Taxation in Nigeria
Nigeria’s taxation system is intricate and plays a vital role in the country’s economic strategy by balancing the need for revenue with fostering growth and investment. This system includes various taxes, each controlled by a detailed array of regulations and rates. A thorough comprehension of this environment is crucial for businesses, investors, and individuals for effective financial management and adherence to regulations.
Taxation system
Nigeria’s taxation system is structured to align with local fiscal policies as well as international commitments, providing a well-organized yet flexible taxation approach. It may include a mix of flat rates, progressive scales, and specific exemptions that mirror the nation’s economic goals and social aims. Grasping the complexities of these tax mechanisms is essential for enhancing financial results, ensuring adherence to regulations, and taking advantage of opportunities within the legal parameters.
Capital gains tax
In Nigeria, a flat rate of 10% is applied as capital gains tax (CGT) on the profits derived from the sale of chargeable assets, which includes digital assets like cryptocurrencies and NFTs. The tax is assessed based on the difference between the asset’s selling price and its acquisition cost, after accounting for allowable expenses. There are particular regulations in place for taxing digital assets, addressing the distinct challenges related to valuation and enforcement in this developing sector. Taxpayers must report and remit CGT every six months.
Corporate taxation
In Nigeria, corporate income tax is levied at varying rates according to the size of the company. Companies with a turnover exceeding NGN 100 million are subject to a 30% tax rate, those with a turnover ranging from NGN 25 million to NGN 100 million are taxed at 20%, and small companies with a turnover of NGN 25 million or less are exempt from taxation (0%). Resident companies are taxed on their global income, while non-resident companies are taxed only on income generated within Nigeria. The tax legislation in Nigeria provides allowances, deductions, and various incentives aimed at encouraging specific industries and investments. Compliance with tax regulations requires the submission of annual returns and the payment of the assessed tax obligations.
Personal income taxation
In Nigeria, personal income tax is imposed on individuals according to progressive rates that range from 7% to 24%. This tax is applicable to earnings generated by both residents and non-residents through employment, business ventures, and investment activities. For employees, the tax is usually withheld at source via the Pay-As-You-Earn system, whereas self-employed individuals are subject to direct assessment for tax payments. Taxable income encompasses salaries, wages, profits from businesses, and earnings from investments. The tax system permits certain deductions and relief measures, including a consolidated relief allowance. To ensure compliance, individuals must submit annual tax returns and settle any unpaid tax obligations.
Dividend taxation
In Nigeria, a flat rate of 10% is applied as dividend tax on payments made by Nigerian companies to their shareholders. This withholding tax serves as the final tax on this income for both residents and non-residents. The company that distributes the dividends is responsible for deducting the tax at the source. When the declared dividend surpasses the company’s taxable profit, the excess is still taxed at the 10% rate as though it were the company’s taxable profit. There are specific exceptions, especially when dividends come from profits that have already been taxed or are classified as franked investment income.
Property tax
In Nigeria, property tax is mainly levied at the state and local government levels, with rates differing based on the property’s location and type. Typical property taxes include land-use charges, tenement rates, and ground rents. These taxes are calculated according to the property’s value and are utilized to support local infrastructure and services. The specific rates and assessment methods are established by laws at the state and local government levels. Property owners are obligated to pay these taxes, and not doing so may lead to penalties or the forfeiture of property rights. To remain compliant, property owners must be aware of the specific taxes relevant to their area and ensure they make timely payments.
Inheritance taxation
Nigeria does not have a designated inheritance or estate tax. Nevertheless, the allocation of an estate’s assets to heirs could be affected by other taxes, like capital gains tax or personal income tax, based on the type of assets involved. For instance, if the estate consists of real estate or investments, the heirs may owe taxes on any profits generated from the transfer or sale of these assets. Moreover, gifts or donations that occur during the inheritance process might incur capital gains tax if they lead to a profit. It is essential to carefully assess the types of assets and their associated tax consequences for compliance.
International taxation
Nigeria’s international tax framework includes various tax categories, such as Corporate Income Tax (CIT) which can be assessed at rates of 30%, 20%, or 0% based on the size of the business. The Petroleum Profits Tax (PPT) varies between 50% to 85% for firms involved in upstream oil and gas operations. Additionally, a Capital Gains Tax (CGT) is applied at a fixed rate of 10% on the profits from the sale of chargeable assets, which includes digital assets. Companies that are not residents are taxed on income generated within Nigeria, while residents face taxation on their global income. Moreover, Nigeria levies withholding taxes on dividends, interest, royalties, and service fees paid to non-residents, usually at a rate of 10%. To comply with these tax obligations, it is essential to comprehend the relevant regulations and rates, along with fulfilling Nigeria’s tax filing and payment obligations.
Cryptocurrency taxation
In Nigeria, cryptocurrencies are taxable under Capital Gains Tax (CGT) at a standard rate of 10% on profits gained from their sale. This tax obligation affects both individuals and businesses engaged in buying, selling, or trading cryptocurrencies. The CGT is determined by the difference between the selling price and the cost of acquiring the cryptocurrency, after accounting for any allowable expenses. The implementation of this tax through the Finance Act 2023 has officially categorized digital assets as taxable assets in Nigeria, demonstrating the government’s strategy to regulate and tax the expanding digital economy. To comply, individuals and businesses must report cryptocurrency transactions and remit the corresponding CGT.
VAT system
In Nigeria, Value Added Tax (VAT) is imposed at a standard rate of 7.5% on the sale of taxable goods and services within the nation, as well as on imported goods. Companies that have taxable sales exceeding the registration threshold of NGN 25 million per year must register for VAT, add VAT to their sales, and send the collected VAT to the Federal Inland Revenue Service (FIRS). VAT is charged at every stage of the production and distribution chain, with the end consumer ultimately responsible for the payment. Businesses are permitted to reclaim input VAT on purchases connected to their taxable outputs, although there are certain limitations, particularly regarding overhead costs and exempt goods or services.
Our taxation solutions
In a tax landscape that is continually changing, professional advice is essential. Our firm provides a range of specialized tax solutions customized to address the varied requirements of individuals, corporations, and investors in Nigeria. We aim to help clients navigate the intricacies of the tax code, reduce liabilities, and maintain full compliance with regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
In the intricate realm of taxation, obtaining professional guidance can have a considerable impact. Reach out to us now to arrange a consultation with our team of tax specialists. We will collaborate closely with you to create a customized tax strategy that meets your goals and guarantees complete adherence to Nigeria’s regulatory framework.
Disclaimer
Tax laws and regulations frequently change and can differ depending on individual situations. The information presented here is intended for general reference and may not represent the latest updates. It is strongly advised to seek advice from a qualified tax professional for specific and current guidance related to your individual circumstances.