article banner
Africa Tax Landscape

Nigeria

30 Dec 2022

Nigeria's tax landscape overview highlights the country's tax landscape together with other regulatory considerations of setting up an entity in Nigeria. 

Doing business in country

Overview of tax system (residence versus source)

The Nigeria Tax system is primary residence in nature. However, with the aid of globalisation and digitalisation of a business process, Non-resident persons with significant economic presence are currently required to pay tax on the turnover of their transactions in Nigeria.

For goods and services taxes such as VAT, Nigeria operates the destination principle wherein such tax is paid by residents who consume such goods and services. Tax laws impose tax at a predetermined rate on specified income, profit, gain, and value of transactions of taxable persons (Corporate or Individual).

These laws are amended from time to time in view of meeting present economic realities, the complexity of financial transactions, welfare, and social needs. For Individuals, the principal legislation regulating residents' taxation in Nigeria is the Personal Income Tax Act. Generally, an employee is regarded as a resident in Nigeria if he is domiciled in Nigeria for 183 days or more in any 12 months period. However, expatriates who have been granted STR visas or issued a CERPAC are deemed to be tax residents in Nigeria.

Such expatriates are liable to tax in Nigeria irrespective of the length of their stay.

Type of companies that can be set up (e.g., Close corporation, Partnership etc.,)
  • Sole Proprietorship, Partnership, Limited Liability Partnership(LLP)
  • Private Limited Liability Company(Ltd)
  • Public Liability Company(PLC)
  • Private/Public Company Limited by Guarantee(Ltd/Gte)
  • Unlimited Liability Company(ULtd) Incorporated Trustee - (Not for Profit Organisation)
Requirements for locals to own shares/stake in the company

Amount of Share Capital: A private company limited by shares (LTD.) must have a minimum issued share capital of 100,000, while a publicly quoted company (PLC) must have 2,000,000 minimum issued share capital. 

Implications of physical presence versus online presence

The Nigerian Finance Act 2019 amended Section 13(2) of the Companies Income Tax Act (""CITA"") by introducing a new paragraph (c) which subjects digital and online transactions of non-resident companies to companies' income tax in Nigeria.

Digital companies providing services and goods without a physical presence in Nigeria were not liable to previously pay income tax in Nigeria. The Finance Act, which came into force on 13th January 2020, introduced the concept of "significant economic presence" ("SEP'') as a new basis for the taxation of digital and online transactions by non-resident companies.

Invariably both physical and online presence companies are subject to almost the same taxes in Nigeria.

Process of opening a bank account

There are existing forms to be filled which vary from bank to bank.

Corporate income tax

Viable option from a tax perspective (branch versus subsidiary)

A resident company (subsidiary) or Non-Resident Company (NRC) (branch) is a good option. Only that resident company must be incorporated in Nigeria, register for tax, file audited accounts, submit tax returns, etc., while a Non-Resident Company, whether physically conducting business in Nigeria through an agent or remotely through online mediums, will register for tax, submit tax returns, etc.

Process of registering and setting up a branch or subsidiary

Registration of companies is done by Corporate Affairs Commission [CAC], and tax is done by Federal Inland Revenue Services (FIRS) for subsidiaries (resident company) in Nigeria. For branches that are Non-Resident in Nigeria, they are to register for tax with Federal Inland Revenue Services (FIRS).

Lodging of tax returns with the local Revenue Authority

i.e. for a December year-end taxpayer, tax returns must be filed on or before six months after the period end.

Corporate tax rate for branches and subsidiaries

30% for both Branches and Subsidiaries.

Tax rules on repatriation of after-tax profits for branch and subsidiary

It can only be repatriated if it is distributed as a dividend to the beneficiaries.

Withholding taxes applicable

10% withholding applies on such dividend in (6) above in the hand of the beneficiaries.

Capital gains tax implications

Yes. 10% on Capital Gain.

Value-Added Tax (VAT)

VAT rate applied

7,5%

Imposition of VAT

Value-Added Tax (VAT) is an act to impose and charge Value added tax on certain goods and services and to provide for the administration of the tax and related matters. [1993 No. 102, 2007 No. 53.]Commenced: 1st December 1993. Some goods and services are exempted, while some are zero rated.

System of submitting VAT returns (manual versus automated)

Automated as of 2020.

What are the export requirements that must be adhered to?

Export services are exempted from VAT, while Non-oil export is zero-rated.

VAT registration requirements

Upon commencement of business, a taxable person shall register with the service for tax. A taxable person who fails or refuses to register with the service within the time specified in sub-section (1) is liable to pay the penalty an amount of –

Registration by government ministries, etc., as board agents. (1) every government ministry, statutory body and other agency of government shall register as agents of the board for collection of tax under this act [1996 no 31](a) ₦50,000 for the first month in which the failure occurs; and (b) ₦25,000 for each subsequent month in which the failure continues (2) every contractor must show evidence of registration with the board before obtaining a contract from lga, sg, and fg. act [1996 no 31] 10. registration by non-resident companies. (1) for the purpose of this act, a non-resident company that carries on business in nigeria shall register for the tax with the service, using the address of the person with whom it has a subsisting contract as its address for correspondence relating to the tax.

VAT on electronic services

Yes, 7.5%. Other requirements as above.

VAT registration requirements for the registration of a Group/Branch

The requirements are the same as Number 5 above. In terms of Headquarters and Branches; in some cases, all branch report their revenue figures to the headquarters; while the offices must register and file returns for VAT purposes. Also, in the case of Nigeria, the offices will register and obtain a Tax Identification Number (TIN) for each branch.

Regarding Groups and Subsidiaries, every subsidiary must register and file VAT returns as they are separate entities to the Tax Authorities doing business at arms-length.; while foreign branches located in Nigeria will also register for VAT independently.

VAT refunds for non-residents

No.

Recordkeeping requirements
  1. Record must be kept sufficiently to file all tax returns adequately and be domiciled in Nigeria so the record can be made available for tax inspection and audit.  
  2. Timely provision of all monthly sales invoices and evidence of VAT incurred on all purchases.   
  3. Timely provision of monthly evidence of VAT paid to Federal Inland Revenue Service for filing returns to avoid late return penalty, if applicable. 

                                                                                        

Employees Tax

Tax year for Individuals

Monthly, the assessed tax must be remitted within ten days after the month of work.

Is employees’ tax is collected from employers via payroll?

Yes, employers will be assessed, deduct and remit the tax due on employees' earnings.

Collection of Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL)

Not applicable.

Should employers register and file returns with both the Revenue Authorities?

In Nigeria, Employers are to register with all relevant tax authorities of the Federal & States where their employees are performing duty.

When is the monthly submission and payment of the EMP201 tax return due for each month following the collection?

The assessed tax must be remitted within ten days after the month of work.

Submission of the employee's tax reconciliation return?

In Nigeria, annual returns are to be filed on or before 31 January of the following year.

Method of calculating individuals tax

Yes, it is calculated on a sliding scale using the tax tables, which could be updated every year.

Labour law registration requirements for employers

Employers are required to register under Nigeria Labour Act. Before the recruitment of workers. Additionally, employers are required to register with the following government agencies in respect of their employees: Industrial Training Fund (ITF), Nigeria Social Insurance Trust Fund (NSITF), National Pension Commission (Pencom) etc.

System of submitting employees' tax returns (manual versus automated)

Some registration is manual, while some are automated. Note: Grant Thornton Nigeria and its associated Legal unit assist local and foreign entities on registration issues with government agencies.

Transfer pricing

Transfer pricing documentation guidelines or regulations

Yes.

Transfer pricing documentation materiality limits or thresholds in relation to transactions or revenue

Yes, transactions below N300 million in any particular year: the MNE are not required to prepare TP Documentation except if it is specifically requested by the tax authority.

Worldwide turnover below E750 million or N160 billion: the MNE is not required to file CbC Notification. However, all AEs are expected to file TP returns (Declaration & Disclosure).

Statutory deadline for submitting transfer pricing documentation

Not to be submitted, AEs are expected to prepare TP Documentation contemporaneously on yearly basis before filing annual TP Returns and safe keep. It should be presented to the tax authority within 21 Days of a written request.

Penalties imposed for non-submission and/or incomplete documentation.

If TP Documentation is not submitted within 21 days of a written request, an administrative penalty will apply.

N10 million or 1% of the total value of controlled transactions whichever is higher plus N10,000 for every day in which the failure continues.

International tax

Tax nexus (Permanent Establishment)

Yes, there is PE Risk base on the level of Significant Economic Presence (SEP) whether Physically or Remotely. Exemption exit for turnover below N25 million.

Effective Management

It depends because certain head office costs may not be acceptable as tax deductible.

Controlled Foreign Company

Yes, arms-length risk on controlled transactions between the foreign company and local company.

Exchange control

Companies in Nigeria manage their foreign exchange risk by revising cost estimates of orders based on exchange rate fluctuations at the point of transactions.

Also appears under...