March 6, 2019

While competitive enough to bolster the country’s appeal to foreign investors and skilled expats, Nigeria’s tax system is also tasked with the responsibility of providing the government with enough resources to finance the country’s development – company tax and petroleum royalties in fact account for the primary source of government revenue. Here is an overview of the main taxes in Nigeria. Tax residency in Nigeria The Nigerian tax regulation defines a Nigerian resident as an individual who is living in Nigeria for more than 6 months a year. A foreigner holding a Nigerian residence permit (CERPAC) is also deemed to be a tax resident. Individual residents in Nigeria are taxable on their worldwide income, whereas a non-resident is only taxable on the income earned from business activities performed in Nigeria. Non-resident expatriate employees are therefore subject to income tax in Nigeria unless:     they work for an employer based in a country other than Nigeria,     their compensation is not paid by a “fixed base” (i.e. permanent implantation) of their employer in Nigeria, or     their compensation is taxed in another country (you should check in advance whether your home country has a tax agreement with Nigeria). Good to know: Taxes in Nigeria are all collected by the national Federal Inland Revenue Service (FIRS). Personal Income tax in Nigeria Employees simply pay their income tax through the Pay As You Earn (PAYE) system, whereby employers deduct the due tax at source from the salaries and transfer it directly to the FIRS on a monthly basis, while independent workers and beneficiaries of additional income are required to file their own tax returns. Income tax in Nigeria is levied at a progressive rates capped at 24%. Here are the applicable rates for personal income tax in Nigeria : Annual income (NGN):     First 300,000: personal income tax rate of 7%     Next 300,000: personal income tax rate of 11%     Next 500,000: personal income tax rate of 15%     Next 500,000: personal income tax rate of 19%     Next 1,600,000: personal income tax rate of 21%     Above 3,200,000: personal income tax rate of 24% Corporate tax in Nigeria Resident companies in Nigeria are subject to the Company Income Tax (CIT) on their worldwide income, while only the income from Nigerian source of non-residents companies is taxed under the CIT. The CIT is generally levied at a flat 30% rate, but is reduced to 20% for smaller companies (with a turnover not exceeding NGN 1m) operating in the manufacturing industry and wholly export-oriented. Resident companies are also charged a 2% tertiary education tax. Additionally, companies operating in the petroleum industry, whether resident or not, are required to pay the Nigerian government a special Petroleum Profit Tax (PPT) at rates varying from 50% to 85% according to the age of the company and its relationships with the Nigerian National Petroleum Corporation (NNPC). Other types of tax Nigeria Value Added Tax (VAT) in Nigeria is levied on all products and services traded within the country and payable to government at a 5% rate, one of the lowest in the world. The sale of real estate properties is subject to a 10% tax on the gains.   Source: Expat

Federal Inland Revenue Service (FIRS) has recently been issuing Notice of Refusal to Amend (NORA) assessments issued in respect of on-going tax audit exercises. This is notwithstanding that taxpayers have objected such assessment notices or that some of the issues raised by FIRS have been resolved/documented at reconciliation meetings. In letters issued to some taxpayers, FIRS demanded settlement of the alleged additional tax liabilities within 30 days of issuance of the NORA, irrespective of the level of progress made during the tax audit reconciliation process. FIRS also expressed its intention to commence enforcement actions to recover the alleged tax liabilities where these are not paid within the said timeline. While Section 69(5) of the Companies Income Tax Act (CITA) empowers FIRS to issue NORA, it only allows FIRS to do so in the event of a stalemate during the reconciliation process. This is distinguishable from FIRS’ recent practice of issuing NORA solely on the basis that tax issues have remained unresolved for at least 6 months despite reconciliation. Furthermore, there is no provision in CITA or any other relevant legislation that empowers FIRS to issue NORA only on the basis that reconciliatory processes have spanned more than a defined period. By this development, FIRS has disregarded all the time and resources invested by itself and taxpayers in resolving such pending tax disputes. Aggrieved taxpayers may consider proceeding to the Tax Appeal Tribunal (TAT) to challenge FIRS’ action/decision; thereby increasing the cost of dispute resolution, regulatory compliance and ultimately, inhibiting the ease of doing business in Nigeria. In enforcing tax compliance, it is essential that tax authorities’ actions should not deter voluntary tax compliance. We therefore expect FIRS to revisit its approach and avail taxpayers more time to close out ongoing tax disputes/audit exercises. Also, where FIRS insists on issuing NORA, it should consider issues that have already been resolved during the reconciliation phase and focus only on unresolved tax issues. In the meantime, we advise taxpayers with ongoing tax audit cases to engage FIRS to reconcile their tax positions in order to prevent any adverse decision of FIRS.   Source: Mondaq