Starting and operating a business in Nigeria comes with various responsibilities, and one of the most crucial aspects to understand is taxation. Taxes play a vital role in the financial health and legal compliance of your business.
In this article, we will delve into the key taxes that every Nigerian business owner should be aware of after registering their business. Understanding and adhering to these tax obligations will not only keep you on the right side of the law but also contribute to the development of the nation.
Companies Income Tax (CIT)
Companies Income Tax is a fundamental tax that applies to all companies registered in Nigeria, excluding those engaged in petroleum operations.
This tax is an annual levy on the profits generated by registered companies, provided that these profits either accrue in, are derived from, brought into, or received within Nigeria.
It’s important to note that companies with an annual gross turnover of not more than N25 million are exempt from CIT, provided they timely file their income tax returns.
CIT is a significant source of revenue for the Nigerian government and is crucial for funding public infrastructure, services, and development projects.
Capital Gains Tax (CGT)
Capital Gains Tax is levied at a rate of 10% on the capital gains realized from the sale, exchange, or disposition of chargeable assets. Capital gains are essentially the profits made when an investor sells a capital asset for a price higher than the purchase price.
This tax comes into play only when an asset is sold or realized. It encourages transparency in property transactions and ensures that individuals and businesses contribute their fair share to the tax pool.
Education Tax is imposed on all registered companies in Nigeria based on their assessable profits. This tax serves as a contribution to the Education Tax Fund, which is essential for improving educational infrastructure and access to quality education in the country.
The Education Tax rate is fixed at 2%, and businesses are obliged to calculate and remit this tax to the relevant authorities.
Value Added Tax (VAT)
Value Added Tax is a consumption tax imposed at a rate of 7.5% on the supply of goods and services. Although businesses themselves do not pay VAT, they are responsible for collecting it from consumers and remitting it to the appropriate tax authority.
Essentially, businesses act as intermediaries between consumers and the government in the collection of VAT. Compliance with VAT regulations is essential to avoid legal penalties and ensure the smooth operation of your business.
Personal Income Tax
Personal Income Tax is a tax obligation that applies to both individuals and registered businesses, except those registered under Part A of the Companies and Allied Matters Act 1990 (incorporated companies).
The State Inland Revenue Service administers this tax, which includes the collection of Pay as You Earn (PAYE) from employees’ salaries by registered companies.
PAYE is then remitted to the state tax authority. Ensuring that employees’ taxes are correctly deducted and remitted is a critical responsibility for businesses.
Withholding Tax is a form of advanced payment of income tax, deducted at the source of specific transactions. The recipient of the income is entitled to use the withheld tax credit note or receipt against their final tax obligations.
For instance, when paying dividends to shareholders, withholding tax is charged on the amount. This tax mechanism ensures that the government receives its share of income tax promptly.
Thank you for reading this article, we hope you have found it useful.