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INTRODUCTION
Tax compliance is a fundamental aspect of business operations in Nigeria. In Nigeria’s rapidly evolving regulatory environment, understanding and adhering to tax requirements can be challenging for many business owners. Non-compliance, whether intentional or accidental, can lead to severe penalties, interest charges, and damage to a business’s reputation. This article provides a comprehensive tax compliance checklist for businesses in Nigeria, offering a step-by-step guide to help business owners navigate the complex landscape of tax laws, stay compliant, and ensure their businesses thrive within the legal framework. By following these essential guidelines, businesses can mitigate risks, enhance operational efficiency, and contribute positively to the nation’s economy.
This article discusses tax compliance for businesses under the following sub-headings:
- Registration with Tax Authority and Obtaining a Tax identification Number (TIN)
- Tax Filing and Remittance
- Record keeping
- Tax Audit and investigation
- Registration with Tax Authority and Obtaining a TIN
The requirement for businesses to register with tax authorities in Nigeria for tax purposes is outlined in Acts of Parliament, including the Companies Income Tax (CIT) Act, Personal Income Tax (PIT) Act, Value Added Tax (VAT) Act, etc.
For instance, Section 40(1) of the Companies Income Tax (CIT) Act mandates every company incorporated in Nigeria or foreign businesses operating in Nigeria to register with the Federal Inland Revenue Service (FIRS) within six months of commencement of its business.
According to the PIT Act, businesses operating as sole proprietorships or partnerships must register with the Internal Revenue Service (IRS) of the state in which they operate.
Moreover, the VAT Act requires businesses providing VATable goods and services to register with the FIRS for VAT purposes and obtain a VAT registration number for filing VAT returns if their annual turnover exceeds 25 million Naira. However, businesses with an annual turnover below 25 million Naira can obtain the VAT number and file VAT on a voluntary basis.
Requirements to register for Tax Identification Number
To carry out TIN registration with FIRS, a company must fill the Taxpayer registration form with the following details:
- company/business name and CAC (Corporate Affairs Commission) registration number
- Business address
- Date of commencement of operations
- Business email and phone number,
- Annual turnover etc.
This form must be submitted to the closest tax office (FIRS office closest to the company’s business address) alongside a copy of the certificate of incorporation. The FIRS will review and either approve or reject the registration.
Aside TIN registration, businesses are also expected to register on Tax Pro Max platform; this is an e-platform that enables the taxpayers to carry out their tax activities from anywhere in the world without visiting a tax office.
Successful registration with Tax Authority is evidenced by the issuance of Tax Identification Number (TIN) to the business and onboarding on Tax Pro max platform; TIN is a unique number that is required for tax filings, payments, compliance and to track the activities of the taxpayer on the tax platform (Tax Pro Max).
Below is an image of FIRS Tax Pro Max Landing Page:
https://taxpromax.firs.gov.ng/
- Tax Remittance and Filing
Aside registration with the tax authority and keeping proper record, businesses are required to file and remit a variety of taxes, including:
- Company Income Tax (CIT)
In compliance with the CIT Act, businesses are taxed based on their annual turnover and are required to file and remit Company Income Tax (CIT) within six months after the end of the financial year.
Companies with a turnover of over 100 million Naira are liable to company income tax, 30% of their assessable profit; while businesses that are registered as Limited Liability Company and have an annual turnover above 25 million Naira and not more than 100 million are liable to Company Income Tax, 20% of their assessable profit. However, businesses with a turnover below 25million Naira are not obligated to pay CIT.
https://taxsummaries.pwc.com/nigeria/corporate/taxes-on-corporate-income
- Education Tax (EDT)
Businesses are required to pay Education Tax at 2% of their assessable profit; Federal Inland Revenue Services (FIRS) is the tax authority for EDT and it has the same deadline as CIT. Typically, EDT is filed alongside CIT.
- Personal Income Tax (PIT)
Personal Income Tax (PIT) applies to the income of individuals.
Employers are required to deduct Pay as You Earn (PAYE) at source on behalf of their employees. Businesses are responsible for withholding and remitting the correct amount of tax to the Federal Inland Revenue Service (FIRS) or the relevant State Internal Revenue Service (SIRS) at a rate ranging from 7% to 24% depending on the income of the employees.
Business owners are also subject to personal income tax on their income from the business; how they are taxed depends on whether the business is incorporated as a company, a sole proprietorship or partnership.
For businesses operating as a sole proprietorship or partnership, the business profits are treated as the personal income of the business owner(s) and taxed under personal income tax. This implies that the business owner (s) must file an annual income tax return detailing business income and expenses. The income from the business is aggregated with any other sources of personal income and taxed at a rate between 7% and 24%.
However, if the business is incorporated as a limited liability company, the business profit is subject to Corporate Income Tax (CIT), not personal income tax. However, directors of the company still pay PIT on their salaries or allowances as individuals under the PAYE system.
Below is a table showing the rates of PAYE at different levels of annual income:
- Value Added Tax (VAT)
Businesses that provide VATable goods and services with an annual turnover exceeding 25 million Naira are required to register for Value Added Tax (VAT), charge and remit VAT returns of 7.5% monthly to the Federal Inland Revenue Services (FIRS) on or before the 21st day of the following month.
For instance, if a business offers a service with a professional fee of NGN500,000.00, the business will charge a 7.5% (NGN37,500) on the fee and the total amount to be paid to the business will be NGN537,500.
However, there are some goods and services that are exempted from VAT, such as healthcare service, pharmaceuticals and baby products, basic food items, educational services etc.
- Withholding Tax (WHT)
Withholding Tax (WHT) is a tax deducted at source from payments made for goods and services. It is applicable to both individuals and corporate entities.
Businesses in Nigeria typically make payments for services (e.g. consultancy, professional services, management fees), Rent payments, Dividends and interest, Royalties, Contract payments for construction services and supplies etc.
The rates applied depend on the nature of the transaction and the type of vendor (corporate or individual vendor) but it is typically either 5% or 10%.
It should be noted that WHT is an advance payment for tax and the tax credit will ultimately be used to offset the income tax liability of the business.
‘Federal Republic of Nigeria Official Gazette: Deduction of Tax at Source (Withholding) Regulations, 2024’
- Capital Gain Tax (CGT)
Capital gains tax (CGT) compliance is an important consideration for businesses in Nigeria, particularly when they dispose of assets and not sold in the ordinary course of business. It is levied on the profit from the sale or transfer of certain types of assets, such as property, shares, and other investments.
CGT rate is 10% and it is applied to the gain on disposal of assets, adjusted for allowable expenses related to the acquisition and sale.
- Local Taxes and Levies
In addition to the above outlined taxes, businesses are also required to comply with other state or local government taxes such as:
- Business premises
It is a tax on property used for the production of income including rental houses, office buildings, factories etc. Business premises in Lagos State amounts to N10,000 for registration and then N5,000 for renewal in subsequent years for urban areas and N2,000 / N1,000 respectively in rural areas.
https://lirs.gov.ng/tax-information/tax-types
- Signage tax
A signage tax refers to a tax that businesses or property owners may be required to pay for installing signs on their property, typically for advertising purposes.
Signage taxes in Lagos State, Nigeria are based on the type of sign, its size, and the location of the business. The Lagos State Signage and Advertisement Agency (LASAA) is responsible for collecting these taxes in Lagos Nigeria.
Signage tax rates
First party signs: New applications for single business units cost N11,000, while additional signs cost N5,500.
Wall, canopy, or roof signs: Rates vary by zone and are based on the size of the sign.
Projecting signs: Rates vary by zone and are based on the size of the sign.
Freestanding or sky signs: Rates vary based on the size of the sign.
Mobile advertisements: Rates vary based on the type of vehicle being used for the advertisement.
- Record Keeping
In addition to registration with the Tax Authority, obtaining a TIN and remittance and filing of tax, companies are required by laws to maintain proper records for tax purposes. This ensures that businesses can accurately report income, expenses, and tax liabilities, and that tax authorities can properly assess taxes and ensure compliance. Aside proper record keeping, the CIT Act specifically requires businesses to retain these records for a minimum of six years. This will be of immense value to businesses during tax audit or tax investigations.
- Tax Audit and Investigation
In Nigeria, the completion of tax audits and investigations exercise without further queries or demand notices is a major aspect of tax compliance.
Tax audit and investigations are carried out by the tax authorities to ensure that individuals and businesses comply with the tax laws and regulations.
A tax audit is a review of a taxpayer’s financial records, accounts, and documents to ensure the accuracy of tax returns and compliance with tax laws.
A tax investigation goes beyond a regular audit and is typically initiated when there are strong indications of tax evasion, fraud, or other illegal activities. This process is more intense and aims to uncover deliberate underreporting of income, overstating of expenses, or other fraudulent activities to evade taxes.
Conclusion
In conclusion, tax compliance for businesses can be a daunting challenge, therefore, it is advisable for businesses to work with tax professionals to navigate the tax landscape in order to take advantage of tax and avoid fines and penalties associated with defaulting on tax law.
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