient director is an important consideration.

 

Nature of Transactions or Payments Companies Individuals
1. Contract of construction 21/2% 21/2%
2. Contract of supplies, agency etc. 5% 5%
3. Dividend, Rent & Internet 10% 10%
4. Technical fees 10% 5%
5. Royalties 10% 5%
6. Professional Services 10% 5%
7. Management Services 10% 5%
8. Directors’ fees 10%
9. Hire of Equipment, Plant & Machinery and Motor Vehicles 10% 10%

 

Value Added Tax

Value Added Tax (VAT) was introduced in Nigeria through the Value Added Tax Act No. 102, 1993. VAT came as a replacement of the then existing sales tax that had been in operation since 1986.

 

Value Added Tax (VAT) is an indirect tax on goods and services. It is a consumption based tax, which is a tax on general consumption expenditure designed with the sole aim of raising revenue for the government. It is levied on local and imported goods and services and is borne by the final consumer of the goods or services. Prior to Finance Act 2020 the rate for VAT was 5% since the advent of the Finance Act 2020 it was increased to 7.5%.

 

At this point, I think we have been able to throw more light on the various taxes in Nigeria and if you still need more information on all you need to know about tax, call us on +2347012193226 or send us a mail using [email protected]

 

 

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All you need to Know about Nigeria Tax.

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