Corporate tax refers to the various taxes imposed on firms and legal entities doing business in Nigeria. The taxes are typically deducted from a company’s earnings and continue to be a significant source of revenue for governments. The revenue from taxation is, in turn, utilized by the Nigerian government to fund infrastructure projects, social issues, and the developmental activities of the nation.

Therefore, tax legislation is of utmost significance to Nigeria’s legal and economic environment. Compliance with these legislations encourages transparency, increases investor confidence, and fosters sustainable economic development. This article discusses corporate taxation and regulatory compliance in Nigeria, focusing on key tax obligations and best practices for companies.

Overview of Nigerian Tax System

Business entities operating in Nigeria are legally obligated to remit several taxes, such as:

1. Company Income Tax (CIT)

Governing the Finance Act 2019 and the Companies Income Tax Act (CITA), it is a federal tax on all business companies trading in Nigeria. The rate of the tax is:

• 30% for companies with over NGN 100 million turnover.
• 20% for companies with NGN 25 million – NGN 100 million turnover.
• 0% for companies with less than NGN 25 million turnover.

Filing deadlines:

• New companies must file within 18 months of registration or 6 months after the end of their first accounting period, whichever is sooner.
• Existing companies must file within 6 months after the end of their accounting year.

2. Capital Gains Tax (CGT)

This tax is charged on profits from the sale of assets such as property, shares, and bonds. According to the Capital Gains Tax Act, it is 10% of the chargeable gains.

3. Petroleum Profits Tax (PPT)

It is a tax on upstream petroleum firms and is governed by the Petroleum Profits Tax Act. The rates of taxation are:

• 50% for production-sharing contract firms.
• 75% for non-production sharing contracts for the first five years before full recovery of pre-production capital expenditure.
• 85% for non-production sharing contracts after the first five years.

The returns are to be filed within five months from the end of the accounting period.

4. Withholding Tax (WHT)

WHT is deducted at source from payments such as dividends, royalties, and rent. Companies have to remit the deducted tax to the government periodically.

5. Value Added Tax (VAT)

A consumption tax on goods and services, VAT is remitted at 5%. Companies are to file VAT returns on or before the 21st of the following month, whether or not they made transactions.

6. Industrial Training Fund (ITF) Contribution

Under Industrial Training Fund (Amendment) Act, 2011, firms having five and more employees or less than five employees but turnover of NGN 50 million and more are supposed to remit 1% of annual payroll to the ITF by 1st April annually.

7. Education Tax

2% tax on each assessable profit of Nigerian businesses, payable two months from when an assessment notice is issued by the Federal Inland Revenue Service (FIRS). Some entities pay this charge over and above their CIT.

 

 Key Highlights of Regulatory Compliance

The above regulatory conditions are to be obeyed by firms in order to avoid penalties and enjoy smooth working:

1. Tax Registration: Businesses are to be registered with the Federal Inland Revenue Service (FIRS) or the relevant State Internal Revenue Service (SIRS) and granted a Taxpayer Identification Number (TIN).
2. Filing and Reporting of Tax: Tax returns are to be submitted properly within the specified time frames. Defaulting may attract a fine or legal sanction.
3. Payment of Tax within Timely Manner: Payments have to be made on or before the due date to avoid fines, interest, or legal action.
4. Tax Planning and Optimization: Though tax planning is welcomed, companies should carry out activities within the confines of the law to prevent aggressive tax avoidance arrangements that may be considered illegal.

 

Tax planning strategies for companies

In order to comply and maximize tax payments, businesses should:

1. Understand Tax Liabilities – Recognize relevant taxes and determine entitlements for exemptions or allowances.
2. Maintain Accurate Records – Maintain detailed financial records, including invoices, receipts, and bank statements, to enable audits and filing taxes.
3. File and Pay Taxes on Time – Prevent fines by adhering to tax timetables.
4. Remain Up-to-Date on Tax Legislation – Attend seminars and employ tax specialists to comply with evolving tax legislation.

Tax Evasion Penalties in Nigeria

Tax evasion deprives government coffers and destabilizes economies. Its perpetrators are penalized, including:

• Failure to remit CIT: NGN 25,000 in the first month of defaulting and NGN 5,000 for each following month.
• Failure to remit VAT: Additional 5% per year on the total amount of untimely remitted tax.
• Failure to remit WHT: Penalty corresponding to 10% of the total amount of untimely remitted tax, with an interest rate pegged at the prevailing Central Bank of Nigeria (CBN) monetary policy rate.

Tax Incentives for Businesses in Nigeria

To promote tax compliance and investment, the Nigerian government provides several incentives:

1. Petroleum Investment Incentives

• Firms paying Petroleum Profit Tax can be eligible for an Investment Tax Credit (ITC) or Investment Tax Allowance (ITA) of 5%–50% on qualifying expenses.
• Petroleum companies investing in gas utilization infrastructure can set off their capital allowances against oil production profits.

2. Company Income Tax Incentives

            Gas utilization firms can avail themselves of:

• 3-year tax holiday, extendable for a further 2 years.
• 90% annual capital relief for investment in machinery and plant.
• 15% additional investment relief.

Compliance with corporate tax and regulatory requirements is critical to the establishment of an open and stable business environment in Nigeria. Tax obligation awareness, maintaining proper financial records, being up to date on regulatory details are essential for the success of companies. Compliance by companies with tax policies promotes national development without exposure to legal issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.