The following income is subject to CIT in Nigeria:
- Profits accruing in, derived from, brought into, or received in Nigeria in respect of any trade or business.
- Dividends (extended to include compensating payment arising from Regulated Securities Lending Transaction), interest (extended to include compensating payment arising from Regulated Securities Lending Transaction), royalties, discounts, charges, or annuities.
- Rent or any premium arising from the right granted to any person for the use or occupation of any property, where applicable.
- Any source of annual profits or gain not falling within the preceding categories.
- Fees, dues, and allowances (wherever paid) for services rendered.
- Any amount of profits or gains arising from the acquisition or disposal of short-term money instruments like treasury bills, treasury or savings certificates, debenture certificates, and treasury bonds.
The first in first out (FIFO) valuation method is commonly used. Average and standard cost methods are also allowed, but last in first out (LIFO) is not permitted. Other than the accounting requirement in the local generally accepted accounting principles (GAAP), there are no special statutory provisions for inventory valuation.
Capital gains are not subject to CIT but may be subject to CGT. See Capital gains tax in the Other taxes section for more information.
Dividends received by a Nigerian resident company from another Nigerian resident company are taxable at source (see the Withholding taxes section for more information) and not subject to further tax.
Dividends received from non-resident companies are taxable except if repatriated into Nigeria through government-approved channels (i.e. any financial institution authorised by the Central Bank of Nigeria to deal in foreign currency transactions).
Dividends received from small manufacturing companies are exempt for CIT purposes during the first five years of operation. Dividends from investments in wholly export-oriented businesses are also exempt. Dividends paid to Unit Trusts and Real Estate Investment Companies are exempt from WHT.
Stock dividends (bonus shares) are subject to WHT similar to cash dividends addressed above but are not included in the taxable income of the recipient company.
Interest received by a Nigerian company is liable to tax at the relevant CIT rate, with tax withheld at 10% available as an offset against the final tax liability.
Interest on federal government bonds is tax exempt. Interest on foreign currency domiciliary accounts is also exempt.
Interest payable to a non-resident investor is liable to WHT at 10%, which is the final tax. Recipients who are resident in a country with a DTT with Nigeria enjoy a reduced rate of 7.5% (where it is stated expressly in the DTT).
Royalties received by a Nigerian company are liable to tax at the relevant CIT rate. WHT at 10% is available as an offset against the final CIT liability.
Royalties received by a Nigerian company from non-resident payers are taxable except if repatriated into Nigeria through government-approved channels.
Non-resident companies who receive Nigerian royalties are subject only to WHT at 10%, which is reduced to 7.5% if a treaty is in place with Nigeria (and where it is stated expressly in the DTT).
Other significant items
The following entities' income or profit is exempt for CIT purposes:
- Statutory or registered friendly societies.
- Co-operative societies registered under any ecclesiastical or charitable establishments of a public character.
- Profit of a company established within an EPZ or FTZ (see the Tax credits and incentives section).
- Profit of a registered trade union.
- Export profits, as long as proceeds are invested in raw materials, spare parts, and plant and machinery (see Export incentives in the Tax credits and incentives section).
- Small company's profit.
A Nigerian resident company is taxable on its worldwide income. On the other hand, a non-resident company is subject to tax only on income derived from Nigeria.
Dividends, interest, rents, and royalties earned abroad and brought into Nigeria through government-approved channels are exempt from Nigerian tax; otherwise, the income is taxable at the CIT rate applicable based on the classification of the company (i.e. small, medium, or large) and tertiary education tax at 3%. Government-approved channels mean the Central Bank of Nigeria and any bank or financial institution authorised to carry out foreign exchange transactions.
Taxable foreign income earned by a Nigerian tax resident entity cannot be legally deferred.