Anaya Nolan
Corporate income tax in Nigeria is a tax imposed on the profits of registered businesses in the country. The Company Income Tax Act (CITA) is the principal law that regulates the taxation of companies in Nigeria. The Federal Inland Revenue Service (FIRS) administers or oversees income tax for companies. The CIT rate structure varies according to the company's turnover. Nigerian companies are assessed to tax on their worldwide income, while Non-Resident Companies (NRCs) are subject to tax only on profits accrued in or derived from Nigeria. Companies must file their yearly CIT returns and pay the relevant tax within six months of the end of the fiscal year.
| Characteristics | Values |
|---|---|
| Main Law | Company Income Tax Act (CITA) |
| Administered By | Federal Inland Revenue Service (FIRS) |
| Tax Rate | 30% for companies with yearly income of more than NGN 100 million |
| 20% for companies with a turnover between N25 million and N100 million | |
| 0% for companies with less than N25 million turnover | |
| Tax Assessment | Assessed on a preceding year basis |
| Tax Payment | Payable within six months of the end of the fiscal year |
| Foreign Company With Fixed Base/Permanent Establishment In Nigeria | Subject to CIT on Nigeria-sourced income |
| Non-Resident Companies (NRCs) | Subject to tax on profits accrued in or derived from Nigeria |
| Significant Economic Presence (SEP) | CIT charged on the portion of profit attributable to activities in Nigeria |
| Tertiary Education Tax | 3% of assessable profit, payable within two months of assessment |
| Minimum Tax | 0.5% of company's turnover less franked investment income |
| Withholding Tax (WHT) | Applicable to rent, commission, consultancy, technical, and professional services, management services, construction, and contracts |
| Petroleum Industry | Subject to Petroleum Profits Tax Act (PPTA) and Hydrocarbon Tax (HCT) |
| Digital Transactions | Foreign entities deriving income of NGN 25 million or more from Nigeria in a year are liable for tax |
| Compliance | Proper registration, tax planning, and timely filing of returns are essential |
Explore related products
What You'll Learn
Foreign company income
In Nigeria, foreign companies are also known as non-resident entities. Foreign companies can earn income in Nigeria through two main ways: dividends, interest, royalty, and rent; or digital transactions.
Foreign companies that earn income in Nigeria through dividends, interest, royalty, and rent are taxed through withholding tax deducted at source by the Nigerian payer as the final tax. These companies are required to register and obtain a Tax Identification Number (TIN) without which the Nigerian payer will not be able to remit the withholding tax deducted.
Foreign companies that earn income through digital transactions are deemed to have a significant economic presence (SEP) in Nigeria and are therefore liable to tax if they meet any of the following conditions:
- Derives income of NGN 25 million or its equivalent in other currencies from Nigeria in a year
- Uses a Nigerian domain name (.ng) or registers a website address in Nigeria
- Has purposeful and sustained interactions with persons in Nigeria by customising its digital platform to target persons in Nigeria (e.g. by stating the prices of its products or services in naira)
Non-resident companies providing professional, consultancy, management, and technical (PCMT) services to Nigeria residents will be subject to tax at 10% final tax where such company has an SEP in Nigeria. A foreign entity providing technical, professional, management, or consultancy services shall have an SEP in Nigeria in any accounting year if it earns any income or receives any payment from a person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria. As such, it is required to register for CIT and file its tax returns.
Any WHT deducted at source from its Nigeria-source income is available as offset against the CIT liability, except for non-resident companies carrying out PCMT services where the WHT paid at 10% is deemed to be the final tax. The CIT rate is 0% for companies with gross turnover of NGN 25 million or less.
It is important to note that taxable foreign income earned by a Nigerian tax resident entity cannot be legally deferred.
The Constitution: No Man Above the Law
You may want to see also
Explore related products
Tax exemptions
Corporate Income Tax (CIT) in Nigeria is imposed on the profits of companies registered in the country. The rate of taxation depends on the size of the company (small, medium, or large).
There are several tax exemptions in Nigeria for certain types of companies and specific sources of income. Here are some key exemptions:
Dividends
Dividends received by a Nigerian resident company from another Nigerian resident company are taxable at source and are not subject to further tax. Dividends received from non-resident companies are taxable unless repatriated through government-approved channels, such as the Central Bank of Nigeria or authorised financial institutions. Dividends received from small manufacturing companies are exempt from CIT during their first five years of operation. Dividends from investments in wholly export-oriented businesses are also exempt. Additionally, dividends paid to Unit Trusts and Real Estate Investment Companies (REICs) are exempt from Withholding Tax (WHT).
Interest
Interest on foreign currency domiciliary accounts is exempt from taxation. Interest payable to a non-resident investor is subject to a 10% WHT, which can be reduced to 7.5% if the recipient resides in a country with a Double Taxation Treaty (DTT) with Nigeria.
Royalties
Royalties received by Nigerian companies from non-resident payers are taxable unless repatriated through government-approved channels. Non-resident companies receiving Nigerian royalties are subject to a 10% WHT, reduced to 7.5% if a treaty is in place with Nigeria.
Profit Exemptions
The following entities' income or profit is exempt from CIT:
- Statutory or registered friendly societies
- Cooperative societies registered under ecclesiastical or charitable establishments of a public character
- Companies established within an EPZ or FTZ (special economic zones)
- Registered trade unions
- Export profits, provided proceeds are reinvested in raw materials, spare parts, and machinery
Real Estate Investment Companies (REICs)
REICs approved by the Securities Exchange Commission are exempt from income tax on rental income. Dividend income earned in a financial year is also exempt, provided that at least 75% of such income is distributed within 12 months.
Petroleum Operations
Companies engaged in upstream petroleum operations under production-sharing contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC) are taxed at a rate of 50% in lieu of CIT. Non-PSC operations, including joint ventures, are taxed at 65.75% for the first five years during which pre-production capitalised expenditure has not been fully amortised. After the first five years, the rate increases to 85%.
Tertiary Education Tax
Non-resident companies and unincorporated entities are exempt from paying the tertiary education tax, which is imposed on Nigerian companies at a rate of 3% of assessable profit for each year of assessment.
Contract Law Evolution: Adapting to Dynamic Societies
You may want to see also
Explore related products
Withholding tax
WHT regulations also apply to digital transactions involving foreign entities. A foreign company is deemed to have established a Significant Economic Presence (SEP) in Nigeria and is thus liable to pay WHT if it derives an annual income of NGN 25 million or more from Nigeria, uses a Nigerian domain name, or purposefully interacts with Nigerian customers by customising its digital platform for them.
Nigerian companies are required to submit electronic schedules detailing their suppliers' information, including transaction details, WHT deducted, and tax credit certificates. These regulations ensure compliance and provide transparency in the withholding tax process.
It is important to note that Nigeria has double taxation treaties (DTTs) with several countries, which may impact the WHT rates applicable to non-resident companies. These treaties help to avoid double taxation and encourage cross-border economic activities. However, the specific WHT rates and exemptions may vary depending on the provisions of each treaty.
As of January 1, 2025, new withholding tax regulations will come into effect in Nigeria, revoking all existing regulations regarding deductions at source or withholding tax. This update underscores the dynamic nature of tax laws and the importance of staying informed about the latest regulations.
How Physics Laws Shaped Our Understanding of the Universe
You may want to see also
Explore related products
Tertiary education tax
Corporate income tax (CIT) in Nigeria covers a range of taxes on the income of companies, including the Petroleum Profits Tax (PPT) and the Tertiary Education Tax. This response will focus on the latter.
The Tertiary Education Tax is a crucial aspect of Nigeria's corporate income tax system. It refers to a 3% tax imposed on the profits of companies operating in Nigeria, with the specific purpose of funding tertiary education in the country. The Federal Inland Revenue Service (FIRS) is responsible for assessing and collecting the tax. The rate was initially set at 2% in 1993 under the Education Tax Act but was later increased to 3%.
The tax plays a significant role in supporting and enhancing Nigeria's tertiary education system. The funds collected are administered by the Tertiary Education Trust Fund (TETFund), which utilises the revenue to provide essential infrastructure and facilities in public tertiary institutions. This includes the development and maintenance of libraries, laboratories, and modern technology, ensuring that students have access to quality resources.
Additionally, the Tertiary Education Tax contributes to the improvement of academic programs, faculty development, curriculum enhancements, and research initiatives. It promotes accessibility to higher education for students from diverse socio-economic backgrounds and helps Nigerian tertiary institutions maintain their competitiveness in the global education landscape.
The Tertiary Education Tax is not deductible for companies subject to income tax under the Petroleum Industry Act 2021. Non-resident companies and unincorporated entities are exempt from paying this tax.
Understanding Tax Obligations on Law Settlement Payouts
You may want to see also
Explore related products
Petroleum industry tax
Corporate Income Tax (CIT) in Nigeria applies to companies incorporated in Nigeria or those that are deemed to have a taxable presence in the country. CIT is charged at a rate of 30% on the profits of a company, and this rate is applied to both resident and non-resident companies.
The Petroleum Industry in Nigeria has its own specific tax regulations, which are governed by the Petroleum Industry Act (PIA) and the Petroleum Profits Tax Act (PPTA). The PIA was enacted in 2021 and made changes to the fiscal and administrative laws surrounding the industry.
The PPTA imposes a tax on the income of companies engaged in upstream petroleum operations, known as the Petroleum Profits Tax (PPT). The PPT rate varies depending on the nature of the operations and the existence of production-sharing contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC). For operations under PSCs with the NNPC, the PPT rate is 50%. For non-PSC operations, including joint ventures, the rate is 65.75% for the first five years, and 85% thereafter.
Following the enactment of the PIA in 2021, holders of a Petroleum Prospecting Licence and Petroleum Mining Lease became subject to both CIT (at 30%) and Hydrocarbon Tax (HCT). However, deep offshore operations are exempt from HCT, capping the effective tax rate for upstream oil and gas companies at 60%.
Existing Oil Mining Licence and Oil Prospecting Licence holders will continue to be taxed according to the PPTA unless a conversion contract is executed. The PPTA has also been amended to include taxation on any surplus funds remaining after the decommissioning and abandonment of a field approved by the commission.
Child Abandonment Laws: Understanding Your Parental Rights in Connecticut
You may want to see also
Frequently asked questions
Corporate income tax (CIT) is a tax on the profits of registered companies in Nigeria. It also includes the tax on the profits of foreign companies doing business in Nigeria.
The CIT rate structure varies according to the company's turnover. The CIT is charged at a rate of 30% for companies with a yearly income of more than NGN 100 million naira turnover. It is charged at a rate of 20% for companies with a turnover between N25 million and N100 million. Companies with less than N25 million turnover are not liable to pay CIT.
Yes, there are some exemptions to CIT in Nigeria. For example, dividends received from small manufacturing companies are exempt from CIT during their first five years of operation. Export profits are also exempt from CIT as long as proceeds are invested in raw materials, spare parts, and machinery.
Petroleum Profits Tax (PPT) is a specific type of tax that applies to companies engaged in upstream petroleum operations, such as exploration, production, and refining of petroleum products. The PPT rate is typically higher than the CIT rate and is levied in lieu of CIT for these companies.
