As a new business owner in Nigeria, it is crucial to stay abreast of the latest tax reforms introduced by the Federal Inland Revenue Service (FIRS) to minimize your tax burden and maintain compliance. The FIRS is responsible for collecting taxes on behalf of the federal government, including corporate income tax, value-added tax (VAT), and other taxes.
To navigate the latest tax reforms introduced by the FIRS, here are some tips that can help you minimize your business’s tax burden:
UNDERSTAND THE VERIFICATION OF TAXPAYER IDENTIFICATION NUMBERS (TINS)
One of the recent reforms introduced by the FIRS is the verification of Taxpayer Identification Numbers (TINs). This process ensures that TINs are correctly registered and linked to the right taxpayers, helping to prevent tax evasion and improve tax compliance. It is essential to ensure that your TIN is verified and up-to-date to avoid penalties and fines.
KNOW YOUR VAT OBLIGATIONS
Another significant change is the increase in the VAT rate from 5% to 7.5%. However, businesses with an annual turnover of less than 25 million naira are exempt from paying VAT. It is crucial to understand your VAT obligations and to ensure that you are compliant with the regulations to avoid penalties and fines.
ENGAGE A PROFESSIONAL TAX CONSULTING FIRM
Navigating these FIRS tax reforms can be challenging for businesses, but engaging the services of a reputable tax firm can help. A professional firm like Regville Associates provides tax advisory and compliance services to businesses in Nigeria. By engaging their services, businesses can stay up-to-date with the latest FIRS tax reforms and ensure that they remain compliant.
Regville Associates can help businesses verify their TINs, file tax returns, and provide advice on VAT compliance. They can also help businesses identify tax incentives and exemptions they may be eligible for, reducing their tax burden.
In conclusion, staying compliant with the latest FIRS tax reforms is critical for businesses in Nigeria. By understanding the verification of TINs, knowing your VAT obligations, and engaging the services of a reputable tax firm like Regville Associates, you can minimize your business’s tax burden and ensure compliance.
(BEPS) is a phenomenon that has gained significant attention in recent years due to its impact on global taxation. BEPS refers to the practice of multinational companies shifting their profits from higher-tax jurisdictions to lower-tax or no-tax locations, thus eroding the tax base of the higher-tax countries.
The issue arises when multinational companies use tax planning strategies to move profits to low-tax jurisdictions or tax havens where there is little or no economic activity. This is often done through deductible payments such as interest or royalties, which reduce the taxable income of the company in high-tax countries and increase profits in low-tax jurisdictions.
The Organisation for Economic Co-operation and Development (OECD) estimates that governments may be losing up to $240 billion annually in tax revenues due to BEPS practices. This has led to a significant increase in attention from governments around the world, who are now taking steps to address the issue.
The OECD has developed policies to tackle BEPS, known as the BEPS project. The project consists of 15 action items that aim to address the tax challenges arising from BEPS practices. These actions include the development of new international standards for transfer pricing, country-by-country reporting, and the limitation of interest deductions.
One of the key aims of the BEPS project is to ensure that multinational companies pay their fair share of taxes, regardless of where they are located. This involves addressing the tax challenges arising from the digital economy, which has made it easier for companies to move profits to low-tax jurisdictions without any physical presence in those countries.
The BEPS project has already had a significant impact on global taxation, with many countries implementing new legislation to address BEPS practices. For example, in the United States, the Tax Cuts and Jobs Act of 2017 introduced a number of provisions aimed at preventing BEPS practices, including the limitation of interest deductions and the introduction of a base erosion anti-abuse tax.
Overall, the issue of BEPS is a complex and multifaceted one, requiring international cooperation to address. The BEPS project is an important step towards ensuring that multinational companies pay their fair share of taxes and that governments around the world can maintain their tax base. As the global economy continues to evolve, it is likely that the issue of BEPS will remain a significant concern for governments and taxpayers alike.
Regville Associates offers end-to-end legal, secretarial, tax and compliance service for companies. Our services aid companies in achieving and sustaining compliance with regulations.
In Nigeria, the Personal Income Tax Act requires all eligible individuals to file their personal income tax returns by March 31st of each year. The deadline is fast approaching, and it is important for individuals to understand the requirements and consequences of not meeting the deadline.
Personal income tax is a tax imposed on individuals’ income, including salaries, wages, profits, and other sources of income. Individuals’ resident in Nigeria are taxable on their worldwide income. The tax is a significant source of revenue for the government, and failure to file tax returns could result in penalties and fines.
The tax returns should include all sources of income, including salaries, wages, profits, dividends, rent, royalties, and any other income earned during the year. Deductions such as pension contributions, National Housing Fund (NHF) contributions, and National Health Insurance Scheme (NHIS) contributions can also be claimed.
The penalties for failing to file tax returns by the March 31st deadline can be severe. According to the Personal Income Tax Act, an individual who fails to file a tax return on time will be liable to pay a penalty of N5,000 for the first month and an additional N100 for every day during which the failure continues or imprisonment of six (6) months or both. Furthermore, the tax authorities can impose a penalty of up to 10% of the tax due on any undeclared income or understated tax liability.
It is important to note that individuals who fail to file their tax returns may also be barred from participating in government contracts or obtaining tax clearance certificates, which could impact their ability to conduct business.
To avoid the penalties and consequences of failing to file tax returns, individuals should take steps to ensure that they meet the March 31st deadline. This includes gathering all necessary documentation, such as pay slips and receipts, and consulting with a tax professional if necessary.
In conclusion, the March 31st deadline for filing personal income tax returns in Nigeria is a crucial date that should not be overlooked. Failure to file tax returns on time could result in significant penalties and consequences. Therefore, individuals should ensure that they meet the deadline and comply with the requirements of the Personal Income Tax Act.
N:B Employees who earn not more than the national minimum wage (currently NGN 30,000) are not liable to tax or deduction of monthly pay-as-you-earn (PAYE).
Regville Associates offers end-to-end legal, secretarial, tax and compliance service for companies. Our services aid companies in achieving and sustaining compliance with regulations.
A holding company is a type of business structure that owns other companies’ outstanding stock. It is a popular structure for many Nigerian businesses looking to expand their operations and consolidate their holdings. However, determining whether your company is ripe for a holding company structure can be a daunting task. In this article, we will explore some tips to help you determine whether your company is ripe for a holding company in Nigeria, backed by statistics, examples, and laws.
1. DIVERSIFICATION OF BUSINESS OPERATIONS: If your company has multiple business operations, it may be time to consider a holding company structure. A holding company can hold multiple subsidiaries, each with their unique operations, while the holding company oversees the management and governance of these subsidiaries. According to the Nigerian Bureau of Statistics, the top five sectors that contributed to the country’s Gross Domestic Product (GDP) in the second quarter of 2021 were Agriculture, Trade, Information and Communication, Manufacturing, and Oil and Gas. Companies that operate in multiple sectors and want to streamline their management can benefit from a holding company structure.
2. EXPANSION PLANS: If your company is planning to expand its operations to other locations or countries, a holding company structure can be beneficial. A holding company can hold subsidiaries that operate in different locations, making it easier to manage operations in various countries or regions. According to the National Bureau of Statistics, in 2020, Nigeria’s export trade was dominated by crude oil, accounting for 73.27% of total exports. Companies looking to expand into the export market can benefit from a holding company structure.
3. LIMITED LIABILITY PROTECTION: A holding company structure can provide limited liability protection for its subsidiaries. This means that the holding company’s assets are separate from the subsidiary’s assets, protecting the holding company’s assets from any liabilities or debts incurred by its subsidiaries. This protection can be crucial for companies operating in high-risk sectors, such as the oil and gas industry or construction sector. The Companies and Allied Matters Act (CAMA) 2020 governs holding companies in Nigeria, and it provides provisions for limited liability protection for holding companies and their subsidiaries.
4. TAX PLANNING: A holding company structure can also provide tax planning benefits. Holding companies can take advantage of tax incentives, such as tax holidays, and can also reduce their tax liability by consolidating tax returns for their subsidiaries. This tax planning can be crucial for companies that operate in sectors with high tax rates, such as the telecommunications industry.
5. SIMPLIFIED CORPORATE GOVERNANCE: Holding companies can simplify corporate governance by consolidating the management and decision-making processes for their subsidiaries. This consolidation can reduce bureaucratic processes and improve decision-making efficiency. For example, Dangote Industries Limited, a Nigerian multinational conglomerate, has a holding company structure that oversees the operations of its subsidiaries, including Dangote Cement, Dangote Sugar Refinery, and Dangote Flour Mills.
In conclusion, determining whether your company is ripe for a holding company structure in Nigeria requires a thorough evaluation of your company’s operations, expansion plans, risk management, and tax planning. By considering these tips, your company can take advantage of the benefits of a holding company structure, such as diversification of operations, limited liability protection, tax planning, and simplified corporate governance. With the recent passage of the CAMA 2020, Nigerian businesses can now enjoy more flexibility and options in structuring their businesses.
Regville Associates offers end-to-end legal, tax and compliance service for companies. We assist Companies in becoming and staying regulatory compliant.
In our last article, we wrote about the Goods exempted from Value Added Tax (VAT), in this article we shall continue on the services exempted from VAT in Nigeria. VAT as earlier defined is a tax levied on the value added to goods and services in the process of production and distribution.
Here are some of the services that are VAT-exempt in Nigeria:
1. EDUCATIONAL SERVICES: Educational services provided by approved institutions, including primary and secondary schools, colleges, and universities, are exempt from VAT. This is to encourage the growth of education in Nigeria and reduce the cost of education for students.
2. HEALTH SERVICES: Health services provided by approved hospitals, clinics, and other health care providers are exempt from VAT. This is to ensure that essential health services are affordable and accessible to all Nigerians.
3. RELIGIOUS SERVICES: Religious services provided by approved religious organizations, including churches and mosques, are exempt from VAT. This is to support the activities of religious organizations and ensure that they can provide essential services to the public.
4. CHARITABLE SERVICES: Charitable services provided by approved non-profit organizations, including those that provide relief to the poor and the vulnerable, are exempt from VAT. This is to support the activities of charitable organizations and ensure that they can continue to provide essential services to the public.
5. EMERGENCY SERVICES: Emergency services, including firefighting and rescue services, are exempt from VAT. This is to ensure that essential services are accessible and affordable to all Nigerians in times of emergency.
6. TRANSPORTATION: Both transportation services and shared transport systems, such as Uber and Bolt, are exempt from VAT. Additionally, public transportation and commercial airlines are also free from VAT. This exemption helps to keep transportation costs low for the general public and makes essential services more accessible and affordable for all.
7. MICROFINANCE AND MORTGAGE SERVICES: Services rendered by unit microfinance banks and mortgage institutions are exempt from VAT. This is to support the growth of these essential financial services and to encourage their development in Nigeria.
8. EXPORTED SERVICES: All exported services are exempt from VAT. This is to encourage the growth of Nigeria’s export industry and to make Nigerian services more competitive in the international market.
9. AGRICULTURAL EQUIPMENT RENTAL AND LEASING: The rental or lease of tractors and other agricultural equipment for agricultural purposes is exempt from VAT. This is to support the growth of Nigeria’s agricultural sector and encourage investment in this industry.
In conclusion, Nigeria’s VAT-exempted services aim to reduce the tax burden on the general public and support essential services. The government recognizes the importance of these services in the daily lives of Nigerians and wants to ensure that they are accessible and affordable to all.
Regville Associates offers end-to-end legal, tax and secretarial service for companies. We assist Companies in becoming and staying regulatory compliant.
VALUE ADDED TAX (VAT) is a tax levied on the value added to goods and services in the process of production and distribution. In Nigeria, the Value Added Tax Act of 1993 (amended in 1996, 1999 and 2007) established the legal framework for the implementation of VAT. Other legal instruments that gave modifications to the VAT regime in Nigeria include the Finance Act 2020 and VAT Modification Order of 2020 The Act defines the goods and services that are subject to VAT and those that are exempt.
In Nigeria, VAT is currently charged at 7.5%, however, there are several goods and services that are exempt from VAT. These goods and services are considered essential and are exempt to reduce the burden of tax on the general public. Some of the VAT-exempted products in Nigeria are:
1. BASIC FOOD ITEMS: Basic food items such as bread, sugar, salt, and cooking oil are exempt from VAT. This is because the government recognizes the importance of these items in the daily lives of Nigerians and wants to ensure that they are affordable to everyone.
2. MEDICAL AND PHARMACEUTICAL PRODUCTS: Medical and pharmaceutical products, including drugs, are exempt from VAT. This is because the government recognizes the importance of health care and wants to ensure that life-saving drugs are affordable to all Nigerians.
3. AGRICULTURAL PRODUCTS: Agricultural products, fertilizers, locally produced agricultural chemicals, veterinary medicine, and agricultural types of machinery are exempt from VAT. This is because the government wants to support the agricultural sector and reduce the cost of food production.
4. BOOKS AND EDUCATIONAL MATERIALS: Books, educational materials, and equipment used for educational purposes are exempt from VAT. This is to encourage literacy and education in Nigeria.
5. RELIGIOUS AND CHARITABLE ORGANIZATIONS: Religious organizations, charitable organizations, and non-profit organizations are exempt from VAT. This is to support the activities of these organizations, which provide essential services to the public.
6. BABY PRODUCTS: Baby products such as diapers, baby food, and other essential items for infants and children are exempt from VAT. This is to reduce the burden of tax on parents and ensure that essential items for children are affordable.
8. MACHINERY AND EQUIPMENT: Machinery and equipment purchased for utilization of gas in downstream petroleum operations, commercial aircraft, commercial aircraft engines, and commercial aircraft spare parts are exempt from VAT. This is to support the growth of the petroleum and aviation industries in Nigeria and to encourage investment in these sectors.
9. PETROLEUM PRODUCTS: Petroleum products are exempt from VAT. This is to ensure that the cost of fuel remains affordable for the general public and to support the growth of the petroleum industry in Nigeria.
10. SANITARY PRODUCTS: Locally manufactured sanitary towels, pads, and tampons are exempt from VAT. This is to ensure that these essential products are affordable to everyone and to support the growth of the local manufacturing industry.
11. RENEWABLE ENERGY EQUIPMENT: Renewable energy equipment is exempt from VAT. This is to encourage the development of alternative energy sources in Nigeria and to support the growth of the renewable energy sector.
12. RAW MATERIALS FOR ESSENTIAL PRODUCTS: Raw materials for producing baby diapers, sanitary towels, and pharmaceutical products are exempt from VAT. This is to support the growth of these essential industries and to reduce the cost of production.
13. MILITARY HARDWARE AND EQUIPMENT: Military hardware, arms, ammunition and locally manufactured uniforms used by the armed forces, paramilitary, and other security agencies are exempt from VAT. This is to support security agencies’ activities and ensure that they can carry out their duties effectively.
14. ENERGY SUPPLIES: Gas supplied by gas-producing companies to Electricity Generating Companies (GENCOs), electricity generated by GENCOs and supplied to the National Grid or Nigeria Bulk Electricity Company, and electricity transmitted by Transmission Company of Nigeria to Electricity Distribution Companies are exempt from VAT. This is to ensure that energy supplies are accessible and affordable to everyone.
In conclusion, the VAT-exempted products in Nigeria are aimed at reducing the burden of tax on the general public and supporting essential services. The government recognizes the importance of these products and services in the daily lives of Nigerians and wants to ensure that they are accessible and affordable to all.
Regville Associates offers end-to-end legal, tax and secretarial service for companies. We assist Companies in becoming and staying regulatory compliant.
For most small and medium-scale businesses, the business owner also doubles as the Business Owner and the Managing Director/Proprietor/Partner as the Business Structure may be.
WHAT IS DIRECT ASSESSMENT?
Direct Assessment tax in Nigeria is a system through which self-employed persons are assessed and charged to pay tax based on their income.
WHAT IS PAYE:
Pay As You Earn is a tax that employer deducts from employees’ salaries and wages. This tax rate moves from 7 to 24 per cent of taxable income. The taxable income band ranges from NGN300,000 to above NGN3.2 million in a year.
THE TAX MAN
Tax authorities more often than not subject Managing Director/Proprietors/Partner to Direct Assessment and the reasons are not far-fetched: to comb and get a declaration of all sources of income, investment etc. after that subjecting the gross income, less the reliefs to tax in line with Section 41(3) and 36 of the Personal Income Tax Act (PITA).
Therefore, if you have multiple sources of income and avoid being double taxed then a Direct Assessment will be the perfect match. Direct Assessment must be filed within 90 Days from the beginning of the year (on or before March 31st).
ONLY SOURCE OF INCOME
However, if the Business is the only source of income, it is advisable to subject oneself to salary and come under the Pay-As-You-Earn PAYE scheme.
FEATURE OF DIRECT ASSESSMENT
Ideal for multiple sources of income individuals
For High Net Worth Individual
PROs
It prevents double taxation
One payment serves all the Companies
CONs
The declaration/assessment form will be subjected to verification by the tax man before an assessment is raised.
Lump sum payment
FEATURES OF PAYE
Monthly Tax Payment
To be remitted on or before the 10th of the Month for the preceding Month
It is single employment or single salary based
Employer’s responsibility
PROs
Monthly Payment (flexible)
8% Pensions, NHIS, NHF are Tax Deductibles
CONs
Must be filed monthly on or before the 10th of the Month for the preceding month.
For some States such as Lagos State, the Tax Clearance Card carries both the Tax Payer Details and the Company’s Name.
CONCLUSION
The route to take largely depends on your income (the sources) and your tax planning strategies.
To this end, it is advisable to consult a competent tax practitioner or tax firm for guidance.
For Taxation, Tax Planning and Tax Filing, feel free to contact us:
January 2nd 2023, The Federal Inland Revenue Service via its social media platforms gave Business Owners a beautiful Happy New Year Gift: Get Your Tax Clearance Certificate In One Click. Waoo! what a relief, what a joy to business owners. Industry experts showered praises on the Revenue Service, they said it is a giant boost to the Nation’s Ease of Doing Business.
We compiled Five (5) Take Homes from this development
1.NO LIABILITY FROM PRECEDING YEARS: Only Companies with no liabilities including already due VAT will have access to download the Tax Clearance Certificate.
2.PREVIOUS ACCOUNTS/STATEMENT OF AFFAIRS: Preceding Years’ Audited Financial Statement or Statement of Account must have been filed.
3. TAXPROMAX REGISTRATION: If you have not completed your TaxProMax Registration, then you can’t have access to the platform. Issuance of Tax Identification Number (which recently comes with CAC Registration) doesn’t imply the Company is registered on TaxProMax.
4.BUSINESS NAMES: It is worth noting that Business Names can’t apply for or be issued Tax Clearance certificates rather the State issued Tax Clearance Certificate/Document will suffice as the Business Name Tax Clearance.
5. DECEMBER 31ST 2023 EXPIRATION: Unlike the Temporary TCC rolled out some years back which covered only 6 months, this is a full-year tax clearance certificate bearing December 31st 2023 as its expiration date.
CONCLUSION:
This is a beautiful development and we appreciate the management of FIRS for this lofty stride, reducing the bottleneck process of getting TCC from tax offices.
We also want to draw the attention of the Revenue Service to the other missing information on the TCC. A careful look at the downloaded Tax Clearance Certificate as of the 3rd of January, 2023 shows that information for some assessment years is missing. We are sure the Revenue Service has duly noted the anomaly and will rectify same as soon as possible.
For Tax, Tax Clearance Certificates and other Compliance Matters
There have been instances whereby people move from a different country to another for different reasons. This is due to Globalization and trans-border migration. As a result, these people move across various national borders for permanent migration, tourism, and work.
Moreover, it should be noted that such persons who find jobs abroad or overseas are usually referred to as expatriates. There are several countries in the world where expatriates migrate to another country for the sake of a new life and greener pastures. However, when it comes to recruiting or employing expatriates, Nigeria is included, especially in the sphere of oil and gas and also the mining industries.
Regardless of their respective countries, every expatriate in Nigeria is bound by the Federal Republic of Nigeria’s laws, which also include the various tax laws that exist in the country. There are certain tax obligations on expatriates and Nigerian nationals based on income and others.
Importantly, every expatriate must get familiar with his/her tax obligations by the various tax laws which are done to abide by the tax laws imposed.
Who Are Expatriates?
Expatriates are those people who chose or have been chosen to live in another country other than where they legally reside for employment or tourism. On the other hand, they are citizens of other nations who have chosen to live in other places of the world. They are also known as expats, who sometimes form their communities in their foreign country.
Tax Obligations of Expatriates in Nigeria
Generally, all expatriates are subject to similar tax laws as Nigerian citizens based on their income. Every expatriate should note that their assessable income for taxation about the income from their employment is the amount of the income of the particular year of assessment.
However, any expatriate whose employment duties are done wholly or partly in Nigeria will not be seen to derive the income from their employment in Nigeria where;
If the duties are executed on behalf of an employer in another country, and the remuneration of expatriates is not borne by a fixed base of the employer in Nigeria; and
If the expatriate is not in Nigeria for 183 days, including annual leave or a temporary period of absence.
The employee’s income is taxed in the other country under a treaty preventing double taxation in that country.
The personal income tax of an expatriate is paid to the relevant tax authority in their state of residence. Therefore they must pay their income tax for any particular year of assessment to the State if they have been there for that particular year. An expatriate’s place of residence must necessarily be the place that is available for his domestic use for a relevant day. Note that the place of residence does not include hotels or other temporary lodging places.
However, if an expatriate is a temporary worker, he must remit income tax to any state where he is found during the year. Any income tax that the expatriate may have paid to the tax authority of another State during a specific assessment year would be applied as a tax credit against the tax due.
What Portion of an Expatriate’s Income is taxable?
Every expatriate is taxed based on the aggregate amount of their yearly income, which may come from salary, fee, wage, allowance, or other employment gain or profits, which include bonuses, compensations, premiums, benefits, or other favors granted by the employer to the expatriate.
Income Tax Rates
When it comes to taxation, Nigeria works on a progressive tax rate system whereby people are required to pay taxes based on total taxable income. Therefore, Consolidated Tax Relief Allowance is granted to those who pay taxes before the income and application of the tax rate band. The relief is granted as high as N200,000 or One per cent of the Annual Gross Income, including 20 per cent of the Annual Gross Income.
It should be noted that the Annual Gross Income serves as the total gross emoluments less all tax exemptions, deductions, and statutory reliefs. Below are the Annual Total income and Marginal Rate;
Total Annual Income (NGN)
Marginal Rate
First N300,000
7%
Next N300,000
11%
Next N500,000
15%
Next N500,000
19%
Next N1,600,000
21%
Above N3,200,000
24%
Deduction of Personal Income Tax
The personal income tax of an expatriate under paid employment must be deducted at the source from any remuneration paid or from the payment made on account of the remuneration by his or her employer based on the Pay-As-You-Earn (PAYE) Scheme.
Additionally, the employer must submit a return detailing all remuneration given to the expatriate by January 31st of each year with regard to the year prior. This return must be submitted to the appropriate State tax authorities.
Frequently Asked Questions
Which items are Exempted from Taxes?
The dividends, interests, rents, and royalties earned abroad and brought into Nigeria through channels approved by governments are exempted from Nigerian tax.
What Taxation System does Nigeria Use?
Nigeria uses a decentralized tax system that works in a way that each level of government is independently responsible for the administration of taxes within its jurisdiction. The revenues generated to fund government expenditures are sourced from a pool of taxes from each tier of government.
Is Foreign Income Taxable in Nigeria?
Once a fixed base/taxable presence is established, foreign persons making business profits in Nigeria are subject to taxation under Section 6 of the PITA, subject to any applicable treaties.
Conclusion
The Personal Income Tax Act outlines what income is subject to taxation, what deductions are permitted by law, and who is responsible for collecting personal income tax in Nigeria as a method of determining how much tax is owed by people or employees. For this purpose, expats in Nigeria need to have a fundamental awareness of their tax obligations.
For more information, inquiries and filings about the taxation of expatriates in Nigeria, kindly reach out to us.
(BEPS) is a phenomenon that has gained significant attention in recent years due to its impact on global taxation. BEPS refers to the practice of multinational companies shifting their profits from higher-tax jurisdictions to lower-tax or no-tax locations, thus eroding the tax base of the higher-tax countries.
