Overview of Business Taxes in Nigeria

Business taxes in Nigeria refer to the various taxes levied by the federal and state governments on businesses operating within the country.

These taxes are designed to generate revenue for the government and contribute to the country’s economic development.Tax revenues can be used to provide basic infrastructure, such as roads and transportation, which facilitates trade and economic activities.

The main types of business taxes in Nigeria include:

1. Company Income Tax (CIT):

Company income tax is a tax imposed on the profits of registered businesses in Nigeria. It includes taxes on the profits of foreign companies doing business in Nigeria. Nigerian company income taxes are governed by the Company Income Tax Act (CITA) and the Finance Act of 2019. The tax provides a significant source of revenue for the government and is administered by the Federal Inland Revenue Service (FIRS).

The CIT applies to all companies in Nigeria, including both private limited liability companies and public limited liability companies. Foreign companies with a fixed base or permanent establishment in Nigeria are liable to CIT on their Nigeria-sourced income.

The CIT rate structure varies according on the company’s turnover:

• • 0% on profit for amount less than NGN25 million.
  • 20% of assessable profit on amounts between NGN25 million and NGN100 million.
  • 30% of assessable profits on amount above NGN100 million.

Businesses must file their yearly CIT returns and pay the relevant tax within six months of the end of the fiscal year. Failure to pay your CIT on time might result in a penalty of NGN25,000 in the first month, followed by NGN5,000 for each succeeding month.

2. Capital Gains Tax (CGT):

Capital Gains Tax is a tax on the profits derived from the sale or exchange of specific types of assets. Nigeria’s CGT rate is 10% of the earnings on the sale of qualified assets.

The CGT is applicable to the disposal of assets such as:

• • Property: Real estate, including land and buildings
  • Stocks and Shares: Securities traded on the Nigerian Stock Exchange
  • Debts: Debts owed to the taxpayer
  • Options: Options to buy or sell assets
  • Incorporeal Property: Intellectual property, patents, and copyrights
  • Currency: Any currency other than Nigerian currency
  • Assets Outside Nigeria: Any assets, whether owned by individuals or businesses, that are situated outside of Nigeria

Certain assets and transactions are exempt from CGT or provide relief from the tax. These include government-owned assets, charitable organizations, retirement benefits schemes, life assurance policies and personal injury.

The Federal Inland Revenue Service (FIRS) is in charge of administering the CGT. Companies and individuals must file their CGT returns with the FIRS. Upon the disposal of a chargeable asset, you must self-assess and remit CGT by June 30 and December 31 of the same year.

3. Value Added Tax (VAT):

Value Added Tax is a consumption tax levied on any products and services not classified as exempt in the First Schedule of the Value Added Tax Act. It is a spending tax that the final consumer of goods and services bears since it is included in the price paid.

VAT applies to all taxable persons, including individuals and companies, who engage in economic activities in Nigeria. VAT registration is required if your annual turnover exceeds NGN25 million (Naira). Non-resident companies conducting business in Nigeria are also obliged to register for VAT.

The normal VAT rate in Nigeria is 7.5%, which was increased from 5% on February 1, 2020.

VAT returns must be filed with the Federal Inland Revenue Service (FIRS) on a monthly basis, specifically on the 21st of the month after the transaction date. Returns should include details of sales, purchases, output VAT, and input VAT.

Certain goods and services are exempt from VAT, including:

• • Goods: Basic food items, medical and pharmaceutical products, educational books and materials, baby products, fertilizers, locally-produced agricultural chemicals, veterinary medicine, and petroleum products
  • Service: Medical services, services rendered by Unit Micro-Finance Banks and Mortgage Institutions, plays and performances conducted by educational institutions as part of learning, exported services, commercial airline transportation tickets, lease or rental of a residential accommodation, shared passenger road-transport service, and tuition of a nursery, primary, secondary, and tertiary education.

Goods and services purchased by diplomats, as well as goods acquired for use in humanitarian programs financed by donors, are all zero-rated. These commodities are liable to VAT, but at zero percent, which means that while the supplier pays input VAT, the consumer does not pay output VAT.

4. Withholding Tax (WHT):

Withholding Tax in Nigeria is a tax mechanism where the payer deducts a certain percentage of the payment made to a payee and remits it to the relevant tax authority on behalf of the payee.

WHT is applicable to various income sources, including:

• • Rent (including hire of equipment): 10% for both companies and individuals
  • Dividends: 10% for both companies and individuals
  • Interest: 10% for both companies and individuals
  • Royalties: 10% for companies and 5% for individuals
  • Commission, consultancy, technical, and professional services: 10% for companies and 5% for individuals
  • Management services: 10% for both companies and individuals
  • Construction (roads, buildings, and bridges): 2.5% for both companies and individuals
  • Contracts other than sales in the ordinary course of business: 5% for both businesses and individuals.

WHT returns must be filed with the Federal Inland Revenue Service (FIRS) on a monthly basis, precisely on the 21^st of each month after the month of transaction.

5. Petroleum Profit Tax (PPT):

PPT is a tax on the income of companies that engage in upstream petroleum operations, such as exploration, production, and refining of petroleum products. It is an important source of revenue for the Federal Government of Nigeria, used to fulfill its statutory duties and ensure economic progress.

PPT applies to business entities engaging in upstream petroleum operations, including those having Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases. It does not apply to firms engaged in downstream petroleum operations, such as refining and marketing petroleum products.

The PPT rates vary depending on the type of operation and the level of development:

• • Production sharing contracts (PSCs): 50%
  • Non-PSC operations (JVs): 65.75% in the first five years and 85% after five years.
  • Upstream gas profits: 30%
  • Converted/renewed onshore and shallow offshore PML: 30%
  • Onshore and shallow onshore PPL, and marginal fields: 15%.
  • Deep offshore: not provided.

PPT returns must be filed with the Federal Inland Revenue Service (FIRS) on a quarterly basis, specifically on the 20^th day of each quarter after the quarter of transaction.

6. Business Premises Tax (BPT):

In Nigeria, the Business Premises Tax (BPT) is a tax charged by state governments on facilities used for business, such as office buildings, factories, and stores.

BPT applies to all commercial locations in both urban and rural areas. The particular regulations and rates vary by state and location of the property.For example, in urban regions, the initial registration fee is NGN10,00 and subsequent renewals are NGN5,000. The registration cost for rural areas is NGN2,000

BPT returns must be filed with the appropriate state tax body, usually the State Inland Revenue Service (SIRS).

7. Stamp Duty Tax

Stamp Duty Tax is a tax levied on written or electronic documents such as agreements, contracts, receipts, and other instruments, unless specifically exempted by the Stamp Duties Act.

Stamp Duty Tax rates differ according to the type of instrument and the nature of the transaction. The rates are listed below:

• • Fixed Rate: 15 Kobo for agreements not otherwise stated in the SDA.
  • Ad valorem rate is 1% for contracts with no stated rates.
  • The electronic money transfer levy (EMTL) is 0.5% for bank deposits and transfers.

Stamp Duty Tax is normally paid by the person making the payment pursuant to an agreement. The payment deadline varies depending on the type of stamp to be used, the rate, and the location where the document is initially executed. Generally, a document that is first executed in Nigeria shall be stamped on or before the first execution, and in any case within 30 (for ad-valorem duties) or 40 days (for fixed duties) of the day of execution.

9. Industrial Training Fund (ITF):

The Industrial Training Fund (ITF) is a tax levied from Nigerian companies’ payrolls to fund skills development in both the private and public sectors. It is an obligatory contribution that aims to promote and encourage the acquisition of skills in industry and commerce.

The ITF deduction applies to any businesses with a minimum of 5 employees or an annual revenue of NGN50 million or more. Deduction is made from the company’s payroll.

The ITF deduction rate is 1% of the company’s yearly payroll. This means that for every NGN100 received in pay or wages, NGN1 is deducted and remitted to the ITF.

Companies must file an annual ITF return with the Industrial Training Fund, including information on their entire yearly payroll and the equivalent 1% deduction.The 1% ITF tax must be remitted to the Industrial Training Fund on a quarterly basis, with payments due on the 1^st of April, July, October, and January

Failure to comply with the ITF deduction and remittance requirements can result in penalties and interest charges imposed by the Industrial Training Fund.

10. Information Technology (IT) Tax:

Information Technology Tax refers to the use of digital technologies to improve tax administration, taxpayer registration, filing, compliance, and revenue collection. IT Tax applies to all taxpayers in Nigeria, including individuals and businesses, who are expected to file tax returns and pay taxes online.

IT Tax has no particular rates in Nigeria because it refers to a wide range of digital technologies employed in tax administration. However, taxpayers are obligated to pay taxes at the rates established in Nigerian tax legislation, such as the Company Income Tax (CIT) rate of 30% for companies with yearly income more than NGN 100 million.

Taxpayers in Nigeria are expected to file tax returns and pay taxes electronically using the Federal Inland Revenue Service (FIRS) portal or other approved platforms. The filing and payment processes are designed to be efficient, secure, and transparent, decreasing risk of errors and ensuring compliance.

11. Customs Duties:

Customs duty is a levy placed on products imported into Nigeria. It is an important source of revenue for the government and is used to regulate and control the movement of commodities in the country. It is applied to all products imported into Nigeria, including items for personal use, commercial goods, and commodities for re-export.

Customs duty rates vary according on the kind of products and the Harmonised System (HS) code. The tariffs range between 5% and 35% of the goods’ value.

Before bringing goods into Nigeria, importers must file Form M with the Nigeria Customs Service (NCS). The Form M comprises facts about the items, their worth, and the customs duty payable.Customs duty must be paid at the bank where Form M was established. The payment deadline is usually within 24 hours of clearing customs.

In conclusion, businesses in Nigeria must comply with federal and state tax laws to avoid penalties and preserve good standing. Proper registration, tax planning, and timely filing of returns are essential for maintaining compliance.

Author:  Adeola Oyinlade & Co.