Nigeria

Gain on disposal of Shares.

Gains accruing to a person from the disposal of shares in any Nigerian company will be chargeable to Capital Gain Tax (CGT) at 10%. CGT will apply on the whole or part of the proceeds not reinvested in the acquisition of shares in the same year of assessment.

Disposal of shares below N100 million in any 12 consecutive months, transfer of shares between an approved borrower and lender in a Regulated Security Lending Transaction and gains on disposal of Nigerian government securities are exempted from CGT.

Compensating payment from the Borrower or Approved agent

Dividends resulting from compensating payments received by a lender from its approved agent or borrower in a Regulated Securities Lending Transaction will be a taxable income in ascertaining company income tax payable.

The service shall make the necessary adjustment to any related party transaction deemed artificial or fictitious in the opinion of the service. Such adjustment may vary the established tax liability and result in additional payment or refund.

Insurance businesses will be taxed in two classes:

General Insurance Company and Life Insurance Company. The two
classes of insurance shall be assessed separately to company income tax. Furthermore, where there is more than one type of insurance business in a class of insurance, the loss in one type of insurance business shall not be allowed against the profit from the other type. Still, it shall be carried forward against the profit of the same type of insurance business until it is fully relieved. A Nigerian Insurance company shall be charged tax as though the whole profit of the company is derived from Nigeria. In contrast, a Non-resident Insurance company shall be charged to tax on profits derived in Nigeria.

The profit that will be subjected to tax shall be the gross premium and other income receivables less reinsurance and other allowable expenses incurred in Nigeria.

A general insurance company shall be allowed to deduct reserve for unexpired risks and reserve for outstanding claims and outgoings from its premium.

Reserve for unexpired risk is that which is calculated on a time apportionment basis of the risks accepted in the year, while reserve for outstanding claims and outgoings is the total estimate of all outstanding claims and outgoings for the year, and any unutilised amount shall be carried forward and added to the total profit of the following year.

The profit of a life insurance company shall be investment income, i.e., income derived from the investment of shareholders’ fund less the management expenses, including commission; allowable deductions include transfer to: 

• A General reserve fund is an amount equal to net liabilities on policies in force at the time of actuarial valuation. 
• A special reserve fund is an amount equal to higher than 1% of gross premium earned and 10% of the profit. Dividends distributed from the actuarial revaluation of unexpired risks and other revaluation shall be deemed to be part of the total profits for tax purposes. Note that the insurance company should provide the service with the full particulars and certificate of an actuarial all revaluation, including unexpired risks, within three months after such revaluation.

A reinsurance company shall be allowed to deduct its gross profit and credit it to the general reserve fund. 

• 50% of the gross profits of the reinsurer for the year where the general reserve fund is less than the initial statutory minimum authorized share capital. 
• 25% of the gross profit of the reinsurer for the year where the general reserve fund is equal to or exceeds the initial statutory minimum authorized share capital.

Note: Any insurance company that engages the services of an insurance agent, a loss adjuster and an insurance broker shall include in its annual tax returns schedule showing the name and address of that agent, loss adjuster and insurance broker, the date their services were employed and terminated as applicable, and payments made during the period covered by the tax returns. The minimum tax shall apply to insurance companies on their gross turnover, which means gross premium and other income for general insurance businesses and only gross income for life insurance businesses.

Petroleum companies Profits of a Nigerian company that engages in the Upstream, Midstream or Downstream Petroleum operation concerning goods exported from Nigeria are no longer exempted from company income tax whether or not the proceeds are used for the purchase of raw materials, plant, equipment, and spare parts. Other profits currently exempted from tax 

1.  Profit of a small company in any relevant year of assessment provided that such company complies with tax registration and self-assessment provisions. 
2.  Dividend and rental income are received by a real estate investment company on behalf of its shareholders. A minimum of 75% of such income must be distributed within the financial year in which it was earned. 
3.  Dividend received by a lender as a compensating payment from its approved agent or a borrower in a Regulated Securities Lending Transaction. 
4. Dividend or interest received by an approved agent as a compensating payment from a borrower or lender on behalf of a borrower or lender in a Regulated Securities Lending Transaction.

Companies that carry out business through electronic or wireless means in Nigeria may be assessed to company income tax on a fair and reasonable percentage of the turnover derived in Nigeria to the extent that such non-resident company has a significant economic presence in Nigeria.

This applies when there is no assessable profit, or the assessable profit is below expectation.

Income Only capital allowance relating to the qualifying capital expenditure incurred in generating the assessable profits shall be allowed as a deduction in that year of assessment.

When the qualifying capital expenditure is in relation to an asset that is partially utilised in generating the taxable income, the qualifying capital expenditure shall be pro-rated, and only the portion relating to the taxable income shall be allowable as a deduction if the portion of non-taxable income is greater than 20%.

This does not apply to company that is enjoying pioneer status
under the Industrial Development (Income Tax Relief) Act

As defined by Company Income Tax Act, a small and medium company shall compute capital allowance relief using the relevant restriction within a year of assessment.

Such calculated amount shall be deemed to have been consumed in that year of assessment and will not form part of the amount to be carried forward into a subsequent year of assessment.

The reduced minimum tax rate of 0.25% can only be enjoyed in two accounting years, from 1 January 2019 to 31 December 2020 or 1 January 2020 to 31 December 2021. The total minimum tax rate of 0.5% shall take effect immediately after a company has enjoyed the two years of the reduced minimum tax rate.

The tax incentive available to companies that use gas in the downstream operation shall only be claimed once by the same company. The incentive is not available to any gas utilisation company formed from reorganisation, restructuring, buy-stock and other similar schemes out of a company that has already enjoyed this incentive.

Also, a company that has claimed an incentive for the same trade or business under any law in Nigeria, including Petroleum Profit Tax Act and Industrial Development (Income Tax Relief) Act, is not eligible for this incentive.

Where a company fails to submit its tax returns to the authority within the specified time and such company qualifies for the reduced minimum tax, the penalty for late filing shall be the amount of relief on the minimum tax (0.25% of the gross turnover less franked investment income).

By implication, such a company will pay 0.5% of the gross turnover less franked investment income as its tax and penalty for late filing.

The tax charged by any assessment that is not objected to or appealed within 30 days after the service of such notice shall be payable to the service. The time frame may be extended by the service based on its discretion. Where there is an objection, the assessment shall be suspended until the determination of such objection or appeal.

However, the company is expected to pay the undisputed portion of the assessment. Once the objection or appeal is determined, the service will issue a revised assessment that shall be payable within 30 days from the date of such notice. Every company can make payment of tax due in one lump sum or in instalments; the final instalment must be paid on or before the due date.

Any balance of tax that remains unpaid after the due Taxes due shall be paid in the currency in which the income is derived or received. Medium-sized companies shall enjoy a tax rebate of 2% of tax due if such tax is paid 90 days before the due date, while other companies shall enjoy 1%. Such rebate will be available as a credit against future taxes

Interest payment made to Non-resident and unit trust companies, from which withholding tax has been deducted, shall not be subjected to further tax in the hands of the recipient: it is a final tax.

Non-alcoholic, carbonated, and sweetened beverages shall be subjected to excise duty of N10 per litre

FIRS power to automate the tax administration processes

FIRS has been empowered by law to deploy proprietary or third-party technology to automate the tax administration, including both tax assessment and information gathering. However, the service must give the taxpayer a minimum of 30 days’ notice before deploying technology.
Taxpayers can also request an additional extension from the initial 30 days upon demonstrating a good cause. Any person who fails to grant access to the service after the required notice periods shall be liable to an administrative penalty of #25,000 for each day the failure continues.

Any bank which fails to file its quarterly returns with FIRS shall be liable to a penalty of N1,000,000 for each quarterly return or information not provided.

Any staff of FIRS assigned to administer this Act will have access to the taxpayer information and must deal with such information as secret and confidential.

FIRS is currently the primary collecting agent of the Federal Government of Nigeria or any of its agencies for all the taxes and levies listed under the First Schedule of FIRS Establishment Act, including any other laws enacted by the National Assembly that impose taxes or levies in Nigeria.

FIRS shall administer, assess, collect, account and enforce the provisions of such laws except where it is authorized by the Minister of Finance as approved by the National Assembly or in the case where such provision is subjected to litigation in a court of competent jurisdiction. The provision of the First Schedule of FIRS establishment Act shall override any provision of any other law in any inconsistency between the two provisions.

FIRS may collaborate with relevant MDAs or Institutions of the Federal Government to enforce compliance and avoid revenue loss. Any person who contravenes the provisions is liable on conviction to 5 years imprisonment or a fine of N10,000,000 or both.

Deduction of life insurance premium

The taxpayer shall be allowed to deduct the annual amount of premium paid in the year preceding the year of assessment to the insurance company on his life or the life of his spouse.

The time limit for a notice to any person to obtain full information in respect of the income or gain of a person by any relevant tax authority shall not be less than seven days from the date of the service of the notice. Also, an officer who should not be below the rank of a Senior Manager or Grade Level 14 equivalent may require a taxpayer to produce for the purpose of the examination any book, document, account, return and give orally or in writing any other information which the relevant authority may deem necessary.

A person engaged in banking in Nigeria who fails to provide information after a notice signed by the chairman of a relevant tax authority, or fails to file quarterly returns with the relevant tax authority, will be liable to a penalty of #1,000,000 for each information or returns not provided.

Any person who is guilty of an offence or contravenes the provision of Personal Income Tax Act and any regulation under the Act for which no penalty is specified shall be liable to a fine of #20,000 on conviction.

Where the offence fails to furnish a return, statement or information or to keep records required, such person shall be liable to a further sum #2,000 for every day the failure continues. If the offence is default of payment, such person shall be liable to imprisonment for six months.

Distribution of Electronic Money Transfer Levies (EMTL) and stamp duties.

Under the approval of the National Assembly, the Minister of Finance shall make regulations for the imposition, collection and distribution of EMTL and Stamp Duties to the relevant tax authority.

It is expected that all arrears of Electronic Money Transfer Levies and Stamp Duties collected between 2015 to 2019 fiscal years shall be distributed before 30th January 2022. Subsequently, all Electronic Money Transfer Levies collected are to be distributed within 30 days following the month of collection.

Increase in Education Tax Rate

Education Tax has been increased from 2% to 2.5% on assessable profit of all company registered in Nigeria except small company with turnover less than or equal to #25,000,000 in any year of assessment.

Non-resident companies are also exempted from Education Tax. Education Tax shall be due and payable within 30 days after the notice of assessment.