The profits of companies (other than upstream petroleum companies with Oil Prospecting Licences who are subject to additional hydrocarbon tax) are subject to companies’ income tax (CIT). Nigerian companies are assessed to tax on their worldwide income, whilst Non-Resident Companies (NRCs) are subject to tax only on profits accrued in or derived from Nigeria, to the extent that the profits are not attributable to operations outside Nigeria. For NRCs whose activities constitute a
Significant Economic Presence (SEP) in Nigeria, CIT is charged on only the portion of the profit attributable to such activities in Nigeria. Every company carrying on trade or business in the country or whose activity constitutes SEP is expected to prepare audited financial statements and file CIT returns within 6 months from the end of their financial year. However, withholding tax (WHT) will be the final tax for a NRC that derives profit from the provision of technical, management, consultancy, or professional services to persons resident in Nigeria, provided that the NRC does not have a fixed base or engages in other trade or business as defined by the CIT Act.
There are currently three (3) CIT rates applicable to companies in Nigeria depending on their turnover.
Further, both Nigerian companies and NRCs are liable to a minimum tax where: the total assessable profit for any year of assessment (YOA) results in a loss; or the ascertained total profits results in no tax payable; or tax payable is less than the minimum tax, unless they meet the criteria for minimum tax exemption. Finance Act, 2019 amended the base and rate of minimum tax to 0.5% of a company’s turnover less franked investment income. In light of COVID-19 pandemic and its attendant economic challenges, the Federal Government introduced, as a palliative measure in the Finance Act, 2020, a 50% temporary reduction in the rate for companies liable to minimum tax for the YOAs falling due between 1 January 2020 to 31 December 2021.
CIT is also applicable on profits of upstream petroleum companies with Petroleum Mining Licences (PMLs) and Petroleum Prospecting Licences (PPL). This is in addition to Hydrocarbon Tax (HT) payable at the following rates:
(i) 30% on profits from crude oil for PML holders for both onshore and shallow water operations; and
(ii) 15% for PPL holders operating in the onshore and shallow water areas respectively.
However, upstream petroleum companies operating under the old Oil Prospecting Licences (OPLs) and Oil Mining Leases (OMLs) will continue to be liable to Petroleum Profits Tax (PPT) until the expiration, conversion, or termination of the licences.
Individuals are subject to tax under the Personal Income Tax (PIT) Act (as amended). Resident individuals are subject to tax on all personal income, including income derived from outside Nigeria (except those specifically exempted from tax). The PIT is administered based on the residency rule and is collected by the relevant State Government where the individual resides, except for certain categories of individuals whose taxes are payable to the Federal Government.
Non-Resident Individuals (NRIs) are liable to tax on Nigerian-sourced income. The income of an NRI from an employment, profession, vocation, or business in Nigeria is generally taxed in the same manner as that of a resident, irrespective of where the income is paid. However, investment income derived from Nigeria by a person resident outside the country is only liable to withholding tax. Further, an NRI who derives income from technical, management, consultancy or professional services provided to a person resident in Nigeria is liable to only WHT as the final tax on such income, where the NRI has SEP in Nigeria.