Under the Money Laundering (Prohibition) Act 2011 (“MLA”), non-profit organisations are classified as Designated Non-Financial Businesses8 (“DNFB”) and it is mandatory for all DNFB’s to register with the the Special Control Unit Against Money Laundering (SCUML). (SCUML) is a department of the Economic and Financial Crimes Commission currently domiciled in the Federal Ministry of Commerce and Industry with responsibility to monitor, supervise and regulate activities of Designated Non-Financial Businesses and Professions in Nigeria under the provisions of Money Laundering (Prohibition) Act 2011
The Federal Inland Revenue Service (FIRS) requires all non-profit corporations to register with the integrated tax office closest to their registered office. The Companies Income Tax Act (CITA) exempts non profit corporates from tax so long as profits are not derived from a trade or business but they are required to pay Value Added Tax (VAT) on certain goods and services. You can pay your taxes online in some offices.
(FIRS has this Tax Calculator on their website, check it out here and go pay your tax)
State and local governments, various ministries and parastatals may also impose their own statutory requirements and it is important to visit all line ministries who you may work with or who may have oversight in your particular field you to find out.
Read more here.
In Nigeria, certain types of income are exempt from income tax. Exempt income includes:
Companies limited by guarantee may also apply to the President for an order exempting them from all or any profits from any source. [CITA §23(2)]The President issued the Companies Income Tax (Exemption of Profits) Order (2012) pursuant to his authority under § 23(2) of the CITA. The Order, which shall be in force for a period of five years (until 2017), specifies three categories of tax relief as follows:
The Federal Inland Revenue Service (FIRS) issued guidelines stating that: All NGOs are expected to register with the nearest Integrated Tax Office (ITO) of FIRS with the following documents:
Paragraph 6 of the Guidelines stipulates that in line with section 55 of CITA, it is mandatory for every NGO to file a tax return every year at the ITO where it was registered. An NGO seeking clarification on its tax exemption status can direct its inquiry the ITO where it was registered. [Guidelines at Para 7.1]
Read more here.
The laws of Nigeria do not provide for the deductibility of donations made by individuals to Nigerian NPOs.
Companies are taxed at a rate of 30 percent. A tax benefit, in the form of an allowable deduction, is available to any Nigerian company that makes a donation to certain Nigerian funds and institutions. Specifically, the amount of any donation made by a company to any of the Nigerian funds and institutions specified in the Fifth Schedule of CITA may be deducted. The amount of the deduction for any year of assessment may not exceed 10 percent of the total profits for the company during that year. [CITA §25(3)] The Council of Ministers may alter this limitation on the amount of the deduction by order in the Federal Gazette. [CITA §25(3)]
Institutions to which tax deductible donations may be made include the ecclesiastical, charitable, benevolent, educational and scientific institutions, established in Nigeria, which are specified in the Fifth Schedule to the Companies Income Tax Act. [CITA 23(1)(c)]
The Finance Minister is empowered to amend the listing in the Schedule “in any manner whatsoever.” [CITA §25(6)] On December 12, 2011, the Coordinating Minister for the Economy and Minister of Finance exercised this power using Order No. 1 of 2011 to amend the Fifth Schedule to CITA. Numbers 35-42 were added to the list of institutions to which tax deductible donations may be made. As a result, any donation made to institutions, bodies or funds engaged in the following broad categories of activities will now be tax deductible provided that such organizations are not set up for the purpose of profits or gains to individual members of the society or associations:
Private limited liability companies must file audited financial statements with the CAC within 42 days following an annual general meeting. The cost of filing is about NGN3,000 (about US$9.83).
The share capital requirements are NGN10,000 for private companies and NGN500,000 for public companies. Companies with foreign shareholders must have a minimum share capital of NGN10 million.
There are several taxes and levies imposed on people, goods and services in Nigeria which are collected by the 3 tiers of government. The major taxes are listed below:
CITA forms the legal basis for the taxation of the profits of companies other than companies engaged in oil exploration and production in Nigeria. CITA imposes tax upon the profits of any company accruing in, derived from, brought into, or received in Nigeria in respect of a trade or business. Companies are taxed at a rate of 30% of taxable profits. Nigerian companies are liable to tax on their global or worldwide income while nonresident companies are liable to tax only on the profit or income deemed to be derived from Nigeria.
Companies are required to obtain a Certificate of Acceptance from the Inspectorate Division of the Federal Ministry of Industries for individual assets purchased within any accounting period with a value of N500,000 and above. The presentation of the Certificate of Acceptance is required in the event that the Tax authorities challenge the capital allowances. Capital allowances are claimable on qualifying capital expenditure in lieu of depreciation. Initial allowance is granted only in the first year of acquisition, the annual allowance is claimable yearly (at defined rates) over a specified period as stated by the Law. Investment allowance of 10% is granted in respect of capital expenditure on plant and equipment in the year of acquisition. Agro companies and manufacturing companies are allowed to claim 100% capital allowances whereas other companies are restricted to claim a maximum of 2/3rd of assessable profits (accounting profits after adjustment for tax purposes). Different rates apply for qualifying expenditures for both initial and annual capital allowances.
When a company pays out dividend, this would be compared to its taxable profit for the period. Where the dividend is more than the taxable profit, the excess will be charged to tax at 30% as if the dividend is the taxable profits of the company.
Nigeria has ratified tax treaties with Belgium, Canada, China, Czech Republic, France, Netherlands, Pakistan, Philippines, Romania, Slovakia, South Africa and United Kingdom. Nigeria also has tax treaties with Kenya, Mauritius, Poland, South Korea, Spain and Sweden. However, these treaties have not been ratified by the Nigerian National Assembly. Nigeria’s DTAs offer tax advantages to companies/individuals resident in a treaty country which include higher threshold to trigger a taxable presence in Nigeria and a lower withholding tax rate of 7.5% on dividends, royalties and interest.
Upon satisfaction of certain conditions, pioneer status is granted to companies in an industry that is categorized as a pioneer industry and these companies qualify for a tax holiday for 5 years (3 years initially and renewable for a further 1 or 2 years upon application). There are special rules on computing the profits of the company that will be exempt from tax (as well as the amount of dividends that will be exempt from withholding tax). The updated list of industries /products which qualify for pioneer status can be obtained from the NIPC website.
There are two broad categories of income of a non-resident company liable to tax. The first includes dividends, interest and royalty, generally referred to as passive income and it is liable to withholding tax at the rate of 10%. The second category consists of business income liable to tax in Nigeria to the extent that it is derived from Nigeria through a Permanent Establishment (PE) or fixed base. The income of a nonresident company is deemed to be derived from Nigeria in any of the following situations: If the company habitually operates a trade or business through a person in Nigeria who is authorised to conclude contracts on its behalf or companies controlled by it. If the transactions between the foreign company and its Nigerian affiliate are not at arm’s length. If the company carries on a trade or business which involves a single contract for deliveries, surveys, installations or construction. If the company has a fixed base of business in Nigeria to the extent that profit is attributable to the fixed base. Tax liabilities for such companies will be based on audited accounts similar to Nigerian companies.
The Personal Income Tax Act (PITA) 2011 (as amended) is the legal basis for the imposition of personal income tax in Nigeria. The Act requires an employer to deduct and remit its employees’ income tax under the Pay-As-You-Earn (PAYE) scheme and grants certain allowances and reliefs to individuals to reduce their tax payable.
In the case of employment income, an individual is liable to tax in Nigeria if the employer is in Nigeria unless the employment duties are wholly performed and the remuneration paid outside Nigeria. Tax is due if the duties of the employment are wholly or partly performed in Nigeria unless certain conditions are met.
Personal income tax rate is applied on a graduated scale on taxable annual income as set out below. There is a non taxable personal relief of 20% of income applicable to every individual in addition to some other non-taxable allowances. As a result of reliefs and tax free allowances, the marginal rate of tax is 19.2%.
WHT is an advance payment of income taxes deductible from payments made on qualifying transactions. The remittance is made in the currency of transaction to the Federal Inland Revenue Service [FIRS] or the relevant State Internal Revenue Service [SIRS] within 21 days and 30 days respectively. Different WHT rates apply for qualifying transactions and in certain instances, it can be applied as a tax credit against the corporate income tax liability of the company that suffered the WHT. Under the Nigeria tax law, Companies are liable to pay withholding tax on the following types of payment made to non-resident: interest, royalties and other service fees. The rate of withholding is 10% of gross payment.
The form and source of capital employed by a business will affect its tax liability. While debt capital attracts interest cost, the cost of equity capital is dividend. If there is an element of foreign participation in the company amounting to at least 25% of its equity capital, the company will be exempted from the minimum tax provision. Interest on foreign loans received for business is exempt from taxes at different periods and graduated rates. Such loans must be brought in through Government Approved Channels (i.e. a Nigerian Bank) and a Certificate of Capital Importation must be processed in respect of the loan capital.
Every Nigerian company employing five or more persons or with a turnover of up to NGN50 million must contribute 1% of its annual payroll to the ITF.
Every employer of three or more persons has an obligation, in addition to deducting each employee’s pension contributions, to contribute at least 10% of each employee’s monthly salary into the employee’s retirement savings account.
The employer has a statutory obligation to maintain at all times, for the benefit of its employees, a life insurance policy, the benefits of which must be at least three times each employee’s annual salary.
Employers must contribute 1% of total monthly payroll into the Employees Compensation Fund.
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