Dividend taxation and tax system in Nigeria
To gain a thorough understanding of dividend taxation in Nigeria, one must be aware of the local tax regulations, adhere carefully to reporting requirements, and adopt a strategic method for tax planning. Regardless of whether your business is a resident or non-resident entity, it’s crucial to understand the tax responsibilities and benefits associated with dividend distributions in Nigeria to ensure adherence and enhance your tax situation. This guide offers an overview of the dividend tax environment in Nigeria, including tax rates, filing obligations, and services available to help you effectively manage your dividend taxation.
Dividend tax system
In Nigeria, a flat rate of 10% is applied as dividend tax on the payments made by Nigerian companies to their shareholders. This withholding tax serves as the final tax on this income for both resident and non-resident shareholders. The company that distributes the dividends is responsible for deducting the tax at the source. Even if the declared dividend surpasses the company’s taxable profit, the surplus is still liable to the 10% tax, treating it as if it were part of the taxable profit. There are specific exceptions, particularly for dividends paid from profits that have already been taxed or that are categorized as franked investment income.
Tax exempt
Dividends distributed from earnings that have already been taxed through the company income tax are not subject to additional taxation. Furthermore, dividends that are categorized as franked investment income are likewise exempt. These exemptions are designed to prevent double taxation and promote investment by guaranteeing that profits are not taxed repeatedly when disbursed as dividends. However, these exemptions apply only under certain conditions, and companies need to confirm that they fulfill the requirements to take advantage of them.
Tax return
In Nigeria, companies are required to withhold a 10% dividend tax at the moment of payment and submit it to the tax authorities on behalf of the shareholders. This withholding tax serves as the final tax, which means shareholders do not need to file any additional tax returns for this income. Nonetheless, companies are obligated to report the dividends distributed and the taxes withheld in their tax submissions. Failing to comply with the withholding and remittance regulations may lead to penalties and interest. Shareholders should verify that the correct amount of tax has been withheld and obtain documentation of the tax paid, especially if they qualify for relief through international tax agreements.
Tax compliance and reporting obligations
Proper management of dividend tax compliance is vital to prevent penalties and facilitate smooth business operations. Companies are required to follow several reporting obligations, such as accurate withholding, prompt tax payments, and complete documentation. Adhering to both local and international tax regulations is crucial to prevent conflicts with tax authorities and to sustain the financial well-being of the business.
We offer services to help your business manage these responsibilities, guaranteeing that all submissions are accurate, on time, and completely compliant with relevant tax authorities.
Dividend tax for non-residents
Non-residents face the same 10% withholding tax on dividends as residents do. Nonetheless, this tax rate might be lowered in accordance with relevant double taxation treaties between Nigeria and the country of residence of the non-resident. To prevent penalties, non-residents need to adhere to Nigerian tax regulations, including any requirements related to withholding tax. Generally, the withholding tax on dividends for non-residents serves as the final tax on that income, indicating that no further Nigerian tax is due on the dividend income after the withholding tax has been applied. Understanding their responsibilities and potential advantages under these treaties is crucial for non-residents, as double taxation agreements can ease their tax burden.
Managing dividend tax risks
Effectively handling dividend tax risks is crucial for ensuring your business’s financial stability and adherence to regulations. These risks can emerge from alterations in tax legislation, international transactions, and intricate global tax agreements. Inadequate management of such risks can result in unforeseen liabilities and penalties.
To reduce these risks, businesses need to conduct regular assessments of their tax practices, keep up-to-date with changes in legislation, and guarantee adherence to all applicable regulations. Creating a strong tax risk management strategy that incorporates comprehensive documentation and proactive modifications to the business structure can aid in preventing expensive problems.
We support your business in recognizing and handling dividend tax risks, ensuring you remain compliant and protected in an ever-changing tax landscape.
Dividend tax services
Our team of specialists offers a wide array of dividend taxation services designed to address the specific requirements of businesses connected to Nigeria. We help with tax compliance, developing strategic tax plans, navigating double taxation treaties, and reducing tax burdens. Our services encompass calculating and remitting dividend withholding taxes, representing clients in interactions with tax authorities, and providing ongoing advisory support to keep your business in line with Nigeria’s dividend tax regulations. Additionally, we offer advice on taking advantage of tax incentives, handling cross-border dividend payments, and enhancing your overall tax strategy to align with your business objectives.
Contact us
We are available to assist you in fulfilling Nigeria’s dividend tax requirements while improving your tax position. Get in touch with us for further details about our services or to arrange a meeting with one of our tax experts. We can help you navigate the complexities of dividend taxation in Nigeria, enabling you to concentrate on what is most important—growing your business.
Disclaimer
Tax regulations and laws are continually evolving and can differ depending on personal situations. The information given here serves as general guidance and may not represent the latest updates. It is strongly advised to seek the assistance of a qualified tax expert for tailored and current advice related to your circumstances.