Resident companies are liable to corporate income tax (CIT) on their worldwide income while non-residents are subject to CIT on their Nigeria-source income.
The CIT rate is 30%, assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).
Investment income paid by a Nigerian resident to a non-resident is sourced in Nigeria and subject to WHT at source, which serves as the final tax.
In respect of business profits, a non-resident company that has a fixed base or a permanent establishment (PE) in Nigeria is taxable on the profits attributable to that fixed base. As such, it is required to register for CIT and file its tax returns. Any WHT deducted at source from its Nigeria-source income is available as offset against the CIT liability.
Small company rates
For small companies in the manufacturing industry and wholly export-oriented companies with turnover not exceeding NGN 1 million, the CIT rate is reduced to 20% in the first five calendar years of operation.
Petroleum profit tax (PPT)
PPT is a tax on the income of companies engaged in upstream petroleum operations in lieu of CIT.
The PPT rates vary 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 amortised all pre-production capitalised 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 treated as an allowable deduction. For other companies, income/profit taxes are not deductible in arriving at taxable income. Non-resident companies and unincorporated entities are exempt from tertiary education tax.
Minimum tax is payable by companies having no taxable profits for the year or where the tax on profits is below the minimum tax. However, companies in the first four calendar years of business, companies engaged in the agriculture business, or companies that have foreign equity capital of at least 25% are exempt from minimum tax.
Minimum tax payable is calculated as follows:
- Where the turnover of the company is NGN 500,000 or below, minimum tax is the highest of:
- 0.5% of gross profits
- 0.5% of net assets
- 0.25% of paid-up capital, or
- 0.25% of turnover of the company for the year.
- Where the turnover is higher than NGN 500,000, minimum tax is the highest of the calculations listed above plus 0.125% of turnover in excess of NGN 500,000.
Alternative tax on distribution
There is a tax on distribution where a company pays a dividend in excess of its taxable profit. Such a company will be charged tax on the dividend paid as if the dividend is the taxable profit of the company for that year of assessment.
Enforcement of advance CIT on interim dividends
The leadership at the FIRS has commenced the strict enforcement of advance CIT on interim dividends. Companies that declare interim dividends are required by the law to be subject 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.
Alternative tax on deemed profit
The law allows the FIRS to assess and charge companies to tax on a fair and reasonable percentage of turnover under the following circumstances:
- When the trade or business produces no assessable profits.
- When the trade or business produces assessable profits that, in the opinion of the Board of the FIRS, are less than might be expected to arise from that trade or business.
- When the true amount of the assessable profits of the company cannot be ascertained.
Local income taxes
CIT is payable only to the federal government. State governments collect income taxes of individuals and unincorporated entities, while local governments are only allowed to collect levies and rates but not income tax.