Corporate taxes are an important part of Nigeria’s tax system and business owners need to understand how these taxes affect their businesses. Corporate taxes are taxes levied on companies or other legal entities that are doing business in Nigeria. They are usually deducted from a company’s profits. They are a great source of income for the government with which public services and infrastructural development projects are funded. It is therefore important to know and understand the rules and regulations regarding the tax system and corporate taxes as a company doing business in Nigeria. The aim of this article is to explain corporate taxes and provide an overview of the tax rates and laws for companies operating in Nigeria.
In Nigeria, taxes are imposed and applied to both individuals and businesses. For the Federal Government of Nigeria, the Federal Inland Revenue Service (FIRS) is responsible for tax administration and collection. The Companies Income Tax Act (CITA) and the Personal Income Tax Act (PITA) govern the taxes. However, certain states also have their own tax laws that apply to corporations operating within their jurisdiction. We will now consider some types of taxes payable by Companys in Nigeria.
Companies Income Tax (CIT): This particular tax is governed by the Finance Act 2019 and the Company Income Tax Act LFN 2004. All businesses must pay this annual federal income tax. The rate is set at 30% (for large companies that is, those with a gross revenue of more than NGN 100 million) of taxable profits for resident companies with no deductions or exemptions available from this amount due to double taxation agreements between countries outside of Nigeria.
The CIT rate is 0% for companies with gross revenue of NGN 25 million or less and 20% for companies with gross revenue greater than NGN 25 million and less than NGN 100 million
Companies may also be required to pay additional state-level income taxes that vary by location; these rates range from 5 percent up to 20 percent and they depend on where your business operates within the country’s borders. For example: Lagos State has a flat rate of 10%, while Ogun State has a progressive scale ranging from 0%-20%. Additionally, there are local government levies, which apply only if you operate in certain areas – these typically range between 1%-5%.
It is worthy of mention that only foreign corporations that are not residents of Nigeria but have a fixed base there must tax the income produced from Nigeria.
The due date for filing company income tax include:
- For a new company, within 18 months which the company was incorporated or not later than 6 months after the end of its accounting period or whichever is earlier
- Within six (6) months of the end of the accounting year for already-existing companies
Some other taxes that are applicable to companies include:
- Capital Gains Tax: This tax is levied on profits from the sale of property, stocks, bonds etc. The Capital Gains Tax Act is the primary piece of legislation that governs the Capital Gains Tax. It is imposed on businesses by the FIRS. Ten percent (10%) of the company gains from the sale of chargeable assets are levied.
- Petroleum Profit Tax: The Petroleum Profit Tax Act sets the rules for this tax. In place of company income tax, it is assessed on the earnings of each accounting period for businesses engaged in upstream petroleum operations. The Petroleum Profit Tax Act imposes fees on all businesses involved in petroleum operations.The petroleum profit tax rate is 50% for petroleum operations covered by production sharing contracts; 65.75% for non-production sharing contract operations paid during the first five years in which the company has not completely recouped all of its capitalized pre-production costs; and 85% for non-production sharing contract operations paid after the first five years.
Success in the Nigerian business environment is dependent on compliance with the relevant corporate tax regulations. By understanding the tax laws and implementing best practices for corporate tax management, companies can avoid legal and financial consequences associated with non-compliance and maintain a strong ethical reputation in the Nigerian business community. You must stay informed and seek expert advice on financial management to ensure compliance for maximum profitability in your business.
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