The Finance Act 2019 brought significant changes to Nigeria’s corporate taxation landscape, impacting businesses of all sizes and industries. As a critical component of the country’s tax reforms, the Act aims to create a conducive business environment, stimulate economic growth, and increase revenue generation for the government. In this article, we delve into the key changes in corporate taxation introduced by the Finance Act 2019 and highlight essential information that businesses need to know to navigate the new tax regime effectively.
1. Reduction in Corporate Income Tax Rates:
One of the most notable changes under the Finance Act 2019 is the reduction in corporate income tax rates for companies operating in Nigeria. Prior to the Act, the standard corporate tax rate was 30%. With the Act’s implementation, companies with an annual turnover of ₦25 million or less now enjoy a reduced corporate tax rate of 20%. This measure is aimed at easing the tax burden on smaller enterprises, encouraging business growth, and stimulating entrepreneurship.
2. Minimum Tax Rate for Companies:
The Finance Act 2019 introduced a minimum tax rate of 0.5% of gross turnover for companies that are incurring losses and those with turnover lower than ₦25 million. This minimum tax ensures that eligible companies contribute their fair share of taxes to the government, even during unprofitable periods. It is essential for businesses falling under this category to understand and comply with the minimum tax requirements to avoid penalties.
3. Taxation of Digital Economy Businesses:
The Finance Act 2019 also addresses the taxation of digital economy businesses, which have become increasingly relevant in the modern business landscape. Non-resident companies providing digital services to Nigerian customers are now required to register for tax purposes and pay income tax on their profits derived from such services. This measure aims to ensure that digital economy businesses operating in Nigeria contribute their fair share of taxes.
4. Thin Capitalization Rules:
The Finance Act 2019 introduced thin capitalization rules to prevent multinational companies from using excessive debt to reduce their taxable income in Nigeria artificially. According to these rules, the interest expense on related-party loans is limited to 30% of the taxpayer’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Businesses with related-party transactions should carefully review their financing arrangements to ensure compliance with these rules.
5. Deductibility of Interest Expenses:
Under the Finance Act 2019, interest on loans utilized for the acquisition of share capital in a Nigerian company is now tax-deductible, subject to certain conditions. This provision aims to encourage investments and facilitate access to capital for businesses seeking expansion opportunities.
6. Export Processing Zone (EPZ) Benefits:
The Finance Act 2019 extended the tax holiday for companies operating within Export Processing Zones (EPZs). Companies in these zones can now enjoy a tax holiday for an initial period of three years, renewable for an additional two years, subject to meeting specific conditions. This incentive aims to promote export-oriented industries and attract foreign direct investment.
The Finance Act 2019 introduces significant changes in corporate taxation in Nigeria, impacting businesses across the board. Understanding and navigating these changes are essential for businesses to optimize their tax positions, comply with the law, and foster growth and competitiveness.
By staying abreast of the Finance Act 2019 and working with experienced professionals, businesses can effectively manage their tax liabilities, make informed financial decisions, and contribute to Nigeria’s economic development in a sustainable manner. Embracing these changes can position businesses for success in the evolving tax landscape and support their long-term growth and prosperity.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.