For business owners operating in Nigeria, navigating the complex tax structure can be difficult. For company owners, the complexity of the system can present significant challenges.
Business owners must comprehend the numerous types of taxes, which are an essential component of every business operation in Nigeria, in order to avoid legal issues and guarantee compliance. This knowledge is crucial in light of how intricate Nigeria’s tax structure is.
Businesses in Nigeria can be classified as either sole proprietorships, partnerships, or limited liability corporations. Every company type in Nigeria has specific tax requirements, and every entrepreneur must be aware of these requirements.
Company income tax
Companies with Nigerian registrations must pay Company Income Tax on their earnings, which is determined by taxable profit. (revenue – allowable expenses).
Partnerships and sole proprietorships are exempt from Company Income Tax; only limited liability companies are liable to it.
In Nigeria, company income tax is currently levied at a 30% rate and is due yearly on profits from business activities.
Company Income Tax is not applicable to profits from the selling of assets or investments.
Certain costs, including depreciation and capital allowances, can be subtracted by businesses from their income.
To comply with tax laws and steer clear of legal troubles, business proprietors must comprehend these complexities.
Capital Gains Tax
Capital Gains Tax applies to sales of land, buildings, stocks, and shares in Nigeria.
Capital Gains Tax is a percentage of the profit from asset sales and paid by the seller.
The tax rate is 10% and is paid by the seller of the asset.
Buyers deduct and remit the tax to the Federal Inland Revenue Service.
Compliance with Capital Gains Tax regulations is mandatory for all businesses selling capital assets in Nigeria.
Non-payment of tax may result in penalties and legal issues.
Seeking professional advice is advisable to ensure compliance with regulations.
VAT
VAT, which has a present rate of 7.5%, is a consumption tax in Nigeria.
VAT must be charged and collected from customers for all taxable products and services provided by registered businesses.
Businesses pay the Federal Inland Revenue Service their VAT collections. (FIRS).
By the 21st day of the following month, businesses must submit their monthly VAT reports.
Failure to file or pay VAT on time can result in penalties and interest charges.
VAT exempts some goods and services, and others are zero-rated.
Businesses can claim input VAT incurred on their purchase of zero-rated goods and services.
VAT is an important revenue source for the government.
Compliance with VAT regulations is crucial for businesses to avoid penalties.
Maintaining good relations with tax authorities is also essential.
Withholding tax
Payments given to people and businesses in Nigeria are withheld at the source as withholding tax.
applicable to many different types of payments, such as rent, interest, dividends, royalties, and expert fees.
The income recipient withholds the tax and sends it to the Federal Inland Revenue Service.
The sort of payment and recipient classification affect the withholding tax rate.
The rate for dividends paid to a resident individual is 10%.
The rate for dividends paid to a non-resident individual is 7.5%.
Penalties and interest fees may apply if withholding tax is not remitted.
To ensure compliance with tax laws, it is essential for companies to comprehend the complexities of withholding tax.
Personal income tax
Personal Income Tax is levied on individuals’ income in Nigeria.
Businesses must deduct Personal Income Tax from employees’ salaries and remit it to state tax authorities.
Tax rates vary by income bracket, ranging from 7% to 24%.
High earners pay more tax with a progressive tax system.
Personal Income Tax is a major revenue source for state governments in Nigeria.
Compliance with Personal Income Tax regulations is essential for businesses to avoid penalties and legal issues.
Education Tax
Education Tax is levied on the assessable profits of all registered companies in Nigeria.
The tax is used to fund the education sector in Nigeria.
Education Tax is applicable only to limited liability companies.
The current rate of Education Tax in Nigeria is 2%.
The tax is calculated on the assessable profits of a company after deducting allowable expenses and exemptions.
All registered businesses in Nigeria are legally obliged to file and pay Education Tax.
The tax is usually filed annually.
The deadline for filing is six months after the end of the company’s financial year.
Late filing or non-payment of Education Tax can result in penalties and interest charges.
Companies can support the growth of the Nigerian education industry by adhering to the rules governing the Education Tax.