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Nigeria

General Information

Country Name: Federal Republic of Nigeria
Currency: Nigerian Naira (NGN, ₦)
Primary Tax Authority: Federal Inland Revenue Service (FIRS)

Key Legislation

  • Constitution of Nigeria: The Nigerian Constitution provides the framework for taxation, particularly in Sections 162-165, which govern the allocation of revenue among the federal, state, and local governments.
  • Companies Income Tax Act (CITA): Governs corporate income taxation in Nigeria.
  • Personal Income Tax Act (PITA): Regulates the taxation of individuals.
  • Value Added Tax Act (VATA): Regulates VAT.
  • Petroleum Profits Tax Act (PPTA): Governs the taxation of profits from oil and gas exploration and production.
  • Tax Administration (Self-Assessment) Regulations: Provides guidance on tax administration, penalties, and self-assessment procedures.

Fiscal Authority Allocation

In Nigeria, the tax system is centralized but allows for significant revenue collection by the states and local governments.

Taxes Collected by Federal Authorities:

  • Corporate income tax (CIT)
  • VAT
  • Petroleum profits tax (PPT)
  • Customs and excise duties

Taxes Collected by State/Local Authorities:

  • Personal income tax (PIT) (on non-residents and informal workers)
  • Land use charges and property taxes
  • Business premises levies
  • Motor vehicle taxes

Revenue Sharing Mechanisms:

Nigeria operates a revenue-sharing formula between the federal, state, and local governments. Oil revenues, for example, are distributed based on predetermined sharing ratios, with a significant portion going to oil-producing states.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 30%
  • Small and Medium Enterprise Rate: 20% (for companies with turnovers below NGN 100 million)
  • Taxable Income Definition: Global income of resident corporations is taxed, and non-resident companies are taxed on Nigerian-sourced income.
  • Deductions: Business expenses, including interest, R&D, and depreciation, are deductible.
  • Loss Carryforwards/Carrybacks: Losses can be carried forward indefinitely. Carryback is not allowed.
  • Tax Incentives: Tax holidays for qualifying companies under the Pioneer Status Incentive (PSI) scheme, R&D tax credits, and special incentives for Free Trade Zones.

Value-Added Tax (VAT)

  • Standard VAT Rate: 7.5%
  • Scope of VAT: Applied to goods and services supplied in Nigeria. Exported goods are zero-rated.
  • Exemptions: Basic food items, medical and pharmaceutical products, educational materials, and services provided by educational institutions.

Personal Income Tax (PIT)

  • PIT Rates: Progressive rates from 7% to 24%.
  • Tax-Free Allowance: NGN 200,000 or 1% of gross income (whichever is higher), plus consolidated relief allowances based on the taxpayer’s income.
  • Taxable Income: Employment income, rental income, interest, and dividends are subject to PIT.
  • Deductions: Pension contributions, mortgage interest, and life insurance premiums are deductible.

Additional Mandatory Contributions

In Nigeria, mandatory social security contributions are limited, with primary focus on pension contributions.

Pension Contribution:

  • Total Rate: 18% (8% employee, 10% employer) on gross salary.
  • Tax Deductibility: Contributions to pension funds are tax-deductible for PIT purposes.
  • Mandatory Participation: Required for employees in formal employment.

Withholding Taxes

  • Dividends: 10% withholding tax for residents and non-residents, reduced under applicable Double Tax Treaties (DTT).
  • Interest: 10% withholding tax.
  • Royalties: 10% withholding tax.
  • Payments to Non-Residents: Withholding tax applies, with DTT reductions where applicable.

Transfer Pricing Rules

Nigeria follows OECD guidelines on transfer pricing. Companies must maintain documentation to justify related-party transactions at arm’s length. Non-compliance can result in penalties and income adjustments.

Special Tax Regimes

  • Oil and Gas Taxation: Petroleum profits tax (PPT) applies to oil and gas companies, with rates of 50% to 85%, depending on the nature of the company’s contract.
  • Free Trade Zones: Companies operating in designated zones enjoy tax exemptions on CIT, VAT, and import duties.

Other Taxes

  • Capital Gains Tax: 10% on gains from the sale of capital assets, unless exempt (e.g., for gains from the sale of shares).
  • Stamp Duty: Levied on various legal documents, including contracts, property transfers, and financial transactions.
  • Real Estate and Property Taxes: Administered by state governments, typically as land use charges or property taxes.

Double Taxation Agreements (DTAs)

Nigeria has DTTs with countries including the UK, France, Canada, and South Africa. Reduced withholding tax rates typically apply under these treaties.

Compliance and Reporting

  • Corporate Tax Filing Deadline: Companies must file annual CIT returns within six months of the end of their financial year.
  • VAT Filing: Monthly VAT returns are required.
  • Penalties for Late Filing: Fines and penalties apply for late filing or underpayment of taxes.

Recent Developments

  • Recent Tax Law Changes: Nigeria has recently increased its VAT rate from 5% to 7.5% and introduced a Finance Act in 2021 to address tax loopholes and modernize the tax system.
  • Upcoming Reforms: Discussions are ongoing to reform personal income taxation and simplify tax compliance for SMEs.
  • Global Tax Initiatives: Nigeria has been actively engaging with OECD’s BEPS project but has not yet adopted Pillar Two initiatives for a global minimum corporate tax.

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