Skip to main content

Tax Obligations of Companies in Nigeria

Introduction

This article is one in a series to examine tax obligations of the three major registrations under the CAC: Companies, Business Names, and NGOs. 

Companies have the greatest tax obligations. Under the law, with regards to their tax obligations, companies are grouped into three: small, medium, and large. They are differentiated by their annual turnover. A company qualifies as large when its annual turnover is N100 million and above; medium, when its annual turnover is greater than N25 million but less than N100 million; and small, when its annual turnover is N25 million or less. So, depending on its annual turnover for a given year, a company’s status can fluctuate from small, to medium, and to large. 

Small companies have the least tax obligations. Therefore, it may not be uncommon for certain companies to lie about their true state of affairs in order to evade taxes. This will not speak well of the company, especially one seeking to grow large.  

A total of 9 taxes paid by companies are discussed in this article. They are:
1. Capital Gains Tax (CGT)
2. Companies Income Tax (CIT)
3. Information Technology Tax (ITT)
4. Personal Income Tax (PIT)
5. Petroleum Profit Tax (PPT)
6. Tertiary Education Tax (TET)
7. Withholding Tax (WHT)
8. Stamp Duties (STD)
9. Value Added Tax (VAT)

Capital Gains Tax (CGT)

Companies must pay CGT on profits they make when they sell certain assets. The rate of CGT is 10% of the profits made from the sale. Not all assets are chargeable under CGT. Chargeable assets under CGT include shares, non-Nigerian currencies, real estate, and compensation for loss of office (emoluments). A company that makes profits by selling any asset must file a return to the FIRS latest 30th June or 31st December of the year of the sale. 

Companies Income Tax (CIT)

The CIT is governed by the CIT Act (as amended by the Finance Act of 2020). It is charged on the profits of companies. Small companies are exempted from CIT. Medium-sized companies pay CIT at a rate of 20%, while large companies pay at a rate of 30%. If a large or medium company has no taxable income for the year, it must pay a minimum tax of 0.5%. 

A company must self-assess itself for CIT by filing the prescribed forms accompanied by the company’s audited accounts, a statement of profits, tax and capital allowance computation. New companies must file their CIT within 18 months of incorporation, while old companies must file their CIT for a year within 6 months of the new year. 
Information Technology Tax (ITT)

This tax is governed by the National Information Technology Development (NITD) Act, and imposed on some large companies at a rate of 1% of profit before tax. Large companies that pay ITT include telecommunication companies, internet providers, pension companies, insurance companies, banks, and other financial institutions. These large companies must pay ITT within 60 days of receiving an assessment notice from the FIRS.

Personal Income Tax (PIT)

Although a personal tax, companies pay PIT when they remit their employees’ PAYE to the State IRS where they operate. Companies must remit PAYE within the first 10 days of the next month. A company will not remit PAYE when its employee earns the minimum wage (N30,000) or less. PIT is charged at a graduated scale and tax bands as set out below:
A company’s default attracts 10% penalty plus interest at CBN’s lending rate. Late filing attracts N500,000 penalty.

Petroleum Profit Tax (PPT)

This tax is imposed on companies that operate in the upstream petroleum sector (exploration and extraction). These companies pay PPT in the form of royalties at varying rates based on the type and extent of upstream activities they engage in. PPT must be paid latest 31st May of the following year.

Tertiary Education Tax (TET)

TET is governed by the Tertiary Education Trust Fund Act, 2011, and is charged at a rate of 2.5% on a company’s profits before allowed deductions. Small companies, non-resident companies (NRCs), and unincorporated entities are exempted from TET. It is paid within 30 days of the assessment notice from the FIRS. In practice, it is paid within 6 months of the following accounting year.

Withholding Tax (WHT)

WHT is taxed on dividends, interests, rents, royalties, commissions, consultancy, professional fees, hire of equipment, motor vehicles, plants machinery, etc. Depending on the transactions involved, it is charged on companies at the rates of 2.5, 5, or 10 percent, and must be remitted to the FIRS within 21 days of the transaction. Penalty for default is 10% of the tax and interest at CBN’s lending rate. 

Stamp Duties (STD)

STD is governed by the Stamp Duties Act and is charged on all physical and electronic instruments (documents). The rates are fixed or ad valorem (i.e. in proportion to the value). Where the rate is fixed, the company 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.

Value Added Tax (VAT)

VAT is charged at 7.5% of the value of goods or services transacted. Companies must register for VAT with the FIRS, and pay their VATs within 21 days of the following month after the transaction. Some goods and services are exempted from VAT, notably microfinance banks services, mortgage banks services, school fees, petroleum products, commercial aircraft and their spare parts, airline tickets, rent,s and interests on land and buildings. 

Conclusion

Many registered companies in Nigeria are small, that is, they have an annual turnover of N25 million or less. Ignorance of these tax obligations is one of the reasons why many small companies evade taxes. This should not be the case. Knowledge of their tax obligations helps to dispel the fears entertained by many small companies about taxes. Small companies only need worry about a few of the taxes discussed in this article, predominantly the PIT, CGT, and WHT.

* Credit: PWC Nigeria, “Tax Data Card Nigeria – 2022,” https://pwc.com/ng/en/public. Assessed on 9th September 2022 

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.

Labels:

Comments

Post a Comment

Popular posts from this blog

Requirements for Registration of Incorporated Trustees (NGOs, Associations, Foundations, Clubs)

Unlike business name and company registrations, registration of Incorporated Trustees (IT) is in a class of its own. This is because Incorporated Trustees are non-profit organisations (NGOs) and often end with Associations, Clubs etc. Since the coming into place of the CAC’s Company’s Registration Portal (CRP), the procedure for registration has become really simplified and less time-wasting. ITs are often registered for religious, educational, literary, scientific, social, development, cultural, sporting or charitable purpose.  1 - Proposed Names As in business name and company registration, you must provide proposed names. But unlike the former, Incorporated Trustees now allows for 4 proposed names. This is because the cost of reserving a name for IT registration is ten times more than that for reserving a business name or company. Application for Reservation of name for registration of an IT is called an application for consent to register the association with the CA...
Post a Comment
Read more

Company Shares Terminologies

The Companies and Allied Matters Act, 2020 (CAMA) uses various terminologies to describe shares. This discussion briefly highlights and describes some of those terms. Issue of shares – ss. 141-148  This is the creation of new shares by the company. The shares may be freshly created through an increase in the company’s share capital; or by the re-issue of old shares which were either surrendered or forfeited by a former shareholder of the company. Offer of Shares – s. 142  This is the process whereby the company offers newly issued shares, either to existing shareholders of the company or to prospecting members. Allotment of Shares – ss. 149-157  This is the allocation of new or old shares to new or existing members of the company on terms and conditions prescribed by the company. Call on Shares – ss. 158-159 This is the demand for payment from shareholders who are yet to pay for their shares. It is simply “a call” on the members of the company to pay for unpai...
Post a Comment
Read more

Why You Should Register Your Business Now!

Why should I register my business?  That may seem like an obvious question to everyone who has registered his business, but it may be a nagging question at the back of the minds of those who have not registered their businesses or who feel that their businesses are not worth registering. In Nigeria, where a large number of business men and women are petty traders, that would be a good question to ask. But everyone who engages in any kind of business, including trading, and is serious about the growth of the business, should seriously consider the necessity of registering their businesses, as it may be one of the wisest decisions they ever took.  Although, this article focuses on business names, it also applies to companies and incorporated trustees (NGOs). An unregistered business name is illegal Some businessmen and women claim that they have business names and have been using it for years. In reality, to say that you have an “unregistered” business name is a cont...
Post a Comment
Read more