Tax policies of a country are very important as these funds would allow the government to discharge its various responsibilities for the development of the country and the betterment of society as whole as well as other non-developmental but essential obligations. Nigeria is the up and coming place for setting up a business as the government has now recognized the fact that foreign investment would be a great help to the economy of the country. Company’s setups in Nigeria has to report the taxes to the Federal Inland Revenue Service, Nigeria or FIRS, Nigeria for short. Apart from the revenue from the oil and gas industry, taxes are the second most important source of revenue for the country.
The types of taxes are Nigeria is a very unclear subject to many people which may result in untimely filing for the taxes. Every entity is liable to pay taxes in Nigeria and according to the government; not having knowledge of taxes of the country would be not be accepted as an excuse. There are 9 types of taxes mainly in Nigeria:
The Companies Tax Act states that everyone needs to pay income tax in Nigeria, whether a resident of the country or not. Companies need to prepare and submit their annual self-assessment tax return according to the specifications of the FIRS. The tax of the non- resident companies is directly deducted at the source and the rate for corporate income tax is 30%.
A Petroleum Profit Tax or PPT for short is considered as a pre-paid tax and is applicable to any resident company or a non-resident company if they are exploring the options and alternatives to producing petroleum or its related products.
In PPT, a company needs to pay the projected annual return by February of each year. In case any tax is left due, it can be paid in instalments in the next 12 months and if the actual tax is less than the projected value, the company is entitled to a refund.
VAT or Value Added Tax is applicable to each and every entity, whether it’s an individual or an organization, which consumes or buys any kind of taxable product or service. This tax is collected by the seller whenever a taxable good or a service is sold to the intended customer. Then the seller would calculate the VAT and submit the end result to the Federal Inland Revenue Services or FIRS via a bank which has been chosen by the FIRS. The bank would issue an e-ticket which needs to be submitted to the Integrated Tax Office (ITO).
Income tax needs to be paid by the following class of people:
The people who do not have own business and are employed at various organizational entities pay their income tax according to the PAYE system. PAYE in Nigeria stands for Pay as You Earn and in this system; the personal income tax of the individual is directly deducted from his or her salary by the company and transfers it directly to FIRS on the employees’ behalf on a monthly basis.
This tax acts as only a mechanism to collect the various other taxes. To balance the tax liabilities for the various types of taxes applicable to an individual, withholding taxes are applied. The deductions of this tax are considered as a sort of advanced payment of the tax liability which would arise from the tax return of the particular period. Whenever a person is benefitted from any payment and that income is taxable, the Withholding Tax is withheld by the payee after whom it is directly remitted to FIRS via a predefined Bank.
All companies which are subject to Companies Income Tax (CIT) are also liable to be charged Educational Tax (EDT). This tax is charged at 2% and is completely separate from the CIT. It is deducted from the profits generated by all the resident companies and the proceeds of this tax aim to improve the quality of education in the country. This tax is only applicable to the resident companies and this tax is filed with the annual self-assessment of the resident company’s income tax.
Any file, item or document which acts as a bridge and helps relay information from one individual, company or a group of entities is subject to Stamp Duties Tax. The individuals or organizations must submit the relevant instruments to the Stamp Duties office so that these could be stamped and the duties are paid directly to the FIRS via a pre-determined bank. Usually, Stamp Duties include various financial instruments, article of association between companies, deals, bonds etc.
All the companies registered in Nigeria earning capital gains or gains on the disposal of any form of assets whether it is in Nigeria or not are liable to Capital Gains Tax. This tax is deducted from any profit which is accrued from the sale of assets and/or securities by a resident of Nigeria. Capital Gains Tax is calculated and submitted with Companies Income Tax to FIRS through a pre-determined Bank.
A company is liable to NITDF levy if they fulfil one of the two cases or both:
The companies have to deduct and calculate 1% of their profit and pay it through the designated bank.
Having knowledge of the various types of taxes in Nigeria is highly beneficial for an individual. Armed with this knowledge the individual can properly plan for the future of the company and also restructure the company as the need be.
We at Business Setup Worldwide offer the following services for taxation in Nigeria:
If you are looking for tax consulting services in Nigeria, do contact us. Our business advisors in Nigeria would be happy to help out.