Table of Contents
- 1 Alternative Tax on Deemed Profit
- 2 Non-resident companies
- 3 Nigeria Company Income Tax Act
- 4 Taxes Collected by the Federal Government Through the Federal Inland Revenue Service (FIRS):
- 5 Petroleum profits tax (PPT)
- 6 Tertiary education tax
- 7 Enforcement of advance CIT on interim dividends
Alternative Tax on Deemed Profit
The law permits FIRS to assess and charge companies to tax on a clear and reasonable percentage of turnover when returns that can be easily payable are not available or when the payable profits cannot be ascertained.
As for non-resident companies engaged in any form of transaction or business in Nigeria, the profits shall be deemed to be gotten from Nigeria for tax purposes:
1. If that Company has a certain base of business in Nigeria to the point that the profit is attributable to the certain base;
2. If the profit lacks a kind of flat base in Nigeria but purposely operates a trade or business through a person in Nigeria permitted to conduct on its behalf or on behalf of some other companies owned by it or which have a controlling interest in it; or purposely maintains a stock of goods or merchandize in Nigeria from which deliveries are regularly made by a person on behalf of the company to the point that the profit is attributable to the business or trade or activities carried on through that person.
3. If that trade or business or activities involves a single contract for surveys, deliveries, installations or construction, the profit from that contract; and where the marketing operations or business and transactions is done between the organization and a second person managed by it or which has a controlling interest in it and conditions are made or imposed between the company and such person in their commercial or financial relations which the board members labelled, base on their views, to be unreal or deceptive, so much of the profit will be adjusted by the board to reflect arm’s length transaction.
An Act to consolidate the provisions of the Company Income Tax Act 1961 and to make other provisions relating thereto.
Charge of tax:
(1) Subject to the provisions of this Act, the tax will, for each year of assessment, be payable at the rate specified in
subsection (1) of section 40 of this Act upon the profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of‐
(a) any trade or business for whatever period of time such trade or business may have been carried on;
(b) rent or any premium arising from a right granted to any other person for the use or occupation of any property; and where any payment on account of such a rent as is stated earlier in this paragraph is made before the expiration of the period to which it relates and is included for the purposes of this paragraph in the profits of a company, then, so much of the payment as relates to any period beginning with the date on which the payment is made shall be treated for these purposes as accruing to the company proportionately from day to day over the last‐mentioned period or over the five years beginning with that date, whichever is the shorter;
(c) dividends, interests, royalties, discounts, charges or annuities;
(d) any source of annual profits or gains not falling within the preceding categories;
(e) any amount deemed to be income or profit under a provision of this Act or, with respect to any benefit arising from a pension or provident fund, of the Personal Income Tax Act;
(f) fees, dues and allowances (wherever paid) for services rendered;
(g) any amount of profits or gains arising from acquisition and disposal of short‐term money instruments like Federal Government securities, treasury bills, treasury or savings certificates, debenture certificates or treasury bills, treasury or savings certificates, debenture certificates or treasury bonds.
(2) For the purposes of this section, interest shall be deemed to be derived from Nigeria if‐
(a) there is a liability to payment of the interest by a Nigerian company or a company in Nigeria regardless of where or in what form the payment is made; or
(b) the interest accrues to a foreign company or person from a Nigerian company or a company in Nigeria regardless of whichever way the interest may have accrued.
(3) In this section, “dividend” means‐
(a) in relation to a company not being in the process of winding up or liquidated, any profits distributed, whether such profits are of a capital nature or not, including an amount equal to the nominal value of bonus shares, debentures or securities awarded to the shareholders; and-
(b) in relation to a company that is being wound up or liquidated, any profits distributed, whether in money or money’s worth or otherwise, other than those of a capital nature earned before or during the
winding up or liquidation.
Taxes Collected by the Federal Government Through the Federal Inland Revenue Service (FIRS):
1. Companies Income Tax
2. Petroleum Profits Tax
3. Personal Income Tax in respect of:
– Members of the Armed Forces of the Federation;
– Members of the Nigerian Police Force;
– Residents of the FCT;
_ Staff of the Ministry of Foreign Affairs and non-resident individuals.
4. Capital Gains Tax on corporate bodies and residents of FCT.
5. Value Added Tax.
6. Education Tax.
7. Stamp Duties on corporate bodies and residents of FCT.
8. Withholding Tax on companies, FCT residents and non-resident individuals.
9. National Information Technology Development Levy.
Petroleum profits tax (PPT)
PPT is a tax on the income of companies engaged in petroleum industries in relations to CIT.
The PPT has rates of variation as follows:
– 50% for petroleum operations under production sharing contracts (PSC) with the Nigerian National Petroleum Corporation (NNPC).
– 65.75% for non-PSC operations, including joint ventures (JVs), in the first five years during which the company has not fully amortized all preproduction capitalized expenditure.
– 85% for non-PSC operations after the first five years.
Tertiary education tax
Tertiary education tax is imposed on every Nigerian resident company at the rate of 2% of the assessable profit for each year of assessment. The tax is payable within two months of an assessment notice from the FIRS. In practice, many companies pay the tax on a self-assessment basis along with their CIT. For companies subject to PPT, tertiary education tax is to be handled as an allowable deduction. For other companies, income/profit taxes are not deductible in arriving at taxable income. Non-resident companies and unincorporated bodies are excluded from tertiary education tax.
Enforcement of advance CIT on interim dividends
The new leadership at the FIRS has started the strict enforcement of advance CIT on interim dividends.
Companies that disclosed interim dividends are needed by the law to be liable to advance CIT at 30% of the interim dividend paid. The advance CIT is creditable against the final CIT computed at the end of the year.