Tax compliance is not just a formality but a cornerstone of any thriving business venture in Nigeria. Regardless of the size or type of your business, observing and complying with tax regulations is a vital key to your firm’s longevity, reputation, and overall smooth functioning. In the Nigerian business landscape, it is vital to be conversant with federal and state taxes and fulfill the relevant obligations. Let’s delve into the exciting world of Nigerian tax compliance and understand the crucial elements of these regulations that Nigerian companies must observe.
Getting Registered With The Tax Authorities
Upon registration of your business, it’s paramount to identify the right tax authorities to navigate your tax compliance journey successfully. The Federal Inland Revenue Service (FIRS) is the guardian of tax laws in Nigeria. The FIRS not only has the right to scrutinize companies for adherence to tax laws but also extends a helping hand by providing guidance to businesses to simplify their tax compliance. The Federal Government is entitled to a variety of taxes, including company income tax, education tax, stamp duty, and value-added tax, to name a few. The tax landscape in Nigeria is not limited to the federal level. State-level tax obligations are overseen by the respective State Revenue Services. The taxes levied by the state include personal income tax, business premises levy, development levy, and more.
The Tax Identification Number (TIN) is like a unique identity card for individuals and registered businesses or corporations that facilitates the payment of taxes. A TIN helps the Tax Authority in accurate identification, streamlining the system, and expanding the tax base. The Tax Authority, the Joint Tax Board portal online, or the nearest Federal Inland Revenue Services branch will issue this number.
The perks of possessing a TIN are multi-fold:
1. It is a prerequisite for opening a corporate account.
2. It is needed for tax payment, obtaining tax clearance, and filing of annual tax returns.
3. It is a requirement for obtaining an export license.
4. It can help in obtaining a government loan.
Filing Tax Returns
Every company is expected to file a comprehensive report detailing its tax affairs within specific deadlines. Companies are required to submit their audited financial statements and tax computations to the FIRS either within six months of the end of their fiscal year or 18 months after incorporation, whichever comes first. However, there’s room for flexibility as companies can request a two-month extension for filing tax returns, granted at FIRS’s discretion.
In Nigeria, companies take the driver’s seat by preparing their annual returns and calculating their tax liabilities under a self-assessment system. But beware, if the FIRS suspects that the filed tax returns are intentionally false or if no returns are filed within the allotted time, they might resort to a best of judgment (BOJ) assessment. Penalties can be stiff, starting at NGN 25,000 for the first month of non-filing Companies Income Tax (CIT) returns and an additional NGN 5,000 for each succeeding month. Late payments can incur a 10% penalty and interest calculated at the commercial rate.
When filing tax returns, certain documents such as tax computation for the relevant year of assessment, the audited financial statements for the respective period (compliant with the International Financial Reporting Standards (IFRS)), duly completed and signed self-assessment form, and proof of remittance of the tax liability (partly or in full) must be provided..
Tax Clearance Certificate (TCC)
A tax clearance certificate is essentially a certification that your entity is free of any tax liabilities during the duration covered by the certificate. A TCC spans the last three years and is a crucial document required for the processing of certain permits and licenses such as an export license, oil and gas service providers permit, and also for securing federal government contracts.
Applying for a Tax Clearance Certificate (TCC) is a streamlined process. Once you obtain a TIN, you’ll fill out a form to request a TCC. The process is entirely online via the FIRS website and requires necessary paperwork submission. Note that existing companies can only be issued a TCC after the company’s audited report has been filed and all pending taxes have been cleared.
Tax compliance is not just a statutory requirement, but a brand-building activity for Nigerian companies. Adherence to tax regulations helps businesses escape the wrath of fines and penalties imposed by the Federal Inland Revenue Service (FIRS) and other regulatory bodies. It also enhances a company’s reputation, making it more attractive to stakeholders and potential investors. Non-compliance can lead to severe consequences, including legal action, reputational damage, and missed business opportunities. Therefore, prioritizing tax compliance and obtaining professional guidance can significantly aid in meeting tax obligations in an accurate and timely manner.
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