Understanding the Tax Regime in Nigeria

Understanding the Tax Regime

× Applicable Laws - Companies Income Tax Act (CITA) is the applicable tax law for Companies in Nigeria.

× Income Chargeable - tax shall be assessed on profits, rent, premiums, interest, royalties, discounts, charges, annuities, benefits, any fees, dues or allowances at a rate specified by the relevant tax authority.

× Tax Identification Number (TIN) –

× A company must register with and obtain a TIN from the Federal Inland Revenue Service (‘FIRS’) to enable the payment of taxes.

× 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, a tax at the rate of 30k for every naira in respect of the total profit assessed.

× 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.

Examples of Profits Exempt from Tax

× 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.

× Dividends received from investments in wholly exports oriented business.

× 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.

× 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 Govt Law or Edicts in force in any state.

× Profits of any company established by the Law of a State for the purpose of fostering the economic development of that state.

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.

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