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Tax Obligations of Business Names in Nigeria

Introduction

Business names include Sole proprietorships and partnerships. Are they obligated to pay taxes to the government? If so, which taxes? Before discussing the few tax obligations of business names, we must bear two things in mind. 

First is the relationship between business names and their owners. Under the law, business names and their owners are one and the same. So, tax obligations owed by business names are ascribed to their owners. For instance, if ABC Enterprise owes Capital Gains Tax to the government, its owner is also equally indebted to the government for the same tax. 

Second is the tax authority responsible for collecting taxes from business names. Unlike companies and NGOs which pay their taxes to the government through the FIRS, business names pay their taxes to the government through the Internal Revenue Service of the State where they operate. This follows from the fact that taxes on business names are regarded as personal taxes, because they are not different from their owners. 

This article considers 5 taxes that business names owe to the government:
1. Capital Gains Tax (CGT)
2. Personal Income Tax (PIT)
3. Withholding Tax (WHT)
4. Stamp Duties (STD)
5. Value Added Tax (VAT)

Capital Gains Tax (CGT)

Business names must pay CGT on profits they make when they sell certain assets such as land. The rate of CGT is 10% of the profits made from the sale of the asset. A business name that makes profits by selling any asset must file a return to the State IRS latest 30th June or 31st December of the year of the sale. 

Personal Income Tax (PIT)

Business names pay PIT on two things: (1) their profits, and (2) their employee’s wages. PIT paid on profits represent the taxes of the owners. Business names must also deduct and remit the PAYE of their employees to the State IRS. While PIT on profits must be remitted latest 31st March of the following year, PAYE must be remitted within the first 10 days of the following month. Business names will not remit PAYE for an employee that earns the minimum wage (N30,000) or less. PIT for both profits and wages is charged at a graduated scale and tax bands as set out below:

Default in filing the tax return attracts 10% penalty plus interest at CBN’s lending rate, while late filing attracts a N50,000 penalty.

Withholding Tax (WHT)

Business names must pay WHT on transactions involving consultancy services, professional services, commissions, royalties, dividends, rents, interests on investments, hire of equipment, etc. Depending on the transactions involved, WHT is charged at the rates of 5 or 10 percent, and must be remitted to the State IRS within 30 days of the transaction. Penalty for default is 10% of the tax and interest at CBN’s lending rate. 

Stamp Duty (STD)

Business names must also pay STD on all physical and electronic instruments (of transactions). The rates are fixed or in proportion to the value of the transaction (i.e. ad valorem). Where the rate is fixed, the business name must pay for stamp duty before the document is executed; but where it is ad valorem, within 30 days after it is executed. Penalty for default is 10% per annum of the unpaid duty. Documents requiring stamp duty include: sales agreements, guarantor’s form, joint venture agreements, power of attorney, etc. 

Value Added Tax (VAT)

Business names must pay VAT on the goods and services they render. VAT is charged at 7.5% of the value of the goods or services. After registration with the CAC, business names must register for VAT with the State IRS. VAT must be remitted within 21 days of the following month after the transaction. However, business names will only be liable to pay VAT if they make an annual turnover higher than N25 million.

Conclusion

Generally, business names in Nigeria evade taxes. This is due, partly to the lackadaisical attitude of tax authorities, and partly to business owners’ apathy to taxes. Also, for tax authorities, going after business names for enforcement of taxes, could cost tax authorities huge sums of money and waste of valuable time. So, rather than go after business names, which are in the category of Micro and Small businesses, tax authorities often focus their attention on Medium and large enterprises, and companies. However, business names must be aware of these taxes, especially PIT, which, though evaded as well, may lead to serious future repercussions. 

Articles on this site are meant for general knowledge only, and not as professional advice. If you need personal advice on matters contained in this article, you are advised to contact a professional.

We are a firm of legal practitioners and CAC certified agents. We help business owners, entrepreneurs and associations register their businesses, companies, and associations. If you need our help with any of the matters contained in this article, feel free to send us a mail at niyiama@yahoo.com or reach us on WhatsApp @ +234-08126194751.

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