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:
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.
Comments
Post a Comment