Taxes Every Nigerian Business Should Know

Running a business in Nigeria involves more than generating revenue and attracting customers; it also requires compliance with various tax obligations imposed by law. Whether you operate as a business name or a limited liability company, understanding the taxes applicable to your business is essential for maintaining compliance, avoiding penalties, and building a sustainable enterprise. In this guide, we highlight some of the major taxes every Nigerian business should know

Types of Taxes

1.     Company Income Tax (CIT)

Company Income Tax is one of the most common taxes applicable to companies in Nigeria except companies involved in petroleum activities. CIT is charged on the profits made by companies operating within the country and the applicable rate may vary depending on the size and annual turnover of the company.

Generally, small companies may enjoy certain exemptions while medium and large companies (usually 30% for large companies) are typically required to pay Company Income Tax on their profits and businesses are expected to file annual tax returns even where there is little or no profit.

2. Value Added Tax (VAT)

This is charged on the supply of goods and services in Nigeria. Businesses that provide taxable goods or services are generally expected to charge VAT on eligible transactions (usually 7.5%), collect VAT from customers, and remit the collected VAT to the appropriate authority

Failure to remit VAT when due may attract penalties and interest.

3. Personal Income Tax (PIT)

For sole proprietors, business owners, and employees, Personal Income Tax is another important obligation. Employers are generally expected to deduct Pay-As-You-Earn (PAYE) tax from employees’ salaries and remit the deductions to the relevant state tax authority while business owners operating as sole proprietors may also be personally assessed for tax based on their earnings.

4. Withholding Tax (WHT)

Withholding Tax is a form of advance tax deduction that may apply to certain transactions such as consultancy services, contracts, rent, commissions, and professional services. The deducted amount is usually remitted to the tax authority on behalf of the recipient.

It is important for businesses to ensure that proper withholding tax receipts are obtained and properly documented.

5. Tertiary Education Tax

Every company registered in Nigeria is required to pay 3% of its assessable profit as Tertiary Education Tax. This tax contributes to the funding of educational development within the country.

However, non-resident companies, small companies – a small company is an entity with an annual turnover of NGN25 million (Twenty-five million naira) and below- and unincorporated entities such as sole proprietorship are exempt from tertiary education tax.

6. Capital Gains Tax

Capital Gains Tax is a 10% tax applied during the disposal of a chargeable assets at a profit.

Examples of such assets may include; land, buildings, shares, and business assets. It is important for individuals and business owners should seek proper professional guidance before disposing of major assets.

7. Stamp Duties

Stamp Duties is a tax imposed on certain legal and financial documents to make them legally valid and enforceable in Nigeria. It applies to various transactions such as tenancy and lease agreements, loan agreements, share capital documents, and receipts above a prescribed threshold. The applicable rate depends on the type of document and transaction involved, and failure to properly stamp eligible documents may render them inadmissible in legal proceedings and attract penalties.

8. Petroleum Profit Tax (PPT)

Petroleum Profit Tax is a tax on the profits of companies engaged in upstream oil and gas operations in Nigeria. It applies specifically to businesses involved in crude oil exploration and production and does not apply to general businesses outside the petroleum sector.

To maintain proper tax compliance, businesses should:

• maintain accurate accounting records
• separate personal and business finances
• file tax returns on time
• work with accountants or tax professionals where necessary
• understand the taxes applicable to their industry

Tax compliance is an essential part of building a credible and sustainable business in Nigeria. While taxation may sometimes appear complicated, understanding your obligations can help your business avoid regulatory challenges and operate more efficiently.

Businesses that maintain proper tax records and comply with their obligations are better positioned for long-term growth, partnerships, and investment opportunities.

“Compliance is more than a legal obligation; it is one of the foundations of business credibility and trust.”

Team 618 Bees

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