Registration for taxation of Entities and taxation of Incomes in Nigeria Contd.

Contributed by CJP Ogugbara, CJP Ogugbara & Co (Sui Generis Avocats), Nigeria.

Table of Contents

Company Income Tax:

On the other hand, corporate taxes payable for each year of assessment includes the payable sums upon the profits of any company accruing in, derived from, brought into, or received in, Nigeria. The profits of a Nigerian company shall be deemed to accrue in Nigeria wherever they have arisen and whether or not they have been brought into or received in Nigeria. The profits of a company other than a Nigeria company from any trade or business shall be deemed to be derived from or otherwise taxable in Nigeria if that company has a fixed base in Nigeria to the extent that the profit is attributable to the fixed base. Also another determining factor is when such company habitually operate a trade or business through a person in Nigeria authorized to conclude contracts on its behalf or on behalf of some other companies controlled by it or which have controlling interest in it or habitually maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by a person on behalf of the company to the extent that the profit is attributable to business or trade or activities carried on through that person.

However, it would be recalled that the most identified medium of exchange that determines taxable income or products is trade. It is a known fact that trade has gone beyond borders and boundaries. Technology and globalization in all ramifications have limited the territorial powers to control trade by geographic states. This modern trade system and the attendant tax regimes have influenced the policies and regulatory frameworks of countries. The African Continental Free Trade Area (AfCFTA) Agreement applicable to Nigeria is good example that the incursion of globalization has torn down the barriers of walls and boundaries in trades among nations and individuals. Thus, while residency and income are the basis for the determination of tax liability or obligation of individual and natural persons, the determining factors for corporate entities are physical presence and significant economic presence. Again if the company transmits, emits, or receive signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that it has significant economic presence in Nigeria and profit can be attributable to such activity.

Following the introduction of the Finance Acts in the Nigerian fiscal administration and deployment of instruments for adequate tax compliance, the company income taxes, categized companies into three: small, medium and large companies. The Act further entrenched a regime of financial reporting through filing of audited financial statements. Thus, a company whose audited financial statement reports that its annual turn-over is less than N25,000,000 (Twenty-Five Million Naira) is considered a small company. They are excepted from payment of Company Income Tax as their CIT Tax rate is 0%. Where the audited Account indicates a turn-over above N25,000,000 (Twenty-Five Million Naira) but less than N100,000,000 (One Hundred Million Naira), such company is medium and the CITA Tax rate is 20%. Whereas if turn-over is above N100,000,000 (One Hundred Million Naira), then it is a large company and the rate is 30%.

Value Added Tax:

Value Added Tax is an indirect tax levied on certain goods and services which the Act referred to as “taxable goods and services”. It is regulated under the Value Added Tax Act. It is payable by consumers of goods and services through the suppliers of the said goods and services. Since it is the vendor of the goods and /or service that has the responsibility of collecting the Value Added Tax from purchasers as agents of the FIRS and to remit same to the FIRS except for those exempted as contained in the Act. VAT is strictly applicable to registered business organizations. It does not apply to all categories of good and services, hence the usage taxable goods and services. The Act was introduced to replace the Sales Tax Act. It is administered by the Federal Inland Revenue Service (FIRS). Hitherto, rate of value added tax was 5% (percent), but the Finance Act, 2019 saw to the increase to 7.5%, effective from 1^st February, 2020. Another innovative of the Finance Act, 2019 is that companies with turnover of less than N25 million are exempted from charging VAT on their goods and services and filing VAT returns

A newly incorporated company is under obligation to register for VAT compliance within 6 months. Section 8(1) of the VAT Act states: “A taxable person shall, within six months of the commencement of the Act or within six months of the commencement of business, whichever is earlier, register with the Board for the purpose of the tax.” It is an offense to fail to register for VAT administration. Moreso, it is an offense for a taxable person not to submit VAT returns. It is also an offense to fail to notify the FIRS of change of address, or cessation of trade or business. In any case, the penalty for each of the offences is N50,000 for the 1^st month and N25,000 for every subsequent month during the continuance of such defaults.

Withholding Tax:

This can be defined as a tax which is withheld by a party from the trench of payments being made to another party. The Withholding Tax is chargeable by the Federal and States Governments of the Nigerian Federation. The WHT on corporate entities are collectible by Federal Government while WHT on individuals are collectible by State Government. The receiving Inland Revenue Service is in turn required to issue a Withholding Tax Credit Note for the benefit of the latter party, part of whose income was withheld. Withholding tax is not a final tax. The paying party is required upon withholding and paying this tax to obtain on behalf of the other party a Tax Credit Note. The latter Note automatically becomes a tax credit to the other party from whose income the tax was deducted which him to claim it as part of its tax benefits when filing its yearend tax returns.

The withholding tax (WHT) provision was introduced into the tax system in 1977 with limited coverage to rent, dividends and directors fees. However, Tax deduction at source has since been expanded to include: all aspect of building, construction and related services; all types of contracts and agency arrangement, other than outright sale and purchase of goods and property in the ordinary course of business; consultancy, technical and professional services; Management services; Commissions and Interest and Royalty. The idea of WHT was to address tax evasion and ensuring full disclosure, transparency, predictability and fairness in transactions in the Nigerian Economic space. As much as the WHT was to invented to checkmate tax evasion, the system stems frontiers to reduce double taxation and overtaxing.

As said earlier, Withholding Tax (WHT) is a method used to collect Income Tax in advance and it is deducted at varying rates ranging from 5% to 10% depending on the transaction. It is important to note that in an effort to promote housing schemes, the Real estate investment is exempted from WHT Tax under the Finance Ac, 2019. The established due date for filing of WHT returns is 21st day of every succeeding month. Failure to file Withholding Returns within the specified date attracts a fine of N25, 000 for the first month and N5, 000 for each subsequent month the failure continues. The following rates applies to WHT:

Types of payment	WHT for companies (%)	WHT for individuals (%)
Dividends, interest, and rents	10	10
Directors’ fees	N/A	10
Hire of equipment	10	10
Royalties	10	5
Commission, consultancy, technical, service fees	10	5
Management fees	10	5
Construction (roads, buildings, and bridges)	2.5	5
Contracts other than sales in the ordinary course of business	5	5

Contributor: CJP Ogugbara

Agency/Firm: CJP Ogugbara & Co (Sui Generis Avocats)(English)

Position/Title: Founding Partner

Country: Nigeria

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This post is a contribution from CJP Ogugbara & Co (Sui Generis Avocats). Established in 2014 as a Partnership Firm in Nigeria, CJP Ogugbara & Co has been working along and engaging in dispute management, litigation and arbitration, commercial practice: real estate and investment advisory, tax practice and energy consultancy. Apart from the core practice areas, they also facilitate and extend practice to the development of clients’ businesses and corporate interests, especially as they apply to the Nigerian economy and investment circle.