Taxes serve as a primary revenue source for the Nigerian government, facilitating the provision of public services, infrastructure development, and economic stability. Compliance with tax regulations not only fulfills a civic duty but also ensures businesses contribute to the nation’s growth while avoiding legal repercussions and financial penalties.

Types of Taxes In Nigeria

Here are the key types of business taxes in Nigeria based on the provided sources:

1. Personal Income Tax (PIT): Personal Income Tax is levied on individuals who are employed or self-employed, with payments made to the State Inland Revenue Service in the individual’s state of residence. It is deducted from employees’ salaries through Pay As You Earn (PAYE) for those in employment, while self-employed individuals pay through direct assessment.
2. Company Income Tax (CIT): Company Income Tax is imposed on all corporate entities in Nigeria, excluding those engaged in petroleum operations. The tax is calculated at 30% of the company’s total profit and is payable to the Federal Inland Revenue Service. Companies with an annual gross turnover of not more than N25 million are exempt from CIT, subject to timely filing of tax returns.
3. Value Added Tax (VAT): Value Added Tax is an indirect tax imposed on goods and services, with the final consumer bearing the VAT charges. The standard VAT rate in Nigeria is 7.5%, and it is collected by businesses from consumers and remitted to the relevant tax authority.
4. Withholding Tax (WHT): Withholding Tax is an amount deducted from an individual’s income to cover their tax liability. It is not a separate tax but a method of payment where the employer withholds the tax from the income instead of the employee. The percentage deducted varies but typically ranges between 5% to 10%.
5. Petroleum Profit Tax (PPT): Petroleum Profit Tax is imposed on the income of companies involved in upstream petroleum activities at a rate of 85%. Companies paying PPT are exempted from Company Income Tax as per the Petroleum Profit Tax Act.
6. Capital Gains Tax (CGT): Capital Gains Tax is a 10% tax levied on the profit from the sale, exchange, or disposal of chargeable assets. It applies when an asset is sold at a higher price than the purchase price, triggering a capital gains tax liability.
7. Stamp Duties (SD): Stamp Duties Tax is imposed on written or electronic legal instruments/documents like cheques, receipts, agreements, etc. For instance, electronic transfers above a certain threshold in Nigeria attract a stamp duty fee.
8. Education Tax (EDT): Education Tax is a 2% tax imposed on the income of all registered companies in Nigeria to fund the Tertiary Education Trust Fund, supporting projects in tertiary institutions.
9. National Information Technology Development Levy (NITDL): This levy is a 1% tax on specific companies with an annual turnover of N100 million, including GSM service providers, banks, insurance companies, and other financial institutions.

Also Read: Frequently Asked Questions about Taxes

Tax Requirements and Laws

• Businesses are obligated to file annual CIT returns and settle tax liabilities within six months of their financial year-end.
• Non-compliance with tax laws can result in penalties, starting at 25,000 Naira for the first month and escalating to 5,000 Naira for subsequent months.
• Failure to remit VAT payments may lead to penalties of 5% per annum plus accrued interest.

Taxes For Foreign Businesses in Nigeria

• Non-resident companies conducting business activities in Nigeria are subject to CIT on profits derived within the country.
• CIT rates for non-resident companies vary based on turnover, with rates of 30% for large companies, 20% for medium-sized companies, and exemptions for small enterprises.
• Non-resident companies providing services in Nigeria are subject to a 10% WHT rate on various income streams.

Sources

1. In review: direct taxation of businesses in Nigeria
2. Nigeria — Orbitax Country Chapters: Tax Base for Non-Resident Entities
3. Types Of Taxes In Nigeria
4. 5 Taxes every Nigerian entrepreneur should be aware of
5. Corporate – Taxes on corporate income

These taxes are crucial for businesses in Nigeria to comply with to avoid penalties, fines, and potential legal consequences.

Finally, understanding Nigeria’s complex tax framework is critical for firms seeking to operate legally and responsibly. Businesses that fully understand and adhere to tax responsibilities may actively contribute to Nigeria’s economic success while protecting their financial health. To thrive in Nigeria’s dynamic business climate, it is advised that you keep educated, obtain competent advice, and comply with tax rules on time.