If you are reading this post, then you are one of the growing number of Nigerian business persons and entrepreneurs who are interested in knowing what their tax obligations are, and making sure they are operating their business while paying the right taxes, and for that we salute you!
As you are aware, tax liability is an important aspect of your business and compliance obligations and therefore a key understanding of the tax regime, which operates in your area of operation, is quite important.
Below are the different taxes which are relevant to all businesses in Nigeria, and which you should be aware of.
COMPANIES INCOME TAX
This is a tax chargeable on all companies (other than Companies engaged in petroleum operations) registered in Nigeria. It is an annual tax on the profits of registered companies, which profits must accrue in, be derived from, brought into, or received in Nigeria. However, for companies whose annual gross turnover of not more than N25 million would be completely exempted from paying CIT subject to timely filing of companies income tax returns.
CAPITAL GAINS TAX
This is a 10% tax imposed on Capital Gains arising from a sale, exchange or other disposition of properties known as chargeable assets. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Capital gains taxes are only triggered when an asset is realized/sold.
This is a tax chargeable on all companies registered in Nigeria at chargeable profits as contribution to the Education Tax Fund. All registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. The tax is charged at 2%
VALUE ADDED TAX
This is a tax payable by the consumer at 7.5%. It is a tax imposed on the supply of goods and services. Although companies do not pay VAT, they are mandated by the government to collect the VAT from consumers and then remit to the relevant tax body. So in essence the business is an agent for the government for the purposes of collecting VAT.
PERSONAL INCOME TAX
This is a tax payable by all individuals and registered businesses and partnerships except those registered under Part A of Companies and Allied Matters Act 1990 (incorporated companies). The State Inland Revenue Service administers the tax. This tax is however relevant to your business even if you are a registered company, because one of the obligations of companies is to collect what is known as Pay as You Earn (PAYE) from their employees’ salaries and then remit to the state tax body.
This is an advanced payment of income tax deducted at source of specific transactions. The recipient of the income is entitled to utilise the withheld tax credit note or receipt, against the final tax obligations. For instance, when paying dividends withholding tax is charged on the amount.