Nigeria: Levies And Taxes

Last Updated: 11 December 2018
Article by Banwo & Ighodalo

COMPANIES INCOME TAX

Under the Companies Income Tax Act ("CITA"), Cap C21, LFN 2004, (as amended by the Companies Income Tax Amendment Act No. 11 of 2007), a tax at the rate of thirty percent (30%) is imposed on the income of a company incorporated in Nigeria, after the deduction of all allowable expenses, losses and capital allowances.

Every company assessable to tax under the CITA must prepare and file on a self- assessment basis, with the FIRS, audited accounts and income tax computations within 6 months after the end of the accounting period. However, in the case of new companies, the returns are to be filed within 18 months, from the date of incorporation, or 6 months after its first accounting period, whichever occurs first.

EDUCATION TAX

Pursuant to the Education Tax Act Cap E4 LFN 2004, every company incorporated in

Nigeria is obliged to pay 2% of its assessable profit as Education Tax.

INDUSTRIAL TRAINING FUND (ITF)

The Industrial Training Fund Act CAP I9, LFN 2004 (the "IDTF Act") (as amended by the Industrial Training Fund Amendment Act, 2011) establishes the Industrial Training Fund (the "Fund"). The purpose of the Fund is to promote the acquisition of relevant skills in industry or commerce with a view to generating a pool of indigenous manpower to satisfy the needs of the economy. Every employer that is liable under the ITF Act must contribute one (1) percent of the amount of its annual payroll to the Fund. Employers that are liable to make contributions under the Fund are:

  1. Employers having five (5) or more employees in their establishment;
  2. Employers who have less than five (5) employees but having a turnover of fifty N50 million and above per annum;
  3. Suppliers, Contractors or Consultants who bid for contracts from any federal government agency or parastatals or private companies; and
  4. Companies operating in the free trade zone which seeks for approval  for Expatriate Quota or makes use of any custom services.

In the determination of the contributions to be made to the Fund, all employees including those who work part time and temporary employees are included in the assessment. Further, all the allowances and entitlements paid to such employees within or outside Nigeria are calculated when considering the total payroll of an employer.

The IDTF Act further imposes a duty on employers to provide training for their indigenous staff with a view to improving their job related skills. Furthermore, the IDTF Act provides that the Fund's Council may make a refund of up to 50% of the amount paid by an employer where it is satisfied that its training program is adequate.

Failure to make contributions within the stipulated period in a calendar year attracts a penalty of five per cent (5%) of the amount unpaid for each month or part of a month after the date on which payments should have been made.

INFORMATION TECHNOLOGY TAX

Pursuant to the National Information Technology Development Agency Act No. 31 of 2007 a tax of 1% of profits before tax is chargeable on the income of the underlisted companies with a turnover of N100 million and above:

  1. GSM service providers and all telecommunications companies;
  2. Cyber companies and internet providers;
  3. Pension managers and pension related companies;
  4. Banks and other financial institutions, and
  5. Insurance companies.

PERSONAL INCOME TAX

The income of employees is subject to tax levied at progressive rates as detailed in the table below. The Personal Income Tax Act ("PITA") Cap P8, LFN 2004 establishes a Pay-As-You-Earn (PAYE) system whereby employers are required to act as agents of the tax authorities for the purpose of collecting and remitting taxes on salaries due to their employees. PAYE taxes are required to be remitted within fourteen (14) days after the month of deduction. At the end of every year, the employer is required to submit all the tax deduction cards and employer's remittance card (Form G).

First N300,000

7%

Next N300,000

11%

Next N500,000

15%

Next N500,000

19%

Next N1,600,000

21%

Above N3,200,000

24%

The summary of the tax deducted from each employee would be shown on the employer's annual Declaration Form (Form H1) and submitted to the tax authority. This should be done on or before January 30 of the following year.

WITHHOLDING TAX

The Nigerian tax laws (CITA and PITA) provide that where any payment on which withholding tax should be deducted is due from one person to another, the person making the payment is expected to deduct tax at the applicable rate and remit the tax deducted to the relevant tax authority within a reasonable period, not later than 30 days after deduction. Some of the activities and services on which withholding taxes are deductible and the current applicable rates are as follows:

Transactions

Companies

Individuals

Dividend, interest & rent

10%

10%

Royalties

10%

5%

Hire of equipment, motor vehicles, plants, and machinery

10%

10%

Commission, consultancy, technical and management fees, legal fees, audit fees, and other professional fees

10%

5%

Construction

5%

5%

All types of contracts and agency arrangements, other than sales in the ordinary course of business

5%

5%

Directors' fees

N/A

10%

The rate of withholding tax on dividend, interest and royalty is reduced to 7.5% when paid to a recipient resident in a country with which Nigeria has a double taxation treaty.

CAPITAL GAINS TAX

Capital gains tax is levied on capital gains accruing to a taxable person upon disposal of assets, irrespective of whether the asset is situated in Nigeria or not. The tax is applicable to all companies, including pioneer companies and all individuals and non- corporate bodies. The rate of tax is currently 10%.

The information contained here is based on relevant Nigerian laws, regulations and practices applicable to doing business in Nigeria, as of November 14 2018. This Manual only highlights legal issues, in general, and is not exhaustive. Also it does not, and it is not intended to, constitute legal advice and or opinion. If you have questions or require advice in respect of matters contained herein or any other specific issues, kindly contact us for such advice and we would be happy to assist you on an individual basis and walk with you on your journey to explore the limitless opportunities for investments in Nigeria.

Banwo & Ighodalo does not accept liability for any action (or lack thereof) by you or anyone else as a result of reliance on, or any other use of, information contained herein. For the avoidance of doubt, under no circumstance shall Banwo & Ighodalo be liable for any consequences resulting from reliance on or use of information contained in this Manual.

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.

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