Find out if you’re eligible to pay taxes in Nigeria and learn how to file your taxes if you’re eligible.
In Nigeria, business entities and individuals are eligible to pay taxes if they meet certain criteria.
However, Nigerian tax eligibility goes beyond just obtaining your Tax Identification Number (TIN); you must also determine what taxes you’re liable for.
Don’t worry. We’ve got you covered.
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Read on to discover the most common taxes you may be liable to pay as a business owner or individual—including their eligibility criteria, exemptions, and who qualifies for them in Nigeria.
Table of Contents
Key Takeaways (Editor’s Pick)
- Taxpayers in Nigeria are required to obtain a Tax Identification Number (TIN), file tax returns, pay taxes, and obtain a tax clearance certificate to demonstrate compliance.
- Corporate tax or company income tax generally applies to registered companies and incorporated entities in Nigeria
- Certain types of income, such as government and agricultural incomes, grants, and donations, are exempt from paying taxes in Nigeria.
- Nigeria also imposes Capital Gain Tax (CGT) and Petroleum Profit Tax (PPT) on specific transactions and activities.
Who Pays Taxes In Nigeria?
All Nigerian citizens and non-citizens doing business in the country pay taxes. Whether you’re an individual, resident, or a business owner, you are required to remit taxes as long as you’re eligible.
But to determine what taxes you’re required to pay, you must understand the criteria for each type of tax in Nigeria.
Let’s begin with personal income tax.
Who is Eligible for Personal Income Tax?
You’re eligible for personal income tax in Nigeria as an individual, a business, or an entity generating income within the country.
Understanding the criteria for income tax is crucial for compliance and financial planning.
Read on to learn more about personal income tax eligibility criteria in Nigeria.
Personal Income Tax Criteria
Individuals in Nigeria are subject to income taxation if they qualify as residents.
You’re deemed a tax resident if you’re domiciled in Nigeria, spend at least 183 days in the country within 12 months, possess a permanent domestic place, or serve as a diplomat for Nigeria abroad.
The taxable year spans from January 1st to December 31, with tax returns due within 90 days of the fiscal year’s end.
Furthermore, your personal or individual income tax rates will grow from seven percent to 24 percent, depending on your annual income.
Taxable income thresholds:
- First NGN 300,000: 7%
- Next NGN 300,000: 11%
- Next NGN 500,000: 15%
- Next NGN 500,000: 19%
- Next NGN 1,600,000: 21%
- Above NGN 3,200,000: 24%
What income is exempted from tax in Nigeria?
The income exempted from tax in Nigeria are:
- Earnings from government, state, and local bonds.
- Personal income below the national minimum wage.
- Disability pension for armed forces members.
- Compensations from loss of employment
- Consular fees on behalf of a foreign state
- Death gratuities or consolidated compositions.
- Income brought into Nigeria by temporary guests, teachers, etc., is deposited in a domiciliary account.
- Interest on foreign currency domiciliary accounts
Who is Eligible for Corporate Tax?
Corporate Tax in Nigeria generally applies to registered companies and incorporated entities.
So, if you’re a registered small business owner, you must pay corporate tax.
What businesses pay income tax?
- Corporate entities in Nigeria, excluding those in petroleum activities.
- Non-resident companies with a presence in Nigeria are subject to CIT on Nigeria-source income.
- Firms making payments for goods and services deduct Withholding Tax (WHT) at source, ranging from five to ten percent depending on the transaction.
- Small businesses with an annual turnover below N25 million are exempt from CIT but pay Personal Income Tax (PIT).
- Businesses providing goods and services in Nigeria.
Partnerships are not typically subject to corporate tax because they are considered pass-through entities. Hence, there is no business income tax.
However, individual partners in an agreement may be required to pay personal income tax on their share of the partnership’s income.
Which companies are exempted from tax in Nigeria?
- Companies involved in agricultural trade or business.
- Small companies with an annual turnover of less than 25 million naira.
- Companies engaged in charitable or educational activities.
- Companies established within an Export Processing Zone (EPZ) or Free Trade Zone (FTZ).
- Companies that are trade unions registered under the Trade Unions Act.
- Real Estate Investment Companies approved by the Securities Exchange Commission to operate as a real estate investment scheme in Nigeria, subject to certain conditions.
How corporate tax applies to registered companies
Companies are required to calculate taxable income, file annual returns, and meet specific deadlines for corporate tax payments.
Furthermore, companies may also withhold tax on specific transactions, such as payments to suppliers and contractors.
This tax is deducted at the source and remitted to the tax authorities.
Some companies may qualify for tax credits and incentives.
Lastly, Nigeria has a double taxation agreement for companies engaged in international activities. This helps avoid taxing the same income twice.
Corporate tax rates and exemptions
We can break down corporate tax rates and exemptions in Nigeria into the following key points:
- Large companies with an annual turnover over NGN 100 million have a 30 percent tax rate.
- Small companies with NGN 25 million or less turnover are taxed at zero percent.
- Medium companies, with turnover between NGN 25 million and NGN 100 million, at 20 percent.
- Non-resident companies offering services to Nigerian residents pay a ten percent final tax.
Corporate tax registration requires submitting accounts to the Federal Inland Revenue Service within six months of the financial year-end.
This helps the FIRS classify each entity and assign a tax rate based on the company’s scale.
Step by step to calculate taxable profit
- Determine your gross income for that year
- Subtract exempt income—your earnings not to tax, such as dividends from pioneer companies, interest on foreign currency double domiciliary accounts, export profits, etc.
- Add disallowable expenses to your gross income. Disallowable expenses include penalties, fingers, depreciation, etc. They are not deductible for tax purposes.
- You’ll get your assessable profit, which is adjustable for tax purposes.
- Deduct any capital allowances. The result will be your total profit.
- Determine your tax liability by applying the relevant tax rate to your total profit, varying based on petroleum operation type and duration.
- Subtract tax credits or reliefs, like investment tax credits or gas utilization incentives, from your tax liability to reduce the amount payable.
- The remaining figure is your income taxable profit, representing the amount you owe in taxes to the government.
Who Pays Value Added Tax (VAT) in Nigeria?
In Nigeria, consumers pay Value Added Tax (VAT) when they purchase goods or services.
VAT is an indirect tax, so end consumers bear the final burden that businesses attach to the final price of the product or service.
Businesses collect VAT on behalf of the government and remit it to the appropriate tax authorities.
To better understand how VAT works in Nigeria, read this article.
How does VAT apply to goods and services?
In Nigeria, Value Added Tax (VAT) applies at each stage of the production and distribution chain.
For simplicity, here’s an overview of how it applies:
In Nigeria, manufacturers and businesses apply Value Added Tax (VAT) to the sale of goods and services at each stage of the production and distribution chain.
VAT Registration Requirements for Businesses
- Corporate Affairs Commission (CAC) registration.
- Taxpayer identification number (TIN)
- Businesses should be engaged in taxable goods and services.
- Completion and submission of the VAT registration form provided by the FIRS.
- Bank account details for tax transactions
- Commitment to filing VAT returns as required by the tax authorities.
The above requirements are subject to change.
Hence, we recommend consulting the Federal Inland Revenue Service or a tax professional occasionally for current and specific information regarding VAT registration.
Other Taxes and Levies
Capital gain tax
Capital gain tax in Nigeria is a tax you remit when you exchange or sell a capital asset for a higher price than what you paid for it, including commissions, fees, or improvement, minus depreciation.
A capital asset refers to anything you own for personal investment purposes, such as machinery, land, digital assets, etc.
You may want to know the following about capital gain tax in Nigeria:
- CGT tax is governed by the Capital Gains Tax Act and applies to chargeable assets, excluding some exemptions like government stocks and securities.
- Capital gain tax is charged at a flat rate of ten percent on chargeable gains, calculated as the difference between disposal and acquisition prices, after deducting allowable expenses.
- CGT applies to anyone making a disposal, whether or not resident in Nigeria. A disposal includes sale, transfer, exchange, assignment, or gift.
- Capital gain tax filing and payment due date aligns with Companies Income Tax within six months after the accounting year.
- Capital losses from other asset disposals can offset capital gains with a yearly deduction limit of N3,000. Also, you can carry over excess losses.
- You can lower CGT through tax-free accounts or exemptions for specific disposals like business asset replacements, takeovers, reinvestments, or mergers.
Petroleum Profit Tax
Petroleum profit tax (PPT) is imposed on the income of companies engaged in upstream petroleum operations in Nigeria.
Here are a few things to know about PPT:
- Companies subject to PPT are not liable for Corporate Income Tax (CIT) on the same income.
- PPT rates vary based on petroleum operation duration and type, e.g., 65.75 percent for joint ventures/sole risk in the first five years, 85 percent after five years, and 50 percent for production-sharing contracts.
- The education tax is deductible in computing assessable profits for petroleum companies.
- Final tax returns are due within five months after the accounting period and estimated returns within two months of the accounting period.
- Late submission incurs a penalty of N10,000 including N2,000 per day of delay.
- Unpaid tax installments attract a ten percent penalty and interest at the CBN’s prevailing minimum rediscount rate.
How to Pay Tax In Nigeria
A step-by-step guide to paying your tax in Nigeria:
Obtain Your Tax Identification Number (TIN)
To fulfill your personal tax obligation, you must first obtain your Taxpayer identification number (TIN). You can do so online or by visiting a tax office.
Your TIN is a unique number that identifies you as a taxpayer and allows remission of taxes to relevant authorities.
Determine the tax you’re liable to pay
There are several types of taxes in Nigeria. Each has its eligibility criteria.
You must determine what tax you’re required to pay before moving to the next step.
Don’t worry. We listed the eligibility criteria for each tax above in this article. Use them to determine what taxes you’ll pay.
After doing so, you’re ready for the next step.
File tax returns
Filing tax returns in Nigeria means reporting your financial information, like income and expenses, to the relevant tax authority. This helps you calculate how much tax you owe or how much refund you’ll receive if you overpaid.
Pay your tax
Now that you’ve filed your tax returns, it’s time to pay your taxes according to the amount resulting from your tax filing.
You can pay your taxes through the FIRS online portal or at tax-accredited banks in Nigeria.
Obtain a tax clearance certificate
Your tax clearance certificate is proof of your tax compliance. You can apply for the certificate online or offline and collect it from the tax office.
Who is a Taxable Person in Nigeria?
A Taxable person in Nigeria refers to an individual or organization liable to pay taxes as required by the country’s tax laws. This includes income-earning individuals, businesses, and other entities that meet the criteria for taxation
What Income is Exempted from Paying Taxes in Nigeria?
Types of income in Nigeria exempted from paying taxes include certain government and agricultural incomes, grants and donations, incomes of diplomats, pension funds, etc.
However, tax regulations and exemptions can change, and the specifics can vary. We recommend consulting the latest tax regulations or seeking advice from a tax professional occasionally for the most accurate and up-to-date information.
Do Small Businesses Pay Tax in Nigeria?
Yes, small businesses in Nigeria are generally liable to pay taxes. Specific taxes applicable to a small business can include Value Added Tax (VAT), company income tax (CIT), withholding tax, education tax, etc.
Do I Pay Tax on Business Name?
No, you do not have to pay taxes on a business name in Nigeria.
However, you may need to register with the federal government to become a legal entity, obtain your TIN, or register for trademark protection or tax-exempt status.
What is the Minimum Tax Rate in Nigeria?
The minimum tax rate in Nigeria is seven percent. However, tax authorities assign your tax rates depending on how much income you earn.
Who is Eligible to Pay Taxes in Nigeria: Now, What Next?
Understanding the Nigerian tax landscape is crucial for individuals and business owners.
We’ve covered a lot of ground in this article, discussing the various types of taxes, their eligibility criteria, and the process of staying compliant.
As the Nigerian tax system continues to evolve, it’s essential to stay informed and adapt to the changing regulations. We hope this article has provided you with valuable insights and guidance on your tax obligations in Nigeria.